Economic Policies on September 1–18, 2009

Labour market

Employees of budgetary system earn more than those from private companies…

According to statistics and media reports, each forth employee in Moldova is paid from public funds. On the other hand, the great majority of active population (about 70 percent) is employed in the private sector and another 5 percent in joint ventures. A budgetary employee in Moldova earns almost 2,700 lei (240 dollars) on average, which is by 23 percent more than paid to an employee of private companies. The discrepancy between wages of budgetary workers and employees of the private sector is not new, but it has deepened in connection with the economic crisis. In an electoral year the Government operated a series of salary rises, while many private companies had to reduce their wages. For example, a budgetary employee in the financial sector earns 7,100 lei on average a month, which is by nearly 2,000 lei more than earned by owners of private companies. The same situation is observed in the area of transportation, industry and construction. The state pays about 1,700 lei a month on average to employees in the agriculture sector, while private farmers earn approximately 1,200 lei a month. For example, wages in the healthcare and education sectors are higher in the real sector than those paid from the state budget. According to official statistics, budgetary employees in the healthcare and social assistance sectors earned 2,600 lei on average a month, while fellows from private companies were paid 3,100 lei, and the proportion in the education sector is 2,000 lei for the public sector and 3,000 lei for the private sector.

Macroeconomics

A two-digit recession could be recorded for 2009…

The clear fall of basic economic indicators in the national economy for the 1^st quarter of 2009 had a negative impact on the evolution of GDP for the first half of the year. Thus, the GDP was worth about 27.87 billion dollars in January-June 2009 in current prices on market, and decreased by 7.8 percent in real terms, compared with January-June 2008 (www.statistica.md). The gross value added in the commodity sector has declined by 16.7 percent in connection with the serious fall (by 24.4 percent) of the gross value added in the industry. The gross value added in agriculture, hunting and forestry was by 2.1 percent higher than in the similar period of the last year. In terms of contribution to the GDP formation the gross value added in the commodity sector decreased by one percent, halting the dynamic of GDP (decreased by 3.5 percent). The gross value added in the service sector decreased by 3.4 percent, compared with the similar period of the last year. Taxes on products collected to the national public budget decreased by more than 15 percent, reducing the GDP volume index (by about 3 percent). As for the use of GDP, the internal demand (final consumption and gross capital formation) in the 1^st semester of 2009 decreased by more than 19 percent, particularly in connection with the decline of the gross fixed capital formation by about 37 percent and overall final consumption by more than 8 percent. The export and import of goods and services decreased by 12.5 percent and about 28 percent.

Banking sector

NBM provided more than 1.25 billion lei to banks in the first eight months…

The National Bank of Moldova provided credits worth 1,254.9 billion lei overall to commercial banks this year, particularly for crediting the real sector of economy, inclusively about 745 million lei in June-August. The loans were released for the basic rate of NBM. Thus, while the average interest rate on credits released by NBM to commercial banks was 11 percent in March-May, it went down to 7.63 percent in August. Banks contracted the credits for 310–350 days in the last three months. Commercial banks use the NBM loans to credit economic agents for an interest rate of over 15 percent. The average rate on bank credits in Moldovan lei was 17.97 percent in July, compared with 23.25 percent in January. The largest “infusion” of liquidities in the bank system was operated in March, 435 million lei. NBM notes that it carried out REPO operations to buy state securities worth 346 million lei in May-July for an average interest rate of 10.65 percent in May, 9.86 percent in June and 9.00 percent in July.

Public funds

Budgetary deficit seen from outside…

According to a report by the World Bank for the Pittsburgh G-20 meeting, the Republic of Moldova which is very dependent on remittances could face a serious deficit in 2009, perhaps up to 10 percent of GDP, additionally to the sudden constriction of the foreign funding. It says that remittances from Moldovans working abroad, equivalent to more than 30 percent of the GDP in 2008, were enough to compensate a current account deficit, which would count for 25 percent of the GDP without these remittances. As two thirds of remittances were coming from Russia, Moldova was seriously hit by the global crisis and remittance inflows as share in the GDP are expected to fall down to half. By continuing to enhance the impact of the economic shock, most of remittances fund the household consumption and fuel imports, which are very important to the Government for fiscal revenues. Remittances from Moldovan individuals (residents and non-residents) via Moldovan banks decreased by nearly half (by 46.5 percent) in July, down to 98.58 million dollars, compared with 180.79 million dollars. Moldovan nationals and foreign citizens sent 613.35 million dollars via Moldovan banks in seven months, which is by 34.5 percent less than in the similar period of last year. The national public budget deficit went up to 2.5 billion lei after seven months, with the Government having to issue more state securities and cover the deficit. The World Bank notes that “while the global economy gives unsure signs of recovery, 43 developing countries with low revenues keep remedying the consequences of the global recession, and this stresses the necessity of increasing the support to the poorest countries which face the crisis and economic volatility.” The report says that the poorest countries face a deficit of 11.6 billion dollars for essential expenses, a sudden decline of the trade, capital inflows, remittances and tourism; additional efforts are required despite the actions taken until now.

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