The Socioeconomic Environment

brief

Economic Policies on October 1–31, 2011

Prices and inflation

Inflation likely to meet forecasts, but not for a long time…

According to NBS data, the Consumer Price Index (CPI) in September was 100.4 percent compared with August 2011 and 108.8 percent compared with September 2010 (for information, CPI was 100.8 percent in September 2010 compared with August 2010, and 108 percent compared with September 2009). Thus, Moldova’s inflation rate for September was 0.4 percent and 5.2 percent for January-September 2011. This is a relatively acceptable rate, as Government forecasts a 7.5-percent inflation rate for this year. However, the expectations could “be balled up”, given the recent rise in natural gas tariffs and prices of many food products.

Hereby, the rise in average consumer prices in September compared with August 2011 was related to the growth of prices of manufactured goods by 0.8 percent and tariffs for public services by 0.3 percent. Or, real rises in prices and tariffs are to follow. Nevertheless, prices of season fruits and vegetables dropped the most in September, as the consumer market was abundantly supplied, and this fact marked a relative rise in prices of all foodstuffs. In particular, prices of potatoes, grapes, apples, tomatoes, onion, etc., dropped by 5.5–12 percent.

On the other hand, prices of most of manufactured goods and tariffs for public services were constant. However, prices of fuels increased by 2.5 percent (including bottled liquid gas by more than 7 percent), and building materials by 1.5 percent, etc. Tariffs for interstate rail transports decreased by 12.6 percent and for air transports by 3.2 percent in September due to the oscillation of the euro/leu exchange rate.

Incomes and spending

Moldovans spend more than 70 percent of their monthly earnings on foodstuff and housekeeping…

Latest statistics reveal that Moldovans spend three fourths or 75 percent of their earnings on food, transport, electricity and gas that means housekeeping. In fact, the share of Moldova’s spending on housekeeping and food is the highest one in Europe, as it does not exceed 40 percent in Lithuania, 38 percent in Bulgaria, compared with 16 and 12 percent in Austria and the United Kingdom respectively. Moldovans spend more than 40 percent of their monthly earnings on foodstuff. As for housekeeping, a Moldovan spent more than 25 percent of overall consumer expenses in 2010–2011 (heating season), and this is a high enough indicator.

Well, this would situation would be yet affordable for a two-member family which earns 3,000 lei each, as around 1,500 lei was spent to heat a two-room apartment last season. People in general and retirees in particular cannot afford new price rises for a simple reasoning. An old couple who earns a pension worth 1,000 lei each (in the best of cases) cannot afford the average of 850 lei. Not even the state compensation of 130 or 200 lei can help the old people, while the new announced rises in gas and heating tariffs will worsen their condition.

External trade

Exports go up, but the rise is not lasting…

Same statistics reveal that exports of goods operated in August 2011 turned over 186 million dollars, which is by nearly 3 percent more than in July 2011 and by about 55 percent more than in August 2010. Exports turned over about 1.37 billion dollars in January-August 2011, by 62 percent more than in the similar period of 2010.

Moldova exported goods worth nearly 687 million dollars to the European Union (EU-27), (by over 67 percent more than in January-August 2010), which cover more than half of overall supplies (48.6 percent in January-August 2010). CIS absorbed about 40 percent of Moldova’s exports (39 percent in January-August 2010), which means goods worth about 545 million dollars. Moldova’s exports of goods to CIS increased by 65.5 percent, compared with January-August 2010.

Exports of diverse manufactured goods ranked the 1^st place, covering more than 24 percent of all supplies. Exports of clothes and items held a heavy share in this section of goods (more than 58 percent of this section and more than 14 percent of all exports), furniture and items (more than 15 percent of this section and about 4 percent of all supplies), footwear (about 10 percent of this section and more than 2 percent of all exports). Exports of food products and living animals ranked the 2^nd place, representing more than 17 percent of overall value of exports.

Imports of goods operated in August 2011 exceeded 420 million dollars, by 1.4 percent more than the precedent month and by 39.5 percent more than in August 2010. Imports operated in January-August 2011 turned over 3.21 billion dollars, by over 40 percent more than in the similar period of 2010. Imports from the European Union (EU-27) exceeded 1.43 billion dollars (by 39 percent more than in January-August 2010), covering about 45 percent of all imports (like in January-August 2010). Moldova imported goods worth about 1.036 billion dollars from CIS (by over 43 percent more than in January-August 2010), which is equivalent to over 32 percent of all imports (31.5 percent in January-August 2010).

Imports of vehicles and transport equipment exceeded 22 percent of all imports. Imports of power appliances held an important share in this section (27.7 percent of this section and 6.2 percent of all imports), traffic vehicles (24.0 percent of this section and 5.4 percent of all imports), machines and appliances for specific industries (15.6 percent of this section and 3.5 percent of all imports), etc. Imports of mineral fuels, lubricants and related materials covered 21.5 percent of overall imports. Oil and oil products represented more than 56 percent of this section and 12 percent of all imports, and gas and industrial products made of gas exceeded 38 percent and 8 percent respectively.

The major difference in evolution of exports and imports fuelled a trade balance deficit worth over 1.842 billion dollars in January-August 2011, by 395 million dollars (27.3 percent) more than in January-August 2010. Moldova’s trade deficit with the European Union (EU-27) was about 748 million dollars (618 million dollars in January-August 2010), and more than 491 million dollars with CIS (more than 393 million dollars in January-August 2010).

Tax policy

Indirect taxation methods to be enforced…

Despite contradictory opinions regarding the application of indirect taxation methodsRO in Moldova, authorities kept working in this direction and the methods will be enforced next year. The Government approved a draft amendment and completion to the Tax Code, which sees the introduction of indirect taxation methods and their enforcement on January 1, 2012.

Under the approved bill, the indirect methods for estimation of taxable income of individuals are “methods to calculate the taxable revenue estimated under an analysis of fiscal condition of individuals by using information from more sources than fiscal reports by individuals concerned.” Subjects to the estimation are individuals who are residents, citizens of Moldova, do not conduct any business and:

during a fiscal year get assets (real estates, securities, transports, currency) worth more than one million lei altogether, except for individual owners of real estate which is being built until January 1, 2012 and certified with the cadastral organ before this date;
operate during a fiscal year individual expenses other than indicated above which exceed 300,000 lei.

According to Minister of Finance Veaceslav Negruta, the purpose of the indirect taxation methods is to make everybody equal in front of law. “All citizens who earn in Moldova must honour their fiscal obligations. Unfortunately, the fiscal burden is now on shoulders of salary earners, while those who have other incomes than wages are not controlled by fiscal bodies”, he explained.

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