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 Monitoring→Economy→The Socioeconomic Environment

Economic Policies on May 1–15, 2007

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Inflation and prices

Inflation does not seem to be a problem for the time being…

Apparently, the inflation is perfectly fitting the monthly schedule needed to reach the 10-percent target wanted by Government and National Bank of Moldova (NBM).The monthly inflation rate in April was 1 percent, and the consumer price index rose by 3 percent in January-April 2007, compared with December 2006. Prices of food products rose by 2 percent in April mainly due to higher prices of fresh vegetables. Prices of manufactured goods have grown by 0.5 percent, while tariffs of services granted to population have increased by 0.4 percent.

However, we consider that the April decision of the NBM Management Board to reduce the base interest rate[1] (monetary policy interest) from 14.5 percent down to 13.5 percent could resuscitate the growth of inflation. Structural dysfunctions like in industry, foreign trade, business climate gathered in economy, as well as the growth of consumer credit could increase the inflation up to dangerous levels.

Financial-banking sector

Consumer credits could grow…

Banking representatives have recently said that banks have now an excess of liquidity capable to sensibly increase the consumer credit soon. Consumer credits are released for a short term, so that banks will find the possibility to use these sources which the National Bank is sterilising. Bank representatives and experts forecast a substantial rise of consumer credit for the next years, after the supply of consumer loans increased by more than 60 percent in 2006 and by over 43 percent in the 1st quarter of this year.

Even more, some banks have lowered the interest rates on credits. In this respect, the range of products and services will be diversified and, therefore, credits will be more accessible. Thus, the consumer credit will become a financial solution for more people. For example, the consumer credit in Russia has reached 17 percent of all contracted loans, 15 percent in Romania and less than 12 percent on domestic market.

All deposits in banking are estimated at about 33 percent of GDP…

The monetary mass M3[2] has increased by 22.3 percent and accounted for 19.9 billion lei in late March. The evolution of monetary mass was particularly due to the growth of deposits in domestic and foreign currencies and of volume of circulating money. For example, deposits in foreign currency amounted to 7.2 billion lei on April 1 and rose by 37.8 percent compared with the 1st quarter of 2006, while deposits in lei are estimated at 7.8 billion lei. Deposits in lei count for about 55 percent of savings and deposits in foreign currency count for approximately 45 percent. All bank deposits are estimated at approximately 15 billion lei or 33 percent of the GDP of 2006, and all assets of the banking are estimated at about 24.9 billion lei (2.02 billion dollars).

Foreign trade

Textiles become main exports of Moldova…[3]

Textiles and items held the biggest share in export in the 1st quarter of 2007 after the foreign trade with wines has dramatically declined because of Russia’s embargo. Moldova exported textiles worth 62 billion dollars in the first three months of 2007, which is about 23 percent of all exports, growing by over 22 percent compared with the same period of 2006.

The share of food products, drinks and tobacco in all exports has dropped more than two-fold, from 38 percent in January-March 2006 down to 16 percent in the 1st quarter of 2007. Moldova exported food products, drinks and tobacco worth 43 million dollars in three months, which is a 55-percent decline. Spirits deliveries have declined the most, notably by 81 percent. Finally, Moldova exported products and services worth 270 million dollars in the 1st quarter of 2007 (by 7.8 percent more than in the similar period of 2006), while imports were worth 747 million dollars (and rose by over 39 percent). The import/export coverage rate was only 36 percent, while the deficit of trade balance was approximately 476 million dollars and increased 1.7-fold compared with the 1st quarter of 2006.

  1. ↑ Rate on REPO operations for purchase of state securities (HVS) for two months carried out within open market operations of NBM.
  2. ↑ Monetary aggregate that covers circulating money, forward and spot deposits in lei, deposits in foreign currency and monetary market tools (M0+M1+M2).
  3. ↑ Basa-Press News Agency.
April 16–30, 2007 May 16–31, 2007