Economic Policies on August 1–31, 2006

Inflation and prices

We had deflation in July…

The inflation rate declined by 0.4% in July compared with June 2006. This was mostly due to a decline of prices of food products by 3.8%. Consumer prices of manufactured goods and services granted to population have grown by 1.3% and, respectively, 3.7% in the period concerned.

…but the inflation will grow again at this beginning of autumn

We fear that the Government and the National Bank of Moldova could fail the 10% maximum inflation target for this year. Many economists have already contested the forecast, while statistics reveal that the cumulated inflation rate for the first seven months of this year has already reached 7%, though we had a deflation of 0.4% in July, this being actually typical for summer, when prices of most of fresh fruits and vegetables are on the decline.

And it will be between 12.5% and 13.5% at the end of this year…

However, the average rise of natural gas tariffs by over 50% burdened by higher administrative prices of electricity, water, transportation, fuels, etc., could increase the inflation up to two figures at the end of this year. The expansion of consumption credit contracted by population from commercial banks could be added here and this perpetuates the inflationist expectations in a bigger or smaller measure.

Public finances

State budget incomes rose by 17.3% in the first seven months…

According to official statistics, incomes of over 5.51 billion lei (323 million euros) were raised to the state budget in January-July, by 17.3% more than in the similar period of 2005. At the same time, about 125 million lei was attracted in January-June 2006 for implementation of investment projects.

Authorities of the Government, Parliament and Presidency discussed and analysed the draft state budget law for 2007 in August. According to the Ministry of Finance and preliminary forecasts, the state budget for next year will include about 19 million lei (some 1.43 billion dollars) in incomes, while the expenses will be established after consultations with relevant ministries and local public administration.

Real sector

Industrial production declined by 6.7% in January-July 2006…

Industrial enterprises in Moldova made production worth about 11.25 billion lei (659 million euros) in January-July, by 6.7% less than in the similar period of 2005. This decline was mostly due to the crisis that affected the wine industry and had negative consequences on other sectors of industry, according to many experts.

…while agriculture grew by only 0.6%

At the same time, the agri-food industry has grown by 0.6% in the first half of this year. The lowest rise in the past years is explained through a decline of alchol and cooling drinks by over 25% due to the Russian embargo on Moldovan wine production. Nor the agriculture makes us happy. Official forecasts regarding a 3.6% growth of agricultural production this year could be failed after the agriculture rose by 1.8% only in the first half of this year, up to 2.48 billion lei (some 190.8 million dollars).

Government will have to update its forecasts…

The Government, which administrates the forecasts, will have to update them and to propose more realistic values. Indeed, the authorities said last week that the official forecasts for some macroeconomic indicators — GDP, inflation, etc. — will be reduced, but this will happen only after debates on state budget for next year are completed. In addition, estimates of the CIS Committee for Statistics reveal that the economic growth paces this year will be lower than in 2005 and 2004 in half of member countries. The GDP will grow by 6% on average in CIS in 2006, compared with 6.8% in 2005, 8.1% in 2004.

Financial-banking sector

Assets of banking system are evaluated at about 20 billion lei…

The total assets of the Moldovan banking system rose by 11.42% in January-July 2006, up to 19.99 billion lei (about 1.5 billion dollars). In comparison with the similar period of the precedent year, the assets have grown by 32.6%. According to a bank efficiency rating worked out by the rating and estimation agency Estimator-VM, the commercial bank Moldova-Agroindbank (MAIB) was ranked the 1st place in a top for the first half-year. MAIB has raised the largest net revenue in the banking system — 92.11 million lei — and was rated 2.398 points. The Savings Bank was ranked the 2nd place and was rated 1.343 points, as it raised a net income of 33.16 million lei.

Bank deposits have declined…

At the same time, commercial banks in Moldova granted credits in the amount of 7.17 million lei in the first half of this year, by 25.1% more than in the first six months of 2006. On the other hand, economic agents and population created deposits worth 601 million lei in July, by 118.6 million lei less than in June. More and more people leave for holidays on summer and enterprises start buying foreign currency for winter. The supply of deposits in banking system exceeded 12.73 billion lei in late July and they declined by 125 million lei (1.0 percent) compared with June 2006, especially due to reduction of deposits in foreign currency by 142.5 million lei (2.3%).

Foreign sector

Exports dropped by 8.5% in the first half of this year…

Russia’s embargo on exportation of Moldovan agri-food products was one of factors that halted the commercial expansion. Exports to CIS have declined the most — by 18.7%, and this fact reduced their share in the total of external deliveries from 50.7% in January-June 2005 down to 45% in the similar period of 2006. At the same time, the export to the European Union was estimated at 147.6 million dollars and declined by 0.1% compared with January-June 2005. Exports to Central and Eastern Europe have grown by 22.3% in the period concerned. At the same time, imports were estimated at over 1.6 billion dollars and they rose by 14.8% compared with the first half of 2005.

…while exporters of agri-food products suffered the most…

If making a synthesis of structure of exported commodities, we consider that makers and exporters of agri-food products have been affected the most, as this category of goods has declined by about 11% compared with January-June 2005 and it covers more than half of all exports. Imports have grown particularly due to a 1.4-fold rise of imports of mineral products and energy agents, which cover about 27% of all imports.

Labour market

Salary arrears have grown…

Salary arrears in national economy exceeded 113 million lei in late July and they rose by about 17 million lei compared with earlier this year. The largest salary arrears are registered in agriculture and processing industry. At the same time, the medium salary on economy amounted to 1,754.2 lei in July, by 70 lei less than in June 2006. The average wage in budgetary sector accounted for 1,561.2 lei and declined by 318.3 lei compared with the precedent month, while the medium salary in real sector has grown by 49 lei, up to 1,843.8 lei.

e-democracy.md