Economic Policies on March 5–18, 2007

Inflation and prices

Prices tend to grow…

An inflation rate of 0.7 percent was registered in February 2007, while the cumulated rate for two months of this year was 1.6 percent. Tariffs of services provided to population rose most — by 1.3 percent, followed by prices of manufactured goods — by 0.7 percent, and of food products by 0.4 percent. The tariffs of drinking water providing services rose by 14.7 percent, while the gas deliveries via centralised networks cost by about 5 percent more than in January. At the same time, lower prices were registered in the period concerned for eggs (by more than 11 percent), sugar (by more than 4 percent due to overproduction and small sugar exports), pork (by more than 3 percent), beef, etc.

Real sector

Optimism of authorities for 2007…

Following the 2006 industrial recession, the Ministry of Economy and Commerce forecasts a 9-percent growth of industry for 2007. Data on industrial production in 2006 reveals a 6.9-percent decline compared with 2005. Situation of Moldovan industry is strongly influenced by activity of processing enterprises, which covered 88.6 percent of overall production made by big companies with main industrial activities last year. However, the production volume of this industrial branch has dropped by 8.5 percent and influenced the decline of total production volume.

In addition, the production volume of the food and drink industry, which holds the strongest share in processing industry, was by 9 percent smaller in 2006 than in 2005. The suspension of wine exports to the Russian Federation stopped the bottling of wines. Therefore, the wine production decreased by 50 percent compared with 2005 and this state of things reduced the general index of industrial production by 9.5 percent. The production of distilled spirits makers has declined by about 40 percent for the same reasons.

Authorities also forecast a 7-percent growth of agricultural production for 2007. For example, the agricultural production of all categories of farms was estimated at 13.7 billion lei (about 1.05 billion dollars) in 2006 and it count for 95 percent of the production registered in 2005, or it decreased by 5 percent. The vegetal production holds the major share in structure of agricultural production, notably 66 percent of all agricultural production, while the animal production covers 34 percent.

Foreign trade

Exports are on the decline at beginning of year…

Moldovan exports rose by over 10 percent in January 2007 and totalled 73.7 million dollars. The rise was mainly due to growth of exports to the European Union (E.U) by about 40 percent. At the same time, Moldovan exports to the Commonwealth of Independent States dropped by 31 percent in January 2007. Exports of textiles and items, vegetal products, food products, drinks and tobacco, machines and appliances, electric devices, etc., rose in January.

Surprisingly, exports of Moldovan goods and services to Romania rose 1.6-fold in January 2007 compared with the same month of 2006, in spite of pessimistic forecasts about a possible decline of commercial inflows between the two countries. Romania received 16.8 percent of all Moldovan exports and covered 11.4 percent of imports, ranking the first place among Moldova’s main export partners.

The imports were valued at 197.3 million dollars, by 39 percent less than in December 2006 and by about 41 percent more than in January 2006. Imports of goods from E.U. rose 1.5-fold, while imports from CIS grew by about 23 percent compared with January 2006. The trade deficit of Moldova rose 1.7-fold, as exports declined by about 39 percent in January 2007 compared with December 2006, up to 123.6 million dollars.

Business environment

Government focuses on investments…

The improvement of investment climate seems to be a basic priority of the Government in 2007. In particular, a draft law on industrial parks, which will be delivered soon to the executive to approve it, the draft law on private public partnerships and the draft law on mortgage credit are expected to help accomplish this goal. The draft law on mortgage credit was worked out and it is being discussed with the bank community in order to be raised to the Government.

In addition, the Government intends this year to create a single database on foreign direct investments (FDI) in Moldova. For example, FDI estimated at about 205 million dollars were registered in Moldova in 2005. In 2006, the rise pace of investments in fixed capital was higher than of GDP. Investments in fixed capital registered a record of 9.58 billion lei (731.3 million dollars or about 22 percent of GDP) for the first time in this period and rose by 17 percent compared with 2006.

Labour market

Nor the situation on labour market is best…

According to the National Bureau for Statistics (NBS), economically active population (employed population plus job seekers) of Moldova count for 1,346 million people in late 2006. An analysis of the structure of population employed on age groups reveals that people between 25 and 54 years count for 74.5 percent. It was established in assignment on activities in national economy that about 33 percent of employees worked in agriculture. Workers in industry count for 12.6 percent, trade and hotels — 16 percent. At the same time, employees in healthcare and education sectors count for 15.3 percent.

On the other hand, more than 75,000 job seekers were registered in Moldova in late 2006 accordingly to standards of the International Labour Organisation. According to NBS accounts, 43 percent of all job seekers were unemployed for at least 12 months, while more than 24 percent of them were youths between 15 and 24 years old. At the same time, people declared as working or seeking jobs abroad count for about 334,000 persons or more than 21 percent of the active population of at least 15 years old. About 66 percent of those declared as departed to other countries were men. People from rural localities who were declared as departed to other countries also count for 66 percent.

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