Economic Policies on April 16–30, 2007

Inflation and prices

Inflation moderated its growth, but this may be an appearance…

The inflation rate in March was 0.5 percent, while the cumulated rate for the 1st quarter of 2007 was 2.1 percent. This was actually the minimum rate in past months. Prices of food products rose the least in March, by 0.1 percent, of manufactured goods by 1 percent and tariffs of services granted to population increased by 0.9 percent.

Apparently, the inflation in the 1st quarter perfectly fits the monthly schedule needed to reach the 10-percent target forecasted by Government and National Bank of Moldova. However, we must not forget the “critical mass” of structural dysfunctions gathered in economy, which could produce dangerous inflationist rises at any moment.

Financial-banking system

Banking is permanently developing, state treasury has grown…

The evolution of Moldovan banking was much better in the 1st quarter of 2007 than in the similar period of 2006. The normative capital of commercial banks has grown by about 258 million lei or 6.8 percent. At the same time, open market operations of National Bank of Moldova were oriented at withdrawing the surplus of liquidity in banking,^[1] following the key purpose of limiting the annual inflation rate at 10 percent. Massive sterilisations have help reducing the cumulated inflation rate from 14.1 percent in December 2006 down to 11.2 percent in March 2007. This fact allowed the central bank to reduce the basic interest rate from 14.5 percent down to 13.5 percent and to promote lower interest rates on sterilisation operations.

Followng these operations, the international reserves of Moldova exceeded 800 million dollars. In particular, they rose by about 15 million dollars from March 30 to April 6, this being the greatest growth this year. At the same time, in comparison with late 2006, the state currency assets rose by 3.3 percent (25.2 million dollars). IMF experts have initially anticipated that gross official reserves of Moldova will grow up to 930 million dollars.

Real sector

Negative trend in industry goes on…

According to BNS accounts, all industrial enterprises manufactured production worth about 5,292 million lei (410 million dollars) in current prices in the 1st quarter of 2007, suffering an 11.5 percent-decline compared with the similar period of 2006. Wine exports did not restart and wine makers do not try any longer to predict their relief of deliveries by Russian Federation. The wine industry dropped 4-fold in January-March 2007 and its share declined down to 5 percent of the total industrial production, from 25.3 percent in the same period of 2006. The decline of wine industry reduced the total industrial production by more than 13 percent.

In addition, the distilled spirits industry has decreased 3.5-fold (reducing the industry by 3.8 percent); the electricity and heating industry dropped by 10 percent and reduced the industry by 1.5 percent. Statistics also reveal a 26-percent decline of tobacco industry and an 8-percent fall of machine building industry. Rises in other sectors did not attenuate the decline of production in these industries, though the metallurgical industry has grown 2.1-fold, drug industry by 59 percent and cement industry by 56 percent, as the share of these branches in all industrial production is insignificant. The Ministry of Economy and Commerce predicts a 9-percent rise of industry this year.

Labour market

Medium salary on economy was 142 dollars in 1st quarter of 2007…

The medium salary on economy amounted to 1,783 lei (142 dollars) in the 1st quarter of this year, growing by 22 percent compared with the similar period of 2006. Compared with inflation rate, the salary really rose by 8 percent. Budgetary workers earned 1,416 lei on average, while private companies paid 1,991 lei a month. As a rule, farmers earn the lowest salaries while most people in Moldova work in agriculture. The medium monthly salary in this sector was 863 lei (69 dollars), after the 1st quarter.

The highest salary was paid to employees in financial sector, notably 3,987 lei (319 dollars) a month. Teachers earned 1,156 lei (92 dollars) a month, while doctors were paid 1,310 lei (104 dollars). However, foreign real estate companies working in Moldova paid the highest salaries in the 1st trimester of this year, notably 6,900 lei (550 dollars), while the medium salary in this sector was 2,100 lei (169 dollars). Domestic and foreign transportation and communication enterprises ranked the 2nd place regarding size of salaries and they paid a medium salary of 6,850 lei, followed by foreign electricity and water providing companies, with an average wage of 6,330 lei.

Foreign trade

Moldova’s trade exchanges with E.U. reached about 300 million dollars…

The share of Moldova’s foreign trade with the European Union (E.U.) in all exports reached a new historical level of 47.4 percent of the total after the first two months of this year, while trade exchanges with CIS have dramatically decreased. Moldova exported goods worth about 90 million dollars to the E.U. in January-February 2007, by 31 percent more than in the similar period of 2006, while Moldova’s imports from E.U. increased 1.6-fold.

The E.U. covered 56.1 percent of Moldova’s exports (44.8 percent in 2006) and 44.4 percent of imports (38.5 percent in 2006). The Ministry of Economy and Commerce explain these rises through fact that exporters have got used to the GSP Plus system awarded by E.U. on January 1, 2006, which stipulates a “zero tax” for approximately 80 percent of exported goods. At the same time, the rise of Moldova-E.U. deliveries followed the accession of Romania and Bulgaria, two important trade partners of Moldova, to the E.U. on January 1, 2007.

The CIS covered 31.7 percent of Moldova’s exports, compared with 48.7 percent in the first two months of 2006, and 39.2 percent of imports, compared with 45.4 percent in the similar period of last year. Statistics for past years reveal that trade exchanges with CIS are anaemic at the beginning of year, given the big share of agro-food products in Moldova’s exports. The trade deficit grew 1.8-fold in January-February 2007, up to about 300 million dollars.

↑ For example, Moldovan citizens working abroad sent home about 125 million dollars in January-February 2007.

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