Monitoring→Economy→The Socioeconomic Environment

Banks and Insurance

• The National Bank of Moldova (BNM) has announced that the reference interest or basic interest rate (REPO rate) for March is 13 percent, by 1.5 percent less than in January. This is the rate paid by central bank for deposits attracted from banks within monetary policy operations. The 1.5-percent decline of reference rate certifies the reductions of interests in March both for credits in lei, and for adjustment of interest rates paid for deposits.

  “The recommendation” of BNM to commercial banks to review their policies on interest rates for liabilities was applied in practice. Commercial banks modified the interest rates for deposits and credits. For sure, the lower interest rates for liabilities may attract higher crediting and will reduce the risk of entry of speculative capitals. We can already speak about historical minimums of interest rates for deposits in lei of population.

  However, the generalization of interest rates for deposits below 13 percent will bring, of course, an evident rise of interest rates for credits, and this fact would lead to a higher consumption and resuscitation of inflationary expectations^[1]. In addition, banks will have to ensure at least two percent of deposits over inflation rate to depositors, unless there is a risk to see them refusing to save their money in banks anymore. The inflation rate in February was 2.1 percent. A 3.2-percent cumulative inflation rate was registered in the first two months of this year (January-February), and this tendency will be typical to the next months as well. However, we will see what data will show when the Department for Statistics and Sociology will release accounts on IPC for March and the first quarter in the mid-April.

  We consider that if the interest rates for deposits are really negative compared with inflation rate, they could bring a consumption growth through orientation of savings of population to other investment sectors (eventually to acquisition of real estate), which could encourage the consumption in turn. Under these conditions, the minimum interest rates for liabilities could turn against objective of ten-percent inflation. How the market will receive the new situation is very important.

  In addition, a 2–3-percent reduction of bank deposits could attract a decline of interest rates for deposits in lei. In our opinion, the interest rates for credits in lei should drop by 3–4 percent the next period. The decline could be particularly dictated by low competition in bank system, as well as by not very large investments of banks. Also, the simultaneous adjustment of interest rates for credits in lei and credits in foreign currency will increase the danger of a larger volume of credits and consumption. The reduction of interest rates could also bring a series of administrative restrictive measures for stoppage of credits.

  Finally, there are two conclusions:

  1. decline of real interest clearly leads to reduction of pro-pension of population to save money (though this fact is not observed yet, but this is an issue of time). This happens in a country where the share of savings in GDP is very low: 14–15 percent;
  2. reduction of internal savings must be compensated through a certain rate of investments and GDP growth, through a bigger call for external savings.

• Elsewhere, the chief of state sought the creation of a permanent task force at last sitting of the Supreme Security Council, which would monitor the situation in financial-bank system and would draft efficient measures aimed to eliminate the factors that undermine the financial-bank security of the state.

  The Supreme Security Council members are interested in the need to enhance the cooperation in specialized international structures and bodies of other states, in order to prevent and combat the “money laundering” phenomenon. Also, they recommend the modification of legislation in order to introduce severer sanctions against banks for illegal actions, as well as to prevent the clauses and conditions which favour such activities.

  The key problem in this regard is related to commercial banks based in the Transnistrian region. In the context, a number of measures must be taken in order to stop the external financial activity of banks in the secessionist republic, which hold no legal bank activity because they are unregistered with the National Bank of Moldova. The recent decisions of banks in Austria and other European states, which decided to break off any relations with Transnistria-based banks because they work illegally, in response to appeals of official institutions in Moldova, are welcome.

  The bank system of Transnistria comprises two state banks and nine commercial banks, which have corresponding accounts with many commercial banks in Moldova and Russia that help Transnistria hold economic relations with almost all states of the world. As for example, almost 60 million dollars was officially transferred from the CIS in 2001–2002 via Moldovan commercial banks in favour of Transnistrian banks. Also, financial inflows from Transnistria accounted for 160 million dollars. About 147 million dollars of them was used for intermediary operations, which massively took place in late 2002, having a fraudulent nature and representing what is called as “money laundering”.

Prices

• Prices of apartments rose by about six percent on average this year, in line with forecasts released by real estate experts in early 2005. The price of a one-room apartment rose from 19,300 dollars early this year up to 21,100 dollars in March. The price of a two-room apartment grew from 28,500 dollars up to 29,400 dollars, a three-room apartment is by 1,000 dollars more expensive and costs 35,000 dollars, while the price of a four-room apartment rose the most — from 41,000 dollars up to 45,000 dollars.

  Of course, these are the prices of suppliers, but transactions are usually registered with a ten-percent discount. Many real estate experts say that in general the balance between supply and demand remains constant while the forecast that prices will grow by 10–15 percent this year is still effective. They forecast that one square meter of dwelling space will cost up to 550–600 dollars by the end of this year.

  Also, the current real estate price rise hits the worst the poorest people and young families who cannot afford the price of a residence. The only solution to encourage them is to support the development of a mortgage market through better housing policies. Banks in Moldova should participate in release of mortgage loans (on mortgage credit market), the way many countries in Central and Eastern Europe do, with a ten-percent maximum interest rate (in national currency) and a 25-year minimum bank maturing period.

• Russia’s gas giant Gazprom is considering to adjust the price of natural gases sold in Moldova to European level, Alexander Ryazanov, deputy chairman of Gazprom, was quoted by Ria-Novosti news agency as saying. On the other hand, Moldova-Gaz manager Ghenadii Abaskin told a news conference that Moldova is not a subject of the European energy market and therefore no European tariffs can be introduced.

