Economic Policies on September 27 – October 17, 2004

Moldova in the world

Foreign investments shun Republic of Moldova

Recently United Nations Conference on Trade and Development released its world investment report on 187 countries. The report made use of new indicators to better reflect on various nations ability to attract and “digest” foreign investments. Republic of Moldova ranks 110th following Ecuador, Mozambique, and Guinea, but has a much better position than Ghana, Sri Lanka and Mali. Last year Moldova ranked 109th out of the 140 countries included in the report.

Foreign direct investments (FDI) in Moldova amounted to 790 million USD at the end of 2003. In 2003 FDI dropped by 50% over 2002, i.e. 58 million USD. One of the most important findings of the report is that total global FDI shot down by 50% in 2003. Republic of Moldova ranks 25th on inward FDI performance indicator, as compared to 18th last year. Nevertheless, Moldova has the best rating for this indicator among CIS countries.

Studies conducted by various international agencies paint a less robust picture than UNCTAD report. According to ERBD, business environment together with relations between state and business, push Moldova to the last position among the 26 countries in transition to market economy. As for business environment, in Moldova it is characterized by institutional sub-development and inappropriate legal framework. That is why the FDI inflow in Moldova is very low, worryingly illegal capital outflow is gaining grounds, even if it is quite difficult to assess the total outflow. Independent experts say total FDI in the last decade are much lower than money laundered through Moldova.

Macroeconomic policies

Foreign currency reserves swell together with foreign debt

As of September National Bank’s foreign reserves were estimated at 347 million USD. Increase of reserves was made possible by National Bank’s purchase of foreign currency on the interbank market. In the second quarter National Bank purchased 52.1 million USD on the domestic market to fill the foreign currency reserves. Reserves consist of liquidity and deposits — 268.7 million USD, including in other Central Banks — 111.99 million USD and foreign banks — 156.7 million USD. The Bank holds 77.6 million USD in securities. It also holds special drawing rights worth 79.6 thousand USD and reserves worth 7.3 thousand USD.

On August 31, foreign debt (guaranteed by the state, excluding the debt on imported natural gas) amounted 855.5 million USD, it dropped over the month by 1.86 million USD. And that because debt worth 5.82 million USD was reimbursed. On the other hand, 1.25 million USD were spent from the previously contracted foreign credits. While the appreciation of USD against other currencies has further swelled the foreign debt by 2.72 million USD. Total arrears, including those in the previous years, amount to 34 million USD. According to National Bank, private foreign non-guaranteed debt is worth 447 million USD.

Transfers from abroad and competitiveness

For some years now the transfers from abroad (money sent by Moldovans working abroad) have been constantly growing. According to some unofficial sources in 2003 they reached 800 million USD, while others say even 1 billion USD. Those money fuel domestic consumption and ensure social stability for many families by keeping them afloat.

Foreign currency market has been over flooded since the beginning of the year, while trade deficit has neared 800 million USD (in the first months of the year, trade deficit registered 440 million USD), i.e. 30% of GDP, while current account deficit is well over last year, i.e. 5.6%. Currently, capital inflow exceeds by far the amount needed to finance current account and capital account, which enables National Bank to fill its foreign currency reserves. Capital inflow includes transfers from abroad, direct foreign investments, and speculative capital lured by high interest rates.

The well-paid jobs Moldovans have abroad are similar to boosting domestic productivity. In the eyes of many experts if Moldovans were to stay home they would wield a heavy pressure on wage payment and would definitely enlarge the number of unemployed. It is possible that some exports have indeed surged, being bolstered by low labour cost, however it is very unlikely that they exceed the millions of dollars transferred by Moldovans working abroad. Noteworthy, money transferred from abroad equal half of the trade deficit.

Trade

Trade deficit surging

In the eight months of the year, Republic of Moldova’s trade deficit reached 447 million USD, a 34.3% increase over 2003, reports Statistics and Sociology Department in its latest study on the evolution of foreign trade over January — August. Albeit, deficit has surged in 2003 at a slower pace than in 2003 (36.2% growth), experts say the gap between imports and exports is still too high. The gap has widened even further in August by yet another 67.2 million USD. In August goods and services worth 140 million USD were imported into the country, a 5.3% drop as compared to July; while exports reached only 72 million USD, a drop by 11.3% over previous month.

According to official statistics, ratio of exports covering imports in the eight months of the year reached 57.5% over 58.5% in the same period 2003. Moldova’s trade deficit with EU countries reached 163.5 million USD, CIS — 153.7 million USD, Central and Eastern Europe — 45.4 million USD, and other countries — 83.7 million USD. Moldova has registered the highest trade deficit with Ukraine 222 million USD, largely due to the imports of energy and raw materials.

In January — August 2004, Moldovan foreign trade amounted to 1672.7 million USD. Moldova’s export of goods and services reached 613.2 million USD, a 30.5% growth over the same time last year; whereas imports 1059.5 million USD, 32.3% over the same time last year. Government forecasts exports worth 900 million USD this year and imports worth 1,525 million USD, with a 625 million USD deficit. Experts have their own takes on the subject, they predict that imports would grow at a faster pace (26.3%) than exports (22.8%), therefore in the end trade deficit would reach 810 million USD.

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