Economic Policies on September 19 – October 18, 2009

International vs. national economic context

IMF anticipates no growth for next year…

According to a recent IMF report on the global economy, the Moldovan economy will fall down by 9 percent this year. IMF has reduced much the forecast on Moldova compared with the spring forecast, when it was estimating an 8-percent economic growth for 2008 (www.interlic.md). Realising what is behind these digits is hard. IMF does not explain its new conclusion, but notes in the report that poor countries, Moldova being the only Eastern Europe country included in this category, were seriously hit by the global economic crisis, worse than anticipated half a year ago.

The IMF forecasts follow almost precisely the data provided by Moldovan Government. Before the April 5 parliamentary elections the former communist government assured that Moldova was not hit by the global crisis and it admitted just in July that the Moldovan GDP decreased by 7.8 percent in the first half of 2009. IMF said in the recent report that the crisis hit Ukraine more, as the economy of this country is expected to fall down by 14 percent. The economy of Romania would decline by 8.5 percent and that of Russia by 7.5 percent. All these countries would achieve economic growths next year, but IMF anticipates no growth for Moldova.

At the global level, the IMF report reveals that the economy is recovering faster after the crisis than forecasted last spring. Forecasts for the next half of the year reveal a growth in most countries. The forecasts were less optimistic a year ago. The Fund recommends governments to keep encouraging the economy. IMF expects the global economy to fall down by more than one percent this year. It would grow by more than 3 percent next year and China and India would be the engines of growth.

The International Monetary Fund says that countries such as Germany, France and Japan have already overcome the economic recession. These economies are growing again. As regards the most developed economy of the world, the United States, the IMF forecast indicates a little growth just next year. The Fund, which has got wider financial responsibilities and capacities during the crisis, worked out a special programme to study the impact in poor countries. It promises to do its best in order to adjust the specific needs of these countries when it will work out macroeconomic policies and structural reforms, so that to help them get rid of the crisis.

The Moldovan authorities expect an IMF mission in Chisinau during October 13–21 to negotiate the new programme. An invitation to deploy such a mission was sent to IMF last weekend. As well, IMF experts will assist the Government to elaborate anti-crisis measures on sectors of economy. The anti-crisis programme will be worked out before November 20, and the new agreement is expected to be signed before November 30, 2009.

But EBRD is more optimistic…

According to updated forecasts by the European Bank for Reconstruction and Development (EBRD), Moldova will record an economic recession of 8.5 percent in 2009, and a growth of 1.5 percent in 2010. According to EBRD experts, the Moldovan economy suffers a serious economic crisis in 2009. Revenues and remittances will reduce the limited access to external funding which requires a careful participation of fiscal, monetary and exchange policies, in order to maintain macroeconomic stability. The comeback to an economic progress in 2010 will partly depend in the future as well on the trend of refunding planned by trade partners from Moldova, but it shall be sustained by structural reforms and business environment.

Real sector

Industry keeps falling down…

The industry has manufactured an output worth about 10.63 billion lei (949.11 million dollars) in current prices in January-August 2009. The industrial output index exceeded 75 percent in comparable prices, compared with January-August 2008, which means that the industry suffered a regress of about 25 percent. The industrial output declined in connection with a 41-percent fall of extractive industry, 27.3 percent of processing industry and 6.1 percent of energy sector, which reduced the overall production volume by 0.7 percent, 23.4 percent and 0.8 percent respectively.

The decline in industrial output was particularly caused by enterprises manufactured machines and equipment — by about 52 percent, footwear by more than 51 percent, medical, precision, optical equipment and tools by 50 percent, paper and cardboard by 46.6 percent, non-ferrous mineral products by over 45 percent, distilled spirits by about 41 percent, fruit and vegetable processing and canning by about 37 percent, textiles by 35.6 percent, winemaking by about 34 percent etc.

Statistics reveal that, compared with May 2009, the decline deepened in the following areas: fruit and vegetable processing and canning; dairy making; winemaking; editing, printing and publishing; manufacturing of other non-metal mineral products; manufacturing and supply of electricity and heating. Enterprises concerned explain the output volume reduction through difficulties on sale market, especially decline of orders by foreign companies, as well as local businesses which consume industrial production; shortage of raw material; shortage of funds etc.

Banking sector

Banks give signs of “fatigue”…

The NBM data for the first eight months of 2009 reveal that the 1^st-degree capital of Moldovan commercial banks has decreased by about 2.5 percent, down to 6.45 billion lei, but generally corresponds to the minimum required level, and this proves the stability of their financial condition. The decline was generally related to losses suffered by five banks, the central bank noted, but fell short of revealing their names. The central bank stressed that two of these banks already raised revenues in August, with the 1^st-degree capital on system increasing by more than 35 million lei (0.6 percent).

Overall assets on system have increased by 3.8 percent in eight months, up to about 37.58 billion lei, which reveals a decline of crediting and other bank activities, in default of viable investment projects and on background of the current economic situation in the country. Thus, the net credit portfolio has decreased by 13.5 percent, down to about 20.35 billion lei, NBM debts by nearly 46 percent, down to 3.17 million lei. Banking assets increased by more than 91 million lei (0.2 percent) in August. Credits provided to industry and commerce covered more than 50 percent of the overall credit portfolio, as for August 31, followed by agriculture and food industry — more than 15 percent, real estate, construction and development — 12.5 percent, and consumption credits — about 11 percent.

The share of unfavourable credits (substandard, doubtful and compromised) in overall credits has increased by 7 percent, compared with early this year, up to about 13 percent in late August. For comparison, the domestic banking system resisted about 39 percent of this indicator during the 1998–1999 regional crisis. The profitableness indicator of assets and shareholder capital was 0.3 percent and 1.7 percent respectively, which is by 3.1 percent and 17.4 percent respectively less than early this year. The profitableness indicator of assets in the last month of the analysed period (August) was at the level of the previous month (July), while the profitableness indicator of shareholder capital increased by 0.4 percent.

e-democracy.md