Economic Policies on April 29 – May 15, 2006

Prices and inflation

Inflation exceeds governmental forecasts…

In comparison with March 2006, the Consumer Price Index (CPI) grew by 1% in April. The cumulated inflation rate for the first four months of this year was 5.9%, while the Government forecasts 10%. As a rule, a deflation is registered on summer, especially for food products, but the impact of unfavourable weather on crops makes us reserved as regards the maintenance of the inflation rate assumed by authorities.

Prices of food products have grown the most. Tariffs of services provided to population have grown insignificantly, in particular, the price of bottled liquid gas rose by 0.5%. Statistics show that CPI for food products have risen by 1.7%, manufactured goods by 0.7%, while tariffs for services provided to population increased by 0.4%.

Filling stations have increased the gasoline and Diesel fuel prices by 5.5% in the period concerned. However, the insignificant rise will influence the inflation rate. The higher prices of fuels were especially dictated by external rises. The cost of a ton of gasoline has grown up to 700–710 dollars, while of Diesel oil up to 650 dollars at international exchanges. At the same time, the oil price is permanently growing and reaches a record level of 75 dollars per barrel. Experts say that the rise of fuel prices will affect the agricultural works, as farmers will fail to work all the fields because they are short of circulating means.

Financial-banking sector

Credits granted by commercial banks rose by about 52% in the 1st quarter of 2006…

Credits released by commercial banks of Moldova in January-March 2006 totalled 3.68 billion lei (225 million euros) and rose by about 50 percent compared with the 1st quarter of 2005. Long-term credits have grown 4-fold compared with the similar period of last year, up to 141 million lei. At the same time, medium-term credits exceeded 1.7 billion lei or by about 77% more than in the 1st trimester of 2005. Finally, short-term credits amounted to 1.8 billion lei or by 29% more than in January-March 2005.

Foreign investments in banking capital are on the decline…

In addition, most of financial indicators in Moldova’s banking system have registered a positive evolution in the 1st quarter of 2006. According to data of the National Bank of Moldova (BNM), the 1st-degree capital of commercial banks has grown by 6% in the first three months, (compared with 4.3% in the similar period of last year), up to 3.05 billion lei (181.6 million euros). The share of foreign investments in banking capital declined by 0.3 percentage points in the 1st quarter down to 50.3%. At the same time, foreign investments have grown by 3 million lei, up to 590.5 million lei, while local investments have increased by 10.4 million lei, up to 584.2 million lei.

Assets of banking system estimated at about 1.12 billion euros…

The total assets of the Moldovan banking system grew by 4.1% in the 1st trimester of this year, up to 18.74 billion lei (1.12 billion euros). Cash in circulation has grown by 7%, up to 1.009 billion lei. The net revenue in Moldova’s banking system exceeded 168 million lei in the 1st trimester of 2006 and rose by 53.7% compared with the similar period of the precedent year. Profitableness of assets and shareholder capital grew by 0.5 and 4.2 percentage points compared with late 2005, up to 3.7% and, respectively, 21.5 percent. The most important rise was registered for deposits of individuals — by 10.4%, up to 7.61 billion lei.

International currency reserves are on the rise…

The currency reserves of BNM have reached a new level — about 616.6 million dollars after they rose by almost 9 million dollars in the first week of May. At the same time, the currency reserves have reached a historical maximum and exceed 630 million dollars after the first part in the amount of 16.9 million dollars of the International Monetary Fund’s 118.2 million dollars credit that the IMF Executive Board approved on May 5 entered the BNM account on May 15. The program with IMF stipulates currency reserves worth 750 million dollars for this year. They amounted to 597.43 million dollars in late 2005.

Moldova rebuilds its relations with foreign creditors…

The IMF’s Executive Board has approved a new agreement worth 118.2 million dollars with Moldova for a 3-year term. It was approved under the Poverty Reduction and Growth Facility (PRGF). The approval of this agreement allows Moldova to obtain about 16.9 million dollars in the next period. The IMF financing will be used to consolidate currency reserves, a consolidation which will influence the economic growth and stability directly. The credit is offered for a 10-year period. The period of grace is 5.5 years, while the interest rate is 0.5%.

At the same time, the Paris Club creditors agreed on 12 May 2006 with the Government of Moldova to a restructuring of its external debt. This agreement follows the International Monetary Fund’s approval of Moldova’s arrangement under the Poverty Reduction and Growth Facility on 5 May 2006 in support of the Government’s ambitious reform programme. This agreement consolidates roughly 150 million dollars due on debts contracted by Moldova before 31 December 2000. The rescheduling of the maturities and 30% of the arrears is structured on the so-called “Houston Terms”: ODA debts are to be repaid over 20 years, with 10 years of grace, at interest rates at least as favourable as the concessional rates applying to those loans; commercial credits are to be repaid over 15 years, with 5 years of grace with progressive repayment, at the Appropriate Market Rate.

Labour market

Teachers suffer losses despite rise of medium salary…

According to data of BNS, the medium salary on economy accounted for 1,533.6 le in March 2006, by 116.5 lei more than in the precedent month. A monthly report of BNS shows that the medium pay in budgetary sector was 1,275.8 lei (98.1 dollars) in March, by 78 lei more than in February, while the medium salary in real sector was 1,674.2 lei (approximately 100 euros) and rose by 130.7 lei.

The highest salary was paid to employees of financial institutions — 3,864 lei, by 1,043 lei more than in February. The medium salary in industry sector has grown by 212 lei, up to 1,979 lei, while the average pay in constructions rose by 228 lei, up to 2,000 lei. At the same time, the medium remuneration of teachers dropped by 59 lei in March, down to 1,171 lei, while doctors and social assistants earned 1,202 lei on average.

Public finances

Basic revenues to state budget grew by 15.3% in January-April…

Basic revenues in the amount of 2.54 billion lei (154 million euros) went to the state budget in January-April 2006 or by 15.3% more than in the same period of last year. At the same time, grants in the amount of about 60 million lei were attracted from foreign donors. Also, foreign payments of 16 million dollars were performed to honour the commitments on foreign credits contracted by Moldova and accordingly to the schedule, of which 7.7 million dollars in main payment and 8.3 million dollars in interest on foreign loans.

Foreign trade

Trade deficit is on the continued rise…

The deficit of Moldova’s trade balance accounted for about 295 million dollars in the 1st trimester of this year, which is 1.5-fold more than in the similar period of 2005. The import/export coverage rate was 46.8% in January-March 2006, compared with 56.2% in the similar period of 2005. Moldova’s exports were valued at 259.4 million dollars, while imports at 554.3 million dollars. Imports grew by 25.7% while exports rose by 4.6%. Moldova’s highest deficit is registered in relations with CIS member countries, notably 134 million dollars, followed by the European Union — 83 million dollars and Central and Eastern Europe — 33 million dollars.

The exports to the Russian Federation, the main trade partner of Moldova, declined in continuation in the 1st quarter of 2006. Deliveries to the Russian market have dropped by 5.8%, down to 82.1 million dollars. Also, exports to Romania have decreased by 1.2%, down to 31 million dollars, and to Italy by about 20%, down to 27.8 million dollars. At the same time, imports from the first three trade partners of Moldova have rapidly grown. Imports from Russia have increased 2.2-fold, up to 118.4 million dollars, Ukraine by 2%, up to 102.1 million dollars, and Romania — 1.9-fold, up to 62.2 million dollars. Governmental forecasts for 2006 saying that the trade deficit will account for 1.33 billion dollars will be exceeded for sure.

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