  In addition, Tiraspol announced in late March the creation of a natural gas importer separately of Moldova-Gaz. The most of analysts think that Russia had inspired and supported this initiative. The creation of such a structure will allow Moscow to implement its old plans on introduction of higher tariffs for gas exported to Moldova. However, Moldova could increase in turn the transit tariffs, which would be deducted from importation prices.

  Gazprom currently sells natural gases in Moldova for 80 dollars per 1,000 cubic metres, while its daughter firm, Gaz-Export, collects lower prices, which depend on a number of factors, including the exchange rate. In the first trimestre of this year Gaz-Export sold gases in Moldova for 68 dollars per same volume. In late 2004, Moldova-Gaz ordered 3,150 million cubic metres of natural gases from Gazexport and Gazprom for the year 2005.

Public finances

• The Finance Ministry released data on fulfilment of the state budget at a cabinet sitting. As much as 1.33 billion lei was collected to the state budget of Moldova between January 1 and March 22 this year. That is 2.2 percent more than expected in the first trimestre.

  Independent experts estimate that about 1.5 billion lei will be collected to the state budget in incomes in the first trimestre or by about 16 percent more than planned. Under the 2005 public budget law, the government planned to collect incomes in the amount of 7.47 billion lei.

  However, a financial transparency is needed in case of higher budgetary incomes than planned so that people know how the additional resources are used. Unfortunately, the Finance Ministry unveils only the operative information on revenue collection paces, not any information about use of planned and unplanned spending.

Trade

• The retail trade last February rose by 2.8 percent compared with the same period of 2004 and turned over 1,217.4 billion lei (about 97 million dollars), but the pace of growth was slower. Retailing in February amounted to 602.3 million lei, compared with 615.1 million lei in January, when the growth was 6.1 percent. The advance in the first two months of 2004 was 14.4 percent.

  Private firms accounted for 65 percent of the total retail. They are more flexible and react faster to the market demands than the state enterprise Services in the first two months of this year turned over 967.3 million lei, which is a 6.0 percent rise in comparison with the similar period of 2004.

• Moldova imported oil products — petrol, Diesel oil and liquid gas — worth over 200 million dollars in 2004, by 52 percent more than in 2003, according to data of the national agency for energy regulation ANRE. Although Moldova registered a growth of more than 52 percent in financial expression, the rise in natural expression was by about 10.2 percent. Experts explain the difference between rises through the much higher prices of fuels in 2004 — Moldova imported a quantity of fuels a little bit larger than in 2003, but for higher prices.

  The petrol imports registered the highest growth — by 19.3 percent up to 241,000,000 tons. Moldova imported petrol worth about one billion lei (81 million dollars), while the average importation price was 335 dollars a ton. The importation price was by 29.5 percent higher than in 2003.

  On the other hand, the imports of Diesel oil rose by 5.6 percent compared with 2003 up to 298,000,000 tons of Diesel oil. The average importation price of Diesel oil was 337 dollars per ton, while Moldova imported Diesel oil worth 100 million dollars. Imports of liquid gas were almost at the level of 2003, respectively 52,000 tons. Companies Lukoil-Moldova, Petrom-Moldova and Tirex Petrol imported the largest quantities of fuels last year.

Labour market

• The number of economically active population dropped by three percent compared with 2004. This is one of factors which encouraged the reduction of number of job seekers. Data of the Department for Statistics and Sociology show that the dependence rate (number of job seekers per 1,000 workers) in Moldova is on the rise. Another dangerous tendency is that the number of people who are abroad rose by 19 percent.

  Labour experts say the three-percent decline of the number of working population and official employees last year was due to a decrease of the active population and due to the fact that a part of citizens prefers to emigrate or to work in the informal sector — in both cases getting a better pay.

  According to official statistics, agriculture employees represent 40.5 percent of all workers. After 2001, when they reached the level of 50.9 percent, this share dropped significantly. In 2004, industrial workers represented 12.3 percent of all employed persons, service area people 37.2 percent, healthcare and education 13.4 percent.

  Further, 69.4 percent of the population was employed in the private sector and another 25.3 percent in the public sector. The private sector dominated in the agriculture, 98.2 percent, in trade 94.0 percent, hotel industry 84.1 percent, construction 84.4 percent, and processing industry 66.1 percent.

• The medium salary in Moldova amounted to 1,114.2 lei in February or by three percent less than in January. Its reduction can be explained through season factors, which have a constant influence in January-February of every year. The generally positive tendency is also demonstrated by the 18-percent rise of salary in nominal terms compared with February 2004.

  However, the strong inflation in the past 12 months has eroded more than 11 percent of nominal growth. The rise of salaries in healthcare sector, which were much higher than the average on country starting January 2004, is observed in the structure of growth. The introduction of the mandatory health insurance system is a factor which determined the rise of salaries.

  Although the salaries paid to certain budgetary categories rose significantly in 2004, differences remain at the same high levels, as the average wage in budgetary sector accounted for about 70 percent of salary in private sector. The real difference could be higher, if taking into account the apparently high share of “illegal” salaries in private sector.

  Huge differences were observed inside the two categories. Thus, lecturers and doctors earn salaries higher than the average on country. Differences in activity sectors did not significantly decline, as the salary paid in agriculture, for example, accounts for less than 50 percent of the average wage, while the pay in financial-bank sector is two-fold and even three-fold higher.

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