Economic Policies on February 1–16, 2007

Inflation and prices

Administrated prices could increase inflation…

The inflation rate rose by 0.9 percent in January 2007, compared with December 2006, and the Consumer Price Index (CPI) grew for all groups of products. The annual average inflation would be 10.8 percent. Prices of food products rose by 1.4 percent in January, of manufactured goods increased by 0.8 percent, while tariffs of services granted to population grew by 0.2 percent.

The CPI for services granted to population calculated for January did not include the higher heating tariff in the Chisinau municipality, though the Chisinau Municipal Council increased on January 25 the tariff by 231.75 percent (2.4-fold), from 233 lei up to 540 lei per gigacalory. The Municipal Council ordered that the new tariff be introduced on January 1, 2007. The Government and the National Bank forecast a 10-percent inflation for this year.

Financial-bank system

Banks had the best evolution in 2006…

Assets of Moldovan banks exceeded 1.7 billion dollars in 2007, which is 44 percent of GDP (estimated for 2006). Bank assets in countries from the euro area exceed 100 percent of GDP. The domestic banking registered positive development trends in 2006. The 1st-degree capital of commercial banks has grown by about 35 percent compared with 2005 and exceeded 3.8 billion lei (292.31 million dollars). The share of foreign investments in capital of banks was 62.7 percent and it rose by 12.1 percent compared with 2005. This was mainly due to the rise of the registered capital on account of investments of non-resident shareholders.

…and their credit portfolio is on the permanent rise

The credit portfolio of banks has grown by nearly 3.6 billion lei up to about 13.1 billion lei. Credits released to industry and trade held the largest share in 2006 — about 49 percent, followed by loans for agriculture and food industry 18.7 percent, credits for real estate, building and development 10.6 percent, and consumption credits 9.2 percent. The share of credits for viticulture, winemaking and spirits trade amounted to approximately 1.54 billion lei in late 2006.

The net income of banking rose by 62.8 percent in 2006, compared with 2005, up to 691.7 million lei (over 53.2 million dollars). Bonds of banking totalled 18.84 billion lei, by 25.7 percent more than in early 2006. Deposits of individuals have especially grown in their structure — by 34.1 percent up to over 9.24 billion lei. All these facts are a proof that Moldovan banks are capitalised well and enjoy a strong profitableness.

Public finances

In spite of anaemia in productive sector, collections to the budget are on the rise…

Incomes of the state budget rose by 27.6 percent in January compared with December 2006, up to 808.3 million lei, despite of the unfavourable situation in productive sector. Basic revenues accounted for 735.6 million lei, which is 109.9 percent of the plan for the period concerned. They rose by 31 percent in comparison with January 2006. As much as 868 million lei was spent from the budget in January 2007 or by 88.5 percent more than in the first month of 2005. We note that the budget was executed 96 percent as regards expenditure.

In order to honour comitments on foreign loans, Moldova effected external payments in the amount of 2,8 million dollars in January, of them 1.7 million dollars in principal payment and 1.1 million dolllars in foreign loans. At the same time, 22.7 million lei was spent for the internal state debt service.

Foreign trade

Trade deficit count for about 56 percent of GDP in 2006…

The deficit of trade balance reached 1.64 billion dollars in 2006, by 36.7 percent more than in 2005, this being the highest level in the transition period. The deficit of trade balance is more than five-fold higher than in 2000. The condition of foreign trade has worsened in the past years and this phenomenon aggravated more the trade restrictions that Russia introduced against Moldovan exports in 2006. Although exports registered a rise trend in October-December 2006, deliveries declined by about 4 percent last year, down to 1.005 billion dollars. It was for the first time after 1998 when exorts decreased. At the same time, imports exceeded 2.69 billion dollars, by 17.5 percent more than in 2005. The import/export coverage rate in 2006 was 39 percent, compared with 47.6 percent in 2005.

Moldovan wine exports decreased by 45 percent in 2006…

Moldova exported wines and other alcohol drinks worth 173 million dollars last year or by about 45 percent less than in 2005, when exports totalled 313 million dollars. The wine exports have dramatically declined after the Russian Federation restricted them in March 2006. The Russian market was earlier absorbing 80 percent of Moldovan wine exports. The vine growing and winemaking industry contributed with nearly 1/3 to the Moldovan GDP.

Thus, if exports to the Russian market totalled 250 million dollars in 2005, deliveries to Russia turned over 45 million dollars in January-March 2005 before introduction of the embargo. On the other hand, if we exclude the Russian factor, wine exports to other countries have grown. Deliveries to Romania have grown 17-fold, exports to Ukraine have doubled and deliveries to Poland have gone up by 25 percent.

Following is the 2006 Top-10 wine importers from Moldova: Russia (45 million dollars), Ukraine (37 million dollars), Belarus (36 million dollars), Romania (24 million dollars), Poland (4 million dollars), Germany (1.7 million dollars), Latvia (1.49 million dollars), the Czech Republic (1.44 million dollars), Bulgaria (1.26 million dollars), and the United States (1.2 million dollars). Last year, Moldova exported wines worth 132 million dollars to the CIS, while deliveries to the European Union were valued at 11.6 million dollars.

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