Economic Policies on October 26 – November 7, 2005

Financial-bank sector

Interest rates are on the decline…

The governor of the National Bank of Moldova (BNM) has told a meeting with functionaries of commercial banks that the central bank will not apply administrative methods in order to reduce interest rates on credits of commercial banks. The economic theory says that the money has a real price on market like other goods, while banks would not accept to give it to businesses for the same price, following their own profit first of all.

On the other hand, banks are interested in the bank client service margin, rather than in size of interests, which cannot be inferior to real conditions of the market — consumer price index (CPI) and monetary inflation. Moldova registers the lowest interest rate in the region this year — 4.9 percent in January-September.

CPI plus bank margin must make up the interest rates on credits that banks release to real sector of economy. The average bank margin after 2004 was 6.7 percent, so that real interests on credits must be now 12–14 percent.

Interest rates on credits granted by banks in Moldova registered a constant decreasing trend the past 2–3 months. This trend was actually observed at the same time with reduction of interest rates on deposits. The commercial bank Moldova Agroindbank lowered the interest rates for four types of credits granted to individuals down to 15 percent a year in early November.

President Voronin, who addressed the business forum “Investment Climate In Moldova” last September, admitted that foreign banks have tried to enter the country. He accused domestic banks of halting the development of Moldova, so that authorities will have to look for a strong, transparent bank to grant credits for an annual rate of 5–6 percent, since local institutions offer loans for interest rates of 20–21 percent.

Russian bank interested in bank institutions of Moldova…

The Russian bank Vneshtorgbank has recently posted intention to acquire a financial-bank institution in Moldova. This bank entity also targets at credit institutions in Belarus and Kazakhstan, and at Ukrainian banks Ukrsotbank or Ukrsibbank, with total assets worth about 3.6 billion dollars.

Governmental sources and BNM officially contest the fact that Vneshtorgbank is trying to enter the domestic market. BNM governor Leonid Talmaci has recently said that the central bank did not receive any applications from foreign banks.

Assets of commercial banks in Moldova are on the permanent rise…

According to data of BNM, total assets of commercial banks in Moldova rose by 22.3 percent in nine months of 2005, up to 16.26 billion lei (some 1,289 billion dollars).

The net income on bank system of Moldova rose by 10.5 percent compared with the similar period of 2004, up to 351.6 million lei. Deposits of population increased by 30.7 percent, up to 6,348 billion lei, while deposits of businesses rose by 21.9 percent, up to 5,317 billion lei.

The average rise of credit portfolios of commercial banks in Moldova accounted for 18.2 percent, up to 8.55 billion lei. About 48 percent out of the total number of credits went to industrial and commercial enterprises, 25.6 percent to agricultural businesses, 7 percent to companies dealing with sale of real estate, constructions and territorial development.

Profitableness of assets (RA) and shareholder capital (RC) accounted for 3.2 percent and respectively 17.3 percent in late September, by 0.5 percentage points less than in early 2005. Liquidity of banks remains, however, at a high level. The long-term liquidity coefficient (PI) was 0.6 (the norm is below 1.0), while current liquidity coefficient (PII) was 36.1 (norm is over 20.0).

Public finances

Budget collections continue to grow…

Although the share of income tax was reduced in 2005, the state budget collections continue to grow. Incomes of 6.27 billion lei (496.9 million dollars) went to the state budget in January-October 2005, by 427 million lei or 7.3 percent more than planned, and by 1.96 billion lei or 45.4 percent more than in the similar period of 2004.

Collections to budgets of administrative territorial units accounted for 1.54 billion lei in the first nine months of 2005, by 50 million lei more than planned and by 110 million lei more than in January-September 2004. Transfers from state budget to budgets of administrative territorial units were performed 100 percent and amounted to 1.07 billion lei in the period concerned.

Revenues of 2.33 billion lei went to state social insurance budget in the first ten months of 2005, by 7 million lei more than planned and by 402 million lei or 20.9 percent more than in the similar period of 2004.

Insurance taxes worth 352 million lei (98.8 percent) went to the mandatory health insurance budget in January-October 2005, compared with 357 million lei planned, but by 96 million lei or 37 percent more than in the similar period of 2004.

Labour market

Medium salary in budgetary sector is on the decline…

The medium salary in budgetary sector accounted for 981 lei (78.5 dollars) in September, and dropped significantly compared with the precedent month, while average salary in real sector amounted to 1,521.6 lei. Thus, the salary of budgetary employees dropped for the third month in a row, after this indicator decline by 181 lei in July and 62.8 lei in August. The medium salary on economy accounted for 1,341.7 lei in September, by 3.5 lei less than the precedent month.

In particular, the average salary paid to employees of financial sector declined by 755 lei in September, down to 2,892 lei. The average wage of doctors and social assistants dropped by 48 lei, down to 996 lei, while doctors earned 878 lei, by 66 lei more than in August. The lowest salary in September was paid to farmers — 795 lei, by 91 lei more than in August. According to data of the Economics and Trade Ministry, salary arrears in real sector of economy turned over 132.2 million lei (10.5 million dollars) on July 1.

Moldova in the world

World Bank is becoming more generous with Chisinau…

The World Bank has approved a 9.8 million dollars Competitiveness Enhancement Project (CEP) for Moldova. The approved amount represents a 4.9 million dollars credit and a 4.9 million dollars grant. The credit is released on basis of conditions of the International Development Association (IDA) for a 40-year period, including a 10-year grace term, and a 0.35 percent preferential interest rate (in case of Moldova), compared with usual interest of 0.75 percent.

This project was worked out at the initiative of the Moldovan Government within the Economic Growth and Poverty Reduction Strategy Paper, and it aims to enhance competitiveness of Moldovan products through a better business climate, modernization of the national standards and quality MSTQ System, modernization of measurements, standards, testing and quality system, new equipment, facilitation of enterprise access to MSTQ services; facilitation of access to finance.

The total cost of the four-year CEP Project is 14.3 million dollars. In addition to the World Bank credit and grant, the Government of Japan will also finance the project. Since Moldova joined the World Bank in 1992, Bank commitments to the country total approximately 592 million dollars for 64 projects.

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