Economic Policies on October 1–15, 2007

Prices and inflation

Rises by rises…

The Consumer Price Index (CPI) or the monthly inflation rate was 1.6 percent in September 2007. The cumulated inflation rate for three quarters was 9 percent. Prices of food products grew by 1.6 percent in September, of manufactured goods by 1.5 percent and tariffs of public services increased by 1.6 percent.

Inflation target for 2007 will be failed…

The 10-percent inflation target established by Government and National Bank of Moldova (NBM) will be failed for sure, though the central bank has increased the basic interest rate and the mandatory reserve rates for commercial banks. One anticipates possible price rises of volatile prices (vegetables, fruits or fuels) for the next months and this will probably increase the annual inflation rate in continuation.

…but it could decline due to appreciation of leu…

However, one believes that the inflation rate could decline a little this year due to the strong appreciation of the exchange rate. It was observed that the exchange rate has appreciated by 0.10–0.15 lei immediately after the inflation rate was published. Last changes in the monetary policy of NBM, which may be described as pretty aggressive, could strengthen the appreciation of exchange rate, and this fact would reduce the inflation rate a little.

Banking

Bank assets exceed 60 percent of GDP…

All assets of the banking have grown by about 30 percent in eight months of 2007. They were worth nearly 29.5 billion lei (2.56 million dollars) in early September and rose about 1.5-fold compared with the same period of last year. The growth of bank assets was particularly due to the rise of people’s deposits in commercial banks, as well as to the strong advance of foreign investments in capital of domestic banks, up to over 65 percent of the total.

Moldovan banks are being hunt more…

The share of foreign investments in banks’ capital has particularly grown after the share of the French group Societe Generale in the shareholder capital of Mobiasbanca rose up to over 95 percent and after Gruppo Veneto Banca, the only shareholder of EximBank, decided last August to raise by 15 million Euros the capital of the Chisinau-based bank and the Austrian investment fund VSP Capital Partners purchased all shares of the commercial bank Unibank from the Russian commercial bank Petrocomerts in exchange for 14.76 million Euros in September.

…while crediting is on permanent rise

Deposits of commercial banks have increased by more than 25 percent, up to about 21.6 billion lei (1.87 billion dollars). The credit portfolio of commercial banks registered a comparable rise. Credits rose by nearly 29.5 percent in January-August, up to about 17 billion lei (1.47 billion dollars). At the same time, deposits and credits have grown by about 40 percent and 50 percent, compared with the same period of 2007.

Foreign trade

Trade deficit reaches about 1.4 billion dollars…

Moldova’s deficit of trade balance reached nearly 1.4 billion dollars (about 38 percent of the 2007 GDP) after eight months of 2007 or rose by over 42 percent compared with the same period of last year. The alarming rise of the trade deficit was linked to the considerable difference between evolution of exports and imports. Moldova had a negative trade balance of 602.6 million dollars (+49.1 percent) with the European Union, 477.5 million dollars (+33.3 percent) with CIS, and 314 million dollars (+45.9 percent) with other countries.

Moldova had the highest deficit of 316.3 million dollars with Ukraine, followed by Russian Federation — 155.3 million dollars, Germany 141.5 million dollars, Romania 132 million dollars, China 109.8 million dollars. It exported goods worth 810.5 million dollars in January-August 2007 and imported goods worth over 2.2 billion dollars, which is by about 37 percent more than in the similar period of 2006. The import-export coverage rate was 36.8 percent, compared with 39.7 percent in January-August 2006.

Chronic deficit and growth of imports…

One thinks that the better economic growth performances in the period concerned (8 percent in Q1), as well as the rise of investments in restructuring and modernisation have probably increased the import demand. On the other hand, an analysis of the structure of trade deficit on main economic destinations reveals the factors which press the trade balance. One may say that the trade deficit is chronic and it will grow in continuation, so that it will be harder to finance it. Indeed, the economic growth structure in Moldova was particularly due to imports in the past years.

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