Economic Policies on May 31 – June 14, 2006

Real sector

Industry shows signs of heavy fatigue…

Moldova, Kyrgyzstan and Armenia are the only countries in the Commonwealth of Independent States (CIS) which reported declines of industry for January-April 2006, according to data of the CIS Committee for Statistics. Kyrgyzstan has reported the highest industrial decline in the period concerned, notably 9.5%, followed by Moldova — 5.9% and Armenia 2.9%.

On the other hand, the industrial production in Azerbaijan has grown by 45.5%, in Belarus by 12.3% and in Tajikistan by 7.2%. Industries in Russia have risen by 3.5%, Kazakhstan +2.7%, Ukraine +0.4%. The average volume of industrial production on CIS rose by 4% in January-April, by one percentage point less than a year ago.

Moldova was ranked last places in CIS regarding industry in the past 2–3 years. Structural deficiencies in industry in general and latest scenarios in wine making sector in particular have had a negative influence on rises registered in the past years. The government did not update yet the 6.5-percent industry growth target for 2006.

Industry growth for some CIS countries in January-April, 2006, %

Source: CIS Committee for Statistics

…while agriculture of Moldova seems to face a profound crisis

On the other hand, the same CIS Committee for Statistics said that Moldova registered the lowest rise pace of agriculture in CIS in January-March 2006, notably 0.8%, compared with the 3-percent average on CIS. The so slow rise was mostly due to the last winter frosts. The low temperatures have compromised 25% (about 517,000 tons) of the grape crop and Moldova harvested only about 300,000 tons of fruits.

The agriculture of Belarus has grown the most, by 10%, followed by Ukraine — by 4%, Kazakhstan by 3.8%, Armenia by 3.5%, Azerbaijan by 2.5%, and Russia by 1.3%. Georgia did not deliver statistics to the committee. The agricultural production in CIS increased by 3% on average in the 1st quarter compared with 2% in the similar period of last year.

The agricultural production has grown by 16% in 2001–2005, but the rise was often rated as modest. Although the agriculture offers jobs to 40% of labour force, its share in Gross Domestic Product does not exceed 20%. The agriculture is still backward and extensive as before. The farm land is divided into many plots and therefore modern technologies cannot be applied in agriculture. Double prices of fuels associated with slow reorganization of processing industry and an underdeveloped land market have pushed the agriculture to a deep crisis.

Agriculture growth in January-March 2006, %

Source: CIS Committee for Statistics
* Georgia, Tajikistan and Uzbekistan did not unveil statistics

Tax policy

State budget collections up by 10.8%…

Basic revenues in the amount of about 3.27 billion lei (193 million euros) went to the state budget in January-May 2006, by 10.8 % more than expected. In comparison with the similar period of last year, basic revenues in the state budget have grown by 17.4%. Indirect taxes (VAT, customs duties, excises) had the main contribution to collection of incomes, as they held about 65%. The Tax Inspectorate has launched a campaign to inform agricultural about fiscal facilities for this year by using a guide available in consulting offices of territorial tax inspectorates.

…while Tax Inspectorate awards subsidies and reduces some taxes

The size of subsidy paid to agricultural producers who delivered agricultural production account for 4.1 million lei. Starting January 1, 2006, a 20-percent VAT is in effect for agriculture, compared with the same tax established for 2005. Under legislation, agricultural producers receive subsidies from the state budget in the size of this tax paid to the budget. At the same time, the Tax Inspectorate has established discounts for land and real estate taxes, while citizens who will pay the land tax before June 30 will benefit of a 15-percent discount.

Prices in inflation

Inflation in January-May 2006 was 7.2%…

The consumer price index rose by 1.2% in May 2006 compared with April and by 7.2% in the first five months of this year. Prices of food products, especially of fruits and vegetables, grew the most last month, while the highest prices rises for manufactured goods were registered for fuels.

Also, ttariffs for interstate railway transportation services, air transport grew in May. Prices of gasoline and Diesel oil rose again in June and these rises “will contribute” to the growth of inflation for sure. The government and the National Bank predict a 9–10 percent inflation rate for this year, but these forecasts will be unlikely achieved.

Foreign sector

Moldovan exports are on clear decline…

Moldova’s exports dropped by 10% in January-April 2006 for the first time after 1998, down to 313 million dollars, as a result of Russia’s restriction on Moldovan exports to this country. The restriction of exports to the main market for Moldovan products, Russia, (which absorbed more than 25% of Moldovan exports) and the fulminating rise of imports have challenged a record advance of trade deficit, by 42.7% compared with January-April 2005, up to 421 million dollars.

In particular, Moldova exported goods and services worth 86 million dollars to Russia in January-April 2006, by 32% less than last year, registering a trade deficit with this country for the first time, At the same time, deliveries to Romania have dropped by 4%, down to 39 million dollars, while exports to Italy have decreased by 15%, down to 33 million dollars. At the same time, Moldova’s imports have increased by 14.2%, up to 734 million dollars. As for example, imports from Russia have grown 1.9-fold, up to 143 million dollars, from Romanian 1.6-fold, up to 81.3 million dollars.

Banking sector

Currency reserves of BNM are on the decline…

The reserve official assets of the National Bank of Moldova (BNM) were evaluated at 645.3 million lei in late May. However, the currency reserves of BNM dropped by 2.8 million dollars in early June down to 642.5 million lei, after the central bank has purchased Moldovan lei on market. The reserves have declined after they rose by 37.91 million lei in May, as the first part of about 17 million dollars from the 118.2 million dollars credit of the International Monetary Fund entered the account of the central bank and due to currency purchases of the National Bank on domestic market. The programme with IMF stipulates currency reserves in the amount of 750 million dollars for this year, by 152.57 million more than in late 2005.

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