Economic Policies on August 31 – September 12, 2005

Prices and inflation

Prices of fuels have exploded again…

Filling stations in Moldova carried out last week the most important rise of gasoline and Diesel oil prices this year. The gasoline prices rose by about 16 percent while prices of Diesel oil grew by over 6 percent. Prices of fuels rose significantly though Premier Vasile Tarlev attended a sitting with importers of oil products on September 5 and opted for reexamination of the functioning regulation of oil market, in order to simplify it and to establish some clear rules in this sector. The prime minister proposed that all taxes for sale of oil products at filling stations be reduced to maximum and amalgamated in order to facilitate their administration.

…factor which could lead to a higher inflation

Importers of oil products motivate the price rise through higher prices at international exchanges. They do not rule out a new rise of fuel prices soon. Of course, the way the international oil quotation will change would represent a concern for inflation rate in Moldova, since the gasoline and Diesel oil influence almost all prices included in calculation of this rate and, respectively, of costs of finished production, which will finally affect the common consumer as well.

…though it accounted for only 0.2 percent in August

According to data of the National Bureau for Statistics (BNS), the inflation rate for August was 0.2 percent. A 3.7 percent cumulated inflation rate was recorded for January-August 2005. The consumer price index (CPI) for food products dropped by 0.6 percent, while CPI for manufactured goods rose by 1.3 percent, and tariffs for services granted to population grew by 0.3 percent.

Public finances

Government forecasts a 6.5-percent growth for 2006

The Finance Ministry has recently unveiled the first version of the draft budget law for 2006. Thus, the draft stipulates about 9.68 billion lei (some 770 million dollars) in incomes and almost 9.78 billion lei (some 778 million dollars) in spending. The Finance Ministry made these calculations by taking into account that the Gross Domestic Product (GDP) will grow by 6.5 percent in 2006 compared with 2005, and a 10-percent inflation rate is expected.

The prime minister said when the draft budget law for 2006 was unveiled that the fiscal policy for next year must be optimised including through introduction of the single agriculture tax in the entire country. Also, the executive proposes to exempt agricultural producers from income tax for maximum five years, to create funds for subsidizing of zoo-veterinary sector and sugar making sector.

Financial-banking system

Appreciation of leu led to a lower foreign debt…

The state-guaranteed and public foreign debt dropped by 15.7 million dollars in July due to appreciation of the dollar verso other currencies and of the leu verso dollar, with the difference of exchange rate reaching, for example, 4.78 million dollars. Debts in dollars had an important share in the structure of public foreign debt.

…but exporters will suffer, however

Of course, this is not a bad news on one hand, the composition of Moldova’s foreign debt, mainly in dollars, would be an advantage for its reimbursement at a very favourable exchange rate. On the other hand, the appreciation of the leu verso dollar will affect exporters who will raise lower incomes from export, while imports will grow, increasing the trade deficit this way, a deficit which is very high under the current market juncture. Risks in such a direction are huge and visible enough.

Statistics of the National Bank show that the private foreign debt not guaranteed by state accounted for 479.4 million dollars in July, compared with 480.3 million dollars in June. About 121 million lei (21 million dollars) was spent from the state budget in the first half of 2005 for the foreign debt service, of which 10.8 million dollars represents direct reimbursement of the government’s debts toward foreign creditors, and 10.2 million dollars is interest for foreign loans.

Foreign trade

Trade deficit turned over about 600 million dollars in January-July 2005…

Moldova’s trade deficit turned over almost 600 million dollars after seven months of this year, by over 220 million dollars or 1.6-fold more than in the similar period of 2004.

…mainly provoked by weak capacity of external competition of the country

Trade deficit also exceeded Moldova’s exports in January-July 2005, estimated at about 595 million dollars. This is a strange situation when deficit is larger than exports, and perhaps few countries face such a situation. This state of things indicates an inefficient domestic market and a weak capacity of the country in general to external competition.

…on background of massive imports

Moldovan exports rose by only 10 percent in the first seven months of this year, while imports grew by about 30 percent, up to some 1.2 billion dollars. The imports/exports coverage level is already below 50 percent, amounting to 49.8 percent in January-July 2005, compared with 58.8 percent in the similar period of 2004. Imports from Central and Eastern Europe rose by over 39 percent, supplies from the European Union grew by 30.2 percent, and exports from the CIS increased by 20.2 percent.

Labour market

Almost half of economically active population performs agricultural works…

Most of Moldova’s economically active population works in agriculture. About 43 percent out of 1.4 million citizens employed in national economy worked in agriculture sector in the first six months of this year. Data of BNS show that 12 percent of population was working in industry, 11.8 percent in trade, and 12.5 percent in healthcare and education system.

…while the highest employment rate is registered among graduates from special secondary education

Almost half of employees (48 percent) work in private enterprises, while about 24 percent of citizens work in public sector. The highest employment rate is registered among graduates from special secondary studies — 48 percent, while graduates from institutions of higher learning count for 16.1 percent. As many as 96,000 job seekers were officially registered in early July, by 8.7 percent less than in the similar period of last year, while unemployment rate was 6.6 percent. About 56 percent of job seekers are men. The average joblessness period is 25 months.

Moldova in the world

Moldova loses ground regarding human development index (HDI)

According to the 2005 U.N. Human Development Report, Moldova is ranked the 115th place regarding the human development index (HDI), descending two places compared with last year. The decline was mainly due to reduction of incomes per capita compared with the purchase power, while the other key dimensions of HDI such as life expectancy and education remained at the same level. Moldova is ranked the 143rd place among 177 countries as regards income per capita.

Moldova is ranked after Mongolia and before Honduras. In comparison with other CIS member countries, Moldova is the second but last, before Tajikistan, which is ranked the 122nd place among 177 states. The human development in member states of the CIS and South Africa degraded the most. In particular, the 2005 report shows that the Russian Federation lost 15 positions, Ukraine descended 17 places, while Tajikistan lost 21. Romania climbed five places up to the 64th.

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