Economic Policies on November 22 – December 5, 2005

Prices and inflation

Prices of dwelling estate are on the permanent rise…

Prices of dwelling estate in the Chisinau municipality rose by about 30 percent in January-October 2005, almost two-fold higher than estimation of real estate analysts, who forecasted rises of 15–20 percent early this year. The causes of the rise remained the same: remittances from abroad continue to fuel the demand for real estate, which exceeds the growth paces of the supply.

As for example, a one-room apartment evaluated by real estate agencies cost 24,700 dollars on average in early November (by 28 percent more than early this year), a two-room apartment was worth 35,600 dollars (+26 percent), a three-room apartment cost 43,600 dollars (+28 percent), while a four-room apartment was worth 50,100 dollars (+21 percent).

On the other hand, experts say that the real estate sector will enter an amorphous period or a freezing of prices on winter, but they also admit possible slow price rises in dependence of the inflation dynamic.

Main factors that influenced the inflation in 2005:

the price of crude oil on international markets;
the rise of prices of food products, vegetables, fruits;
and growth pace of consumption;
rises of salaries.

Forecasts for 2006 are not optimistic because of:

some unionist pressures, which will lead to eventual salary rises;
the international price of crude oil;
parity (relation) euro/dollar;
some administrated price rises.

The inflation rate in October was 1.5 percent, while the cumulated inflation rate for January-October was 6.5 percent.

Labour market

Medium salary on economy rose by 19 percent in the first 10 months…

The monthly medium salary of a worker in the national economy (enterprises with at least 20 employees) accounted for 1,265.2 lei (100 dollars) in January-October 2005 and rose by 19 percent compared to the similar period of the precedent year. The average salary in the budgetary sector amounted to about 981 lei, while the medium earning in the real sector of economy accounted for 1,412 lei.

As usually, employees of the financial-bank system earned the highest salaries — 3,177 lei, workers in the electricity, heating, water and gas providing complex were paid 2,450 lei, builders earned 2,158 lei, while workers in transportation and communication sector earned 2,144 lei. The lowest salaries were paid to workers in the agriculture sector — 807 lei on average.

Financial-bank sector

An eventual economic crisis could gravely affect the bank system…

A report (Transition Report) released by the European Bank for Reconstruction and Development (EBRD) shows that Moldova and Ukraine run the highest risk to combine the weak bank system with macroeconomic crisis among former members of the USSR.

EBRD experts fear that these countries could be exposed the most to a grave bank crisis, which traditionally involves massive turnoffs and, eventually, assistance from the Government, if the growth pace slows down. However, the small volume of credits granted by banks and compared to dimensions of economies would ease the task of governments to help banks in case of a financial crisis.

Unlike Moldova and Ukraine, financial-bank institutions in Russia and Kazakhstan can increase their assets due to “dollars for petrol,” which these countries could use to solve eventual problems in case of need.

Experts say that the lack of transparency is the main problem of banks in the region and almost all the 12 countries in the CIS area have an underdeveloped bank system and run different risks. The intensification of the bank control through reasonable administration and development mechanisms of the market must become a priority for central banks.

Moldova is ranked the 2nd place in the world as regards share of remittances in GDP…

According to the annual report of the World Bank Global Economic Prospects — GEP, the Republic of Moldova is ranked the 2nd place in a world top on share of remittances in GDP after Tonga, which holds a share of 27.1 percent.

The countries where remittances represent the largest share in GDP are: Tonga (31 percent), Moldova (27.1 percent), Lesotho (25.8 percent), Haiti (24.8 percent), and Bosnia-Herzegovina (22.5 percent). The officially repatriated amounts at the world level exceeded 232 billion dollars in 2005. The report developers suggest that remittances through informal channels could represent another half of the officially estimated amount.

Besides the growth of consumption of families of migrants the constant currency inflow of remittances may increase the estimation of a country in case of foreign credits, according to the report. “The remittances represent hardly earned revenue, which was taxed in most of cases and, therefore, they must not be taxed again, while governments must not consider them as a development aid,” says the chief economist of the World Bank, Francois Bourguignon.

but they surround business so far…

According to a study themed “Remittances of Migrant Workers: Optimisation Opportunities” worked out by the International Organisation for Migration and the Food Security Programme of the European Union, only 1.5–4.8 percent of the money transferred by Moldovan nationals who work abroad is invested in business. More than 70 percent of remittances go to current needs: acquisition of household appliances, clothes, payment for public services, etc.

Remittances of Moldovan nationals who work abroad rose from 7.1 percent of the GDP in 1998 up to 27 percent of the GDP in 2004, and they exceeded 700 million dollars, according to official sources. The number of migrants included in the base of calculation is estimated at about 570,000 persons or 39 percent of the Moldovan population capable of work.

Taking into account the opinions of participants in the social dialogue Government-unions-employers, the study developers offer some recommendations aimed to attract remittances in investments by completing main legislative documents on migration with provisions to explain principles of state policy on remittances; establishing priority sectors of economy for investment of these financial resources, including construction of dwelling places; working out of the national explanatory and information system on possibilities of attraction of remittances; improving the fiscal policy and business climate in the country.

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