Economic Policies on January 3–16, 2005

Prices

In 2004 cumulative inflation rate in Republic Moldova reached 12.5%, 2.5% above the Government forecasts. In December a 1.6% inflation was registered.

Initially state budget for 2004 provided for a 4.5% inflation, however later once data on the evolution of Moldovan economy in 2003 were released, Ministry of Economy adjusted the figure to 10%.

Over 2004 prices on food rose by 13.1% as compared to December 2003. Prices on non-food goods rose on average by 11.9%.

Consumer price index on services surged by 11.8% over December 2003. Tariffs on telecommunications went up by 29.4%, medical services by 23.9%, and fuel by 23.2%.

In 2003 inflation rate reached 15.7%, as compared to 4.4% in 2002, and 6.3% in 2001. National Bank of Moldova and Government forecast inflation rate below 9% for this year.

Year	1994	1995	1996	1997	1998	1999	2000	2001	2002	2003	2004
Average annualized inflation	104,6	23,8	15,1	11,2	18,1	43,7	18,4	6,3	4,4	15,7	12,5

Sourse: www.bnm.org

Public finances

Revenues to the consolidated budget of the Republic of Moldova amounted to 7 billion 521 million Lei in 2004, 1 billion over 2003. 101% revenues were levied to the state budget, while 99.9% expenditures. The 125 million surplus was used for servicing foreign debt. Also in 2004 1 billion 253.8 million Lei, i.e. 103.5 million USD, were spent on foreign debt — 22.7% of the total revenues to the state budget.

Taxes accounted for almost 53% of the budget revenues, while the rest came from customs. Last year State Fiscal Department levied 825 million more taxes than in 2003, while Customs Department 638 million more than in 2003. Income tax levied from businesses surged by 35%, while from natural entities by 28%.

Administrative-territorial units accrued revenues at 108.5%, 226.2 million over what was planned, while expenditures at 97,1%. According to preliminary estimates as of December 31, 2004 territorial units had 323.9 million Lei unspent on their accounts.

Banking and Insurance

In the 11 months of 2004 banking sector showed positive signs, tier 1 capital registered 2 billion 403.8 million Lei, i.e. 18.5% over early that year. Tier 1 capital is formed in order to minimize any eventual banking fluctuations. Currently, National Bank set the minimal quota of the said capital at 40 million Lei for A-licence banks, 80 million for B-license and 120 for C-license respectively.

In the 11 months of the year commercial banks’ assets increased by 25%, to 12,849.3 million Lei, while the shareholder’s capital by 17.1%, to 2,526.3 million Lei. Banks’ liquidity surged by 25.7%, to 688.4 million Lei. Nevertheless the share of foreign investments in the registered capital of the commercial banks dropped to 52.6%. At the end of 2003 the index was 60.2%.

The net revenues of the banks amounted to 407.5 million Lei, while profitability of assets and that of shareholders’ capital reached 3.97% and 18.85% respectively. National Bank reported that the banking system liquidity was high, reflecting banks’ ability to meet current and long-term obligations.

Deposits that had surged by 30.5%, to 8,959.3 million Lei in 11 months, including growing deposits by natural entities by 36.1%, to 4,578 million Lei, are yet another evidence of the growing confidence in the banking system.

Trade

In the 11 months of the year trade balance deficit was estimated at 690 million USD, outstripping Government forecasts of a 625 million USD deficit for the entire year.

In November the record high deficit during the yea was registered, i.e. 92 million USD, getting close to the highest ever 106.8 million USD deficit registered in December 2003.

Official statistics reports that in the 11 months of the year Republic of Moldova registered a positive trade balance only with Russian Federation amounting to 135 million USD, whereas the highest deficit was registered with Ukraine, i.e. 330.3 million USD. Similarly Moldova registered soaring trade balance deficit with Poland, France, Germany, Romania and Turkey.

In the last two years the trade balance deficit swelled by 30%. Economy watchers say no upturn is to be expected this year. Previously, Minister of Economy Marian Lupu stated that despite the 9% growth of exports expected this year the trade balance deficit was set to soar to 770 million USD?!

Sourse: www.bnm.org

Moldova in the world

Republic of Moldova ranks 77 out of 161 countries in the 2005 Index of Economic Freedom produced by the Heritage Foundation.

The 2005 Index of Economic Freedom measures 161 countries against a list of 50 independent variables divided into 10 broad factors of economic freedom: Trade policy, Fiscal burden of government, Government intervention in the economy, Monetary policy, Capital flows and foreign investment, Banking and finance, Wages and prices, Property rights, Regulation, and Informal market activity.

Moldova scored 2 points for trade policy, 2.6 for monetary policy, 2.0 for Government intervention in the economy, 4.0 on capital flows and foreign investment. The scores range from 1 to 5, the higher the score on a factor, the greater the level of government interference in the economy and the less economic freedom a country enjoys.

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