Economic Policies on December 20, 2005 – January 15, 2006

Prices and inflation

Inflation for 2005 fit limits forecasted by government

The inflation rate in December 2005 was 1.4 percent, while the cumulated rate in 2005 was 10 percent, a level that fit the limits forecasted by Government and the National Bank of Moldova (BNM). The consumer price index (CPI) for food products rose by 2.3 percent in the last month of 2005, CPI for manufactured goods grew by 1.1 percent, while tariffs for services provided to population increased by 0.4 percent. CPI for food products rose by 8.7 percent in 2005 compared with December 2004, prices of manufactured goods rose by 14.9 percent on average, while tariffs of services grew by 6.6 percent.

The Government estimates a 10-percent inflation rate for 2006, the same level as in 2005. BNM will have to sterilise its interventions in currency market due to strong inflow of foreign currency on domestic market, which has limited capacities of absorption, in order to avoid the rise of inflationary pressures that would be spread through increasing monetary aggregates.

The inflation in Moldova has not a monetary nature in general, being generated mainly by non-monetary factors and they could be manifested through a rise of world petrol prices in 2006, tariffs of services regulated by law, growth of purchase power of population, fuelled by rise of salaries, pensions and remittances from abroad.

Financial-bank system

Currency reserves of BNM exceeded 600 million dollars…

Reserve official assets of BNM turned over 601.02 million dollars early this year. As a rule, the National Bank plans its annual monetary-currency policy in order to maintain the currency reserves at an acceptable level needed to cover at least three months of imports. The currency reserves of BNM rose over 2-fold, from 268.5 million dollars in late 2002 up to 601.02 million dollars in early 2006.

Forward reserves and deposits held the largest share in the structure of convertible currency reserves as of late 2005 — about 394 million dollars, including 289.24 million dollars in banks with offices abroad, about 105 million dollars in other central banks, BRI and IMF. Another part of currency reserves is kept in securities — 203.4 million dollars.

BNM also completes the currency reserves mainly from purchases of currency on domestic market after massive remittances from abroad, as well as from profits obtained from investments.

…while assets of bank system for 2005 could account for about 1.4 billion dollars

The overall assets of the bank system in Moldova rose by 26.4 percent in 11 months of 2005, compared with December 31, 2004. This indicator accounted for about 16.81 billion lei (1.31 billion dollars) on November 30, 2005. Statistics of BNM show that the profitableness of assets on bank system was 3.31 percent, while profitableness of capital was 18 percent, as of November 30, 2005.

Foreign trade

…at the same time, trade deficit will register record level for 2005 (about 1.2 billion dollars)

The trade deficit of Moldova was higher in 11 months of 2005 than the level that the Government has estimated for the entire year and rose up to a record for the past 15 years — 1,055 million dollars.

The trade deficit exceeded the overall volume of exports by about 71 million dollars. The National Bureau for Statistics show that Moldova imported goods worth about 2.4 billion dollars in January-November 2005, while exports turned over about 985 million dollars.

The government fails so far to take actions aimed to discourage the rise of deficit. Exports rose by 11 percent in 11 months, while imports increased by 30.1 percent. The growth of national consumption fuelled by currency remittances from abroad is a cause of massive rise of imports.

The trade deficit of Moldova in the foreign trade with the CIS accounts for 308.8 million dollars, 369.6 million dollars with the European Union, about 156 million dollars with Central and Eastern Europe, 220.7 million dollars with other countries. The Government forecasts a 13-percent rise of exports and an 11-percent growth of imports for 2006.

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