Economic Policies on September 1–15, 2008

Prices and inflation

Inflation rate for first nine months of the year was 6 percent…

Consumer prices rose by 0.7 percent in August, so that the annual inflation rate climbed up to 6 percent, as tariffs for public services have grown by 5 percent. In particular, the rise was linked to dearer natural gas and electricity. According to NBS accountsRO, the inflation rate was influenced by a 2.2-percent decline of prices of food products, a 0.6-percent rise of prices of manufactured goods and a 5-percent advance of tariffs for public services.

Tariffs for natural gas supplied via centralised networks to household consumers rose by 22.5 percent in August 2008, drinkable water supply and sewerage tariffs increased by more than 15 percent, electricity tariffs for household consumers advanced by about 12 percent and tariffs for urban minibus transportation services grew by over 6 percent. The inflation rate for this year (August 2008 compared with December 2007) was 6 percent (the inflation in August 2007 was 7.3 percent, compared with December 2006).

Average prices in the last 12 months (August 2008 compared with August 2007) rose by 11.7 percent (August 2007 compared with August 2006 — 13.5 percent). The inflation is likely decreasing on background of lower prices of some products on summer. However, it would increase on autumn, when massive procurements of fuels and energy directly influence the evolution of prices, and it could exceed 10 percent at the end of the year.

Inflation in Eurozone and implications on domestic market…

The European market is running the risk to stagnate or even regress. The development pace of the euro area is dangerously slowing, in particular, under the impact of relatively expensive petrol and appreciation of the single currency. In addition, the accelerated inflation in many European countries completes these risks. The inflation rate in the Eurozone is the highest in the last ten years, while the U.S. financial crisis complicates the BCE tasks much.

The weakness of inflation is also linked to serious external disequilibrium correlated to an increasing budgetary deficit which would further depreciate the national currency and this would amplify the current inflationist boom. The reason is simple: when domestic economic agents import products and goods from the EU they also import some inflation which is included in the final price of commodities, while the inflation is on the rise in most of European countries. However, the situation is not so dramatic because export-import operations are not exaggeratedly high to influence the course of Moldovan economy radically.

Foreign trade

Moldova’s commercial deficit accounts for about 1.9 billion dollars…

Imports into Moldova have grown by more than 45 percent in seven months of this year, compared with the similar period of last year, up to nearly 2.78 billion dollars. On the other hand, exports from Moldova have increased by over 26 percent, up to 894 million dollars. Thus, the evolution of exports and imports raised a trade balance deficit worth about 1.9 billion dollars in January-July 2008. It is by about 678 million dollars or 56 percent higher than in the similar period of last year.

Moldova imports most of products, particularly foodstuffs from Ukraine (imports from this country were worth about 473 million dollars in seven months of this year), Romania (355 million dollars) and Russia (350 million dollars). Therefore, majority of food products traded in Moldova are dearer than in neighbouring countries. There is no other way, as prices of imported goods include customs fees, VAT, commercial addition and other taxes. Speculative actions taken by various monopolists or intermediaries which multiply faster under conditions of massive commodity imports and consumer economy, fuel prices of goods and services, too.

Import-export coverage rate keeps falling…

According to data by the National Bureau for Statistics, Moldova recorded the highest trade balance deficit with the European Union — 768 million dollars (524.3 million dollars in January-July 2007). The trade balance deficit recorded with the CIS accounted for 626.5 million dollars (416.1 million dollars) in January-July 2007. Statistics reveal that the situation of Moldova in terms of foreign trade is worsening every year. The import-export coverage rate in seven months of this year was 32 percent, compared with 37 percent in January-July 2007. At the same time, Romania ranks the 1^st place in the top of countries to which Moldova exports most. Moldovan exports to Romania were worth over 190 million dollars in eight months of this year and they rose 1.7 fold compared with the same period of 2007. On the other hand, Moldova’s exports to Ukraine have decreased by about 7 percent, so that this country descended to the 4^th place in the top of key importers of Moldovan goods. The Russian Federation and Italy rank the 2^nd and 3^rd places respectively, as Moldova exported commodities worth 176 million dollars and 102 million dollars to these countries.

External currency position of the country

International reserves up by over 31 percent this year…

International official assets of Moldova increased by more than 31 percent (about 442 million dollars) in January-August 2008, up to a new record of over 1.77 billion dollars in late August. That was the highest rise in a similar period since existence of international reserves of the state and it exceeds nearly twofold the growth achieved in the period concerned of last year, when international reserves increased by 227 million dollars or 29 percent. The rise of international reserves was particularly linked to currency purchases by the National Bank of Moldova, strong fluctuation of the U.S dollar exchange rate versus other currencies, effective transactions reflected in the balance of payments, and decision by the IMF Board of Directors to transfer an ordinary tranche worth 18.6 million dollars to NBM accounts.

According to the memorandum on economic and financial policies of the Government and NBM for 2008 coordinated with the International Monetary Fund, international reserves of the country should grow up to 1.7 billion dollars by the end of this year, while they could reach 2 billion dollars by the end of 2008. The central bank has reduced the share of currency reserves in dollars, but the U.S. currency continues to hold the largest share. Half of currency reserves of the state are made in dollars, 35 percent in euros and the rest in pounds and Swiss francs.

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