Economic Policies on August 30 – September 12, 2004

Moldova in the world

Republic of Moldova’s economic security

In a recent report by International Labour Office (ILO) “Economic Security for a Better World” Republic of Moldova ranks 43rd with a 0.495 point rating, i.e. low economic security level. Seven different criteria were used in developing the report, in particular job market, social security, etc. In the context of the Central and Eastern Europe and CIS, the report reads that the situation in Republic of Moldova, Azerbaijan, Russia and Ukraine is worse-off than the official statistics data. Eastern Europe is viewed as a region having a lower economic security recently.

According to the ILO’s estimates, Republic of Moldova follows Russian Federation and Belarus but outruns Romania. Sweden has the highest rating (0.977 points) followed by Finland (0.947 points) and Norway (0.926). The report includes estimates for countries representing more than 85 per cent of the world’s population, and says such economic security -coupled with democracy and government spending on social security — not only benefits growth but can also promote social stability.

According to another ILO report released in 2003, workers in the Republic of Moldova work 500 hours more than their EU colleagues. Under Moldovan Labour Code total work hours per year amount to 2,000 hours, while in Germany and France no more than 1400–1500 hours. Finally, according to a study by European Employers Federation Moldova has the lowest average salary, i.e. 0.32 Euro per hour, only 1.14% of the maximal European salary; and the lowest GDP per capita of only 230 Euro.

Trade

Deficiencies in the foreign trade

According to the latest report of the Statistics and Sociology Department, trade deficit is growing and has reached 380 million USD in the seven months of the year. In January — July exports grew by 33.4% and have outran imports that increased by 31.5%. Albeit exports grew faster than imports, trade deficit swelled by 28.9%, whereas the ratio of exports covering imports has reached 58.8% in the seven months of the year.

In the same period Republic of Moldova registered a trade deficit with EU countries — 135.1 million USD, with CIS — 129.3 million USD, Central and Eastern Europe — 37.1 million USD and with other countries — 77.6 million USD. Moldova has the highest negative balance with Ukraine, worth 189 million USD. Experts explain this trend by the growing imports of energy, raw materials and other goods. In January — July 2004, Moldova’s foreign trade reached 1461.7 million USD. Moldova’s exports of goods and services amounted to 541.3 million USD, whereas imports 920.4 million USD.

Government forecasted for this year exports worth 900 million USD and imports worth 1,525 million USD, and a 625 million USD deficit. Independent experts have their own takes on the subject. According to their forecasts, imports would continue to grow at a faster pace (26.3%) than exports (22.8%) and therefore the trade balance deficit would reach 810 million USD by the end of the year.

Macroeconomic policies

Macroeconomic forecasts

Government counts on a 5% economic growth throughout 2005–2007, according to Mid-term expense estimate for 2005–2007 (MEE), published in September “Official Monitor”. A tentative forecast for 2005–2007 developed by the Ministry of Economy reads that in case of the moderate scenario a 5% annualized economic growth is to be expected, as well as a 5% inflation drop by 2007 and slow depreciation of the exchange rate to 15.8 Lei per USD by the end of 2007.

According to the same document in 2005 GDP would reach 34.9 billion Lei, in 2006 — 38.8 billion, and 42.8 billion Lei in 2007 (currently 1 USD~12.12 Lei). A 8.9% inflation rate is forecasted for 2005, 6.9% for 2006 and 5.5% for 2007.

Exports would surge to 1.02 billion USD in 2005, 1.14 billion USD in 2006 and 1.265 billion USD in 2007. Imports of goods worth 1.632 billion USD is forecasted for 2005, 1.73 billion USD for 2006 and 1.825 billion USD in 2007.

Ministry of Economy says this is a tentative forecast, which might be adjusted later on, as was the case with the 2004 forecasts. While developing the budget for this year a 5% economic growth and a 4.5% inflation rate have been used, later on however the figures were adjusted to 8%, and 10% respectively. Draft budget for 2005 is based on a 6% economic growth, one percent above the MEE’s tentative forecasts.

GDP estimated for the first half of the year surged by 6.1% in real terms over same period in 2003, more than one point above Government predictions. Given the record high cereal harvest and high expectations over the overall harvest, no one doubts that Moldova would indeed register a 6% growth this year. At the same time, despite this growth inflation rate for the first half of the year was 13.3%, Moldova ranking the second among CIS countries, closely following Belarus with 20.3%. Anyway, data on the GDP evolution in the six months of the year handily outstrip all the forecasts, be it domestic or foreign, on the evolution of Moldovan economy this year and this largely due to the boom registered in the second quarter. Noteworthy, great many international financial institutions forecasted a 5% growth for Moldova this year.

e-democracy.md