The economic situation in the Transnistrian region is worse than on the right bank of the Dniester

The convergence indicator was 1.9 p.p. lower than in Q3 2015 (100 means full convergence), signalling structural divergence. Capital formation fell by about 15% in Q1 2016, three times more than on the right bank, and imports dropped further because of sharply reduced incomes. In 2015 the Transnistrian economy contracted by 20.2%, against 0.5% on the right bank, where a floating exchange rate (25% depreciation) cushioned the shock. On the left bank, the fixed rate of the “Transnistrian rouble” to the US dollar and dependence on certain industries worsened the situation.

Foreign currency reserves of about USD 11-12 million cannot cover even a week of imports, so the fixed rate is unsustainable. Ahead of the presidential elections, the authorities may opt for administrative restrictions. Adrian Lupușor, Executive Director of Expert-Grup, says these will not solve the problem of low competitiveness; he advocates gradual depreciation, a better business climate, infrastructure investment and implementation of the economic provisions of the EU Association Agreement.