Economic Policies on March 16–31, 2008

Inflation and prices

Moldovans spend largest amounts on foodstuffs…

According to formal statistics, Moldovans^[1] are spending largest amounts from a 1,000-leu sample budget on energy, gas, heating, telephony, sewerage, water and sanitation. Food products and drinks continue to lead the top of products covered by the consumer basket of population.

Unavoidable expenses for housing maintenance and food products absorb most of household budgets month by month. This fact is also revealed by analyses by the National Bureau for Statistics (NBS), notably by evaluation of the share of products and services in the consumer basket of population on basis of which the monthly inflation rate is calculated. In general, about 35 percent out of a sample amount of 1,000 lei go in Moldova to manufactured goods, roughly 45 percent of household budgets are spent on food products and drinks and approximately 20 percent go to services.

Beyond the mandatory nature of the “largest” spending category, the purchase conduct of population reflected in the share of expenditures from the sample budget indicated by NBS reveals that the costs of life affect the pockets of Moldovans in continuation. Thus, authorities should revise their policy on living standards of population.

Real sector

Health of Moldovan economy…

The National Bureau for Statistics has published synthesis data for 2007RO. They cover the Gross Domestic Product (GDP), sectors which contributed to the economic growth and evolutions in 2007 compared with 2006. Statistics reveal indeed the health of Moldovan economy.

The state of things is clear at statistical level. Year 2007 had to engines that impelled the economic growth: constructions and services. The industry has underperformed (-2.7 percent, compared with 2006), while the agriculture suffered a serious but expected decline (-23.1 percent, compared with 2006). But what is behind macroeconomic indicators?

A GDP growth (how small it was) or the rise of an economic sector means a larger production at macroeconomic level. As stocks did not grow much, a rise of production meant larger sales on domestic market or exports. Larger sales would mean better indicators for companies operating in the economic sector concerned. Larger revenues of companies should be also reflected in salaries of workers from the sector concerned, but it is not so here and there.

The retailing and the investments in fixed capital were the engine of growth in 2007. The building sector has increased by about 21 percent, compared with 2006, and it will be hard to equal this performance the next years. But the building sector has grown without a significant contribution of infrastructure works.

Therefore, in order to keep the 2007 growth, the building sector needs to implement infrastructure projects. Paradoxically, the development of the building sector did not impel salaries. Companies have developed without investing in labour force, with Moldovan workers continuing to leave their country.

Services (which registered a 19-percent growth, compared with 2006) have achieved an expected rise due to two reasons: consumption and tender grow-up signs of domestic economy. The consumption has fuelled the growth of the trade and financial sector. But how much will the financial sector develop this year, which began with an alarming inflation rise, given the jumpiness of the exchange rate and a series of measures that inhibit the credit.

The industry was below the GDP growth (-2.7 percent) and it had an inconsistent contribution to the economic growth, this being the weakness of Moldovan economy. Finally, the regressing agriculture confirms the complicated condition in 2007. The drought has reduced the agricultural products and increased the price of food products.

Financial-banking system

Overall value of deposits in system exceeded 2 billion dollars…

The supply of deposits in the banking system of Moldova exceeded 22 billion lei (more than 2 billion dollars), as of late February. The growth followed a rise of deposits in domestic currency by roughly 600 million lei, while deposits in foreign currency have dropped by 133 million lei.

The supply of forward deposits in lei exceeded 8.51 billion lei in late February and increased by 5.8 percent, compared with January. The growth was due to a 6.2-percent rise of deposits by individuals and 3.9-percent by businesses. At the same time, forward deposits in foreign currency have exceeded the equivalent to 7.12 billion lei, after they increased by 2.4 percent in February.

The average interest rate on forward deposits in lei has decreased by about 0.5 percentage points down to 15.61 percent (12.86 percent for businesses and 16.33 percent for individuals). The average interest rate on forward deposits in foreign currency has declined by 0.04 percent only.

Interest for financial products is lowest in Moldova…

According to an EBRD survey, Moldovans spend 81 percent of remittances on current consumption. EBRD experts consider that Moldova shall improve the financial education of population, as the latter is not very interested in financial instruments such as insurance policies, deposits, credits for small business and education. According to the EBRD, the interest for financial products in Moldova is lower than in the poorest Latin American countries such as Haiti, Honduras and Bolivia.

For this purpose, experts recommend the EBRD and associated institutions to encourage the Government and private companies to offer some basic financial products to population. These products could include deposits, insurance policies which would assure health assistance and cover funeral expenditures, micro-financing credits bellow 3,000 dollars to start-up business, as well as loans for education, housing building or renovation. According to EBRD experts, these basic products could be used to educate the population regarding the value of credits and to establish good relations with financial institutions.

Twenty-one percent of adult people in Moldova or 580,000 persons received remittances in 2007. Most of remittances come from Russia (41 percent), Italy (33 percent), and Western Europe (14 percent). A beneficiary of remittances in Moldova has received money from abroad six times a year on average. The survey also reveals that 48 percent of remittances were sent via banks, 21 percent via relatives and acquaintances, and another 16 via courier. Although 60 percent of respondents indicated a positive attitude towards banks, 84 percent of beneficiaries of remittances in Moldova said that they do not have bank accounts.

↑ The minimum consumer basket per person in 2006 was about 954 lei.

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