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Economic growth of conjuncture
Iurie Gotisan, November 9, 2005

President Voronin has recently attended an ordinary cabinet sitting and bitterly criticized the executive, indicating in particular the low quality of economic growth, lack of initiative and poor execution discipline. However, an economic growth of 8.6 percent was registered in the first half of this year, and 2005 could be one of the best years of Moldova in the dynamic of Moldovan economy after the 1990s, if this trend remains stable. On the other hand, the present trend of economic growth is not sustained and this rise pace will be unlikely maintained.

We will try further to explain what we have said and to make eventual forecasts. Firstly, a very good agricultural production, a consumption boom, and a high development pace of construction sector marked the economic growth.

In addition, if to consider economic growth factors in the latest period minutely, we observe that the base is not strong. The agricultural year 2004 will not repeat, because it was due to the favourable climate, rather than to agricultural policy. Consumption is very high, being mainly fuelled by remittances from people who work abroad, and as a result, it encourages imports, while constructions were also recovered from the money sent by Moldovans as well, if speaking frankly.

Indeed, nothing has changed from structural point of view. Agriculture remained undeveloped and extensive, and this sector mainly depends on God's will, it means on meteorological conditions. In addition, statistics show that agriculture contributes with 22 percent of the annual value of Gross Domestic Product, though almost 45 percent of economically active population is employed in this sector. Massive imports have a negative reflection in current account deficit (6.7 percent), while financing of constructions is not programmatic and sustained, but rare, and it rather depends on international labour market.

This is the reality, and the following question would appear here: do we have a recipe of a healthy economic growth? Probably... Moldova needs a constant annual economic growth of 8-9 percent, while the third sector, it means of services, must be the main rise motor. Yes, but official statistics indicate an attractive enough service sector (about 53 percent of GDP). Nevertheless, how to explain their weak presence in the economic growth recipe?

Services that create the high value-added - paid salaries, fees and taxes, amortization and profits afferent to sold production - are clear services starting with a simple vulcanization to insurance, bank services, etc. However, services mean in our country intermediations, which transfer values from public sector to individuals rather than produce.

On the other hand, the difficulty to pay salaries to teachers, doctors, farmers is an alarming element related to economic growth despite of its high pace. Statistics say again that salary arrears are estimated at about 150 million lei. What is the explanation?

Let's study the draft state budget law for 2006. We think that the mechanism of priorities in this document was not considered well. Effects of economic growth went on social salaries rather than on social policy elements or larger amounts should be allocated from budget for investments. As for example, the share of capital investments is the equivalent of 5.7 percent of the spending planned from this budget or 1.3 percent of GDP for 2006. Political and electoral reasons made a large part of the public budget focus on social payments typical to a maintained, assisted population.

As a result, the economic potential is devaluating, while public budget is becoming poorer. It means that it will fail to meet vital requirements of economy and international obligations that we have assumed, obligations that mean money, obligations that President Voronin has spoken about at the cabinet sitting. The truth is that relations, rather than the contract as economic tool works in our country, and they often get aspects of political clienteles. This kind of relations unfit a free market, it means those who became rich on basis of these ties are interested to delay the reforms, which would qualify us for the European Union and would stop the social assistance of a large part of population.






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