Economic Policies on May 17–31, 2008

Prices and inflation

Prices galloping…

Consumer prices rose by 1.6 percent in April 2008, compared with March 2008, and by 5.8 percent this year. The annual inflation rate has reached 16.2 percent, which is much higher than officially forecasted for this year. In order to control this situation, the National Bank has increased by 1.5 percentage points the basic interest rate on main monetary policy operations, restricting the monetary mass this way. At the same time, it decided to gradually increase by 6 percentage points the minimum mandatory reserves made of means attracted by banks in Moldovan lei and unconvertible currency, as well as of means attracted in free convertible currency.

The strong rise of consumer price was particularly fuelled by secondary effects of unfavourable weather in 2007, evolution of food prices on international markets, which reduced the supply and raised prices of foodstuffs. Another factor that fuelled these rises was the growth of energy tariffs, which essentially influenced the tariffs of passenger carriage services, tourism and excursion services. Persistence of excessive cash on domestic financial market, high inflation rate in the region, and strong inflationist expectations by people and economic agents have also influenced the evolution of prices. A bad news and worse news: the current rise of food prices will be followed by another wave by December. This will paradoxically occur in an agricultural year which promises to be much better than the precedent one.

Real sector

GDP is on the rise again…

The industry has grown by 7.2 percentRO in January-April 2008, and this will impel the economic growth, too. Majority of production was generally motivated, in particular, by a 14-percent growth of production made by food and drinking industry and 9.2-percent rise of the energy sector. Enterprises working in the following sectors have achieved substantial rises: wine making -1.8-fold; distilled spirits 1.8-fold; steam and hot water providing by 15.4 percent; electricity production and supply by 6 percent; footwear manufacturing by 15 percent; bread and pastry by 13.9 percent; meat production, processing and canning by 15.8 percent; dairy by 9.2 percent; cacao, chocolate and confectionery by 14.4 percent; furniture manufacturing by 19.5 percent (by controlling 1.4 percent, it motivated the growth by 0.3 percent), etc. However, surveys reveal that even after 8.5 years of permanent and apparently consistent economic growth about 70 percent of Moldovans do not have a normal living and they do not feel the high GDP displayed by authorities.

Labour market

Medium salary in Moldova amounted to 2,328 lei (145.5 euros) in January-April…

Budgetary employees earned 1,816 lei (114 euros) on average, while the real sector of economy paid 2,601 lei (163 euros). The real wage has increased by 11 percent, compared with 10 percent in January-April 2007. The medium salary of a worker amounted to 2,462 lei (154 euros) in April 2008, by 27 percent more than in April 2007. The medium wage accounted for 1,874 lei (117 euros) in budgetary sector and 2,771 lei (173 euros) in real sector. The medium salary on economy was by 91 lei higher in April than in March. According to statistics, the highest medium wage in April, 5,870 lei, was traditionally paid in the financial sector, and it rose by more than 800 lei compared with March; electro-thermal, gas and water providing enterprises ranked the 2^nd place regarding medium salary, and they paid 4,480 lei, which is by 440 lei more than in March 2008. On the other hand, wages in agriculture have decreased by 90 lei, down to 1,140 lei, teachers earned by 41 lei less, 1,592 lei, and doctors were paid 2,136 lei on average in April.

Moldova getting ready to introduce private pension system…

The Chisinau Government has plans to restructure the state social insurance budget and introduce the three-pillar pension system like the one of Romania, Poland and Bulgaria. Now Moldova has a public pension system (Pillar I), but the law on private pension funds drafted in 1999 did not help introducing a three-pillar pension system and consistently increase pensions, which are now the lowest ones in South East Europe and CIS. Although they are annually indexed by 15–20 percent, the minimum pension is 406 lei (25 euros) only, while the medium pension is 564 lei (35 euros), which covers only 27–28 percent of the minimum consumer budget.

There were 624,300 beneficiaries of the public pension fund in Moldova in early 2008 and the number of retirees grows by 2 percent on average. The retirement age is 62 years for men and 57 years for women. The pension fund for 2008 accounts for 278.4 million euros, which is by 23 percent more than in 2007. Experts say that the introduction of the three-pillar pension system will reduce the pressure on state social insurance budget, will stimulate the economic growth by investing the acumulations in economy, will open new jobs and reduce unemployment.

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