Economic Policies on July 17–31, 2006

Prices and inflation

Government and National Bank of Moldova likely to fail the inflation target this year…

The Government and the National Bank of Moldova could fail the inflation target of 10% this year. Economists have already contested this forecast, while statistics indicate a 7.4% inflation rate for the first half of this year. In addition, the rise of natural gas tariffs by over 50% on average, followed by higher tariffs of energy and higher prices of fuels will increase the inflation up to two figures. It is actually impossible to reach the 10% inflation target and it is illusory. Those who administrate them will have to update their forecasts.

Tax policy

New amendments to tax policy of the state…

The Prliament approved a set of amendments and completions to legislative acts on tax policy. The draft law includes about 70 articles on modification of 71 laws, mostly on Tax Code. The draft stipulates among others that the annual fiscal exemption of individuals will be increased in 2007 from 4,500 lei up to 5,400 lei, while for maintained persons will grow from 840 lei this year up to 1,440 lei in 2007. The approved amendments also stipulate the reduction of income tax for individuals, adjustment of excises for weak alcohol drinks to inflation rate.

Real sector

GDP will grow by 6% a year in 2007–2009…

The GDP will grow by 6% a year in 2007–2009, according to governmental forecasts from the Medium-Term Expense Framework (CCTM) for 2007–2009. It says that the inflation rate will decline down to 7% by 2009. The same macroeconomic forecast shows that the monthly medium salary on economy will grow by about 12% in real terms, up to 2,860 lei (215 dollars) in 2009.

At the same time, the document stipulates that the foreign financed will be limited to new loans for financing of investment projects and no credits will be contracted to support the budget. Moldova will register a maximal budgetary deficit of 0.5% of GDP in 2007–08, according to the document, but many experts fear that this forectast is unrealistic.

…but current statistics show that industry is on the decline

On the other hand, official statistics reveal that industrial enterprises made production worth about 9.6 billion lei (about 595 million euros) in current prices in January-June 2006. The volume of industrial production has declined by 6.4% compared to the same period of last year due to the reduction of production volumes of enterprises making wines and destiled alcohol drinks, oil and fat, glass and glass items, paper and cardboard, and others.

Banking sector

Forward deposits in Moldovan lei declined…

Forward deposits in lei have dropped by 50.3 million lei or 1.2% in June down to 3,819,800,000 lei. This is the second reduction of forward deposits this year, after they declined by over 130 million lei in May. Many persons have withdrawn their savings from banks after speculations that the banking system will face a crisis generated by the crisis in wine sector.

At the same time, deposits in foreign currency have grown by 447.4 million lei (over 7%), up to about 6.2 billion lei due to the decline of supply of forward deposits in lei. The supply of credits released by commercial banks to economic agents and population has grown by over 140 million dollars, especially due to consumption credits worth about 80 million lei of the total contracted by population. It is worth to note in this context that currency reserves of BNM dropped by over 4 million dollars in July. The central bank has probably intervened on currency market and bought lei to lessen the growth of inflation.

Labour market

Government increased tariff salary for employees of real sector of economy…

The tariff salary for the 1st qualification categpry of workers in agriculture and forestry sectors, as well as for employees of enterprises with maximum 9 salary-earners will grow from 360 lei up to 500 lei starting July 1. The tariff salary for thr 1st qualification category for employees of other branches of national economy will be at the level of 700 lei, compared with 550 lei formerly. This remuneration is paid for the simplest, unqualified work and may be considered a minimal state guarantee. About two thirds out of 860,000 employees on country work in the real sector of economy.

At the same time, BNS data show that the medium monthly salary in national economy amounted to 1,563 lei (117.5 dollars) and rose by 28% compared with the similar period of last year. The highest salary in the period concerned — 3,674 lei (276.2 dollars) — was paid to employees of financial sector, followed by transportation and communications — 2,386 lei (179.4 dollars), constructions — 2,084 lei (156.7 dollars), industry — 1,930 lei (145.2 dollars), public administration — 1,771 lei (133.2 dollars). The lowest salary was paid to workers in agriculture and forestry sectors — 697 lei (52.4 USD), fish breeding — 1,056 (79.4 dollars), education — 1,291 (97 dollars), healthcare and social assistance — 1,266 lei (95.2 dollars).

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