Economic Policies on January 18–31, 2010

Agriculture

“Cinderella” of Moldovan economy…

According to NBS data and preliminary estimates, agricultural production of all farms decreased by about 10 percent in 2009, compared with 2008. The decline in overall agricultural production was linked to the downfall of vegetal production by more than 17 percent, while the animal production increased by about 12 percent, compared with 2008.

The analysis of impact of various kinds of products on outcome of agricultural production in 2009, compared with 2008, reveals that the decline in wheat production (by about 43 percent), maize (by more than 23 percent), sugar beet (by more than 65 percent), sunflower (by about 24 percent), vegetables (by more than 14 percent) reduced the overall agricultural production by about 10 percent.

The vegetal production covered 68 percent of the overall agricultural production in 2009 (74 percent in 2008). The decline of vegetal production (and its share in overall agricultural production) in 2009 compared with 2008 was linked to the reduction of sown fields, as well as the fall of the average for key crops. On the other hand, the rise of cattle and fowl livestock (cattle by more than 2 percent, swine by about 34 percent, fowl by about 13 percent), as well as the growth of productivity in the area increased the volume of main animal products and overall animal production.

The analysis on categories of farms indicates that agricultural enterprises cover 29 percent of overall agricultural production, farms — 22 percent, households — 49 percent. The high share of households in agricultural production is especially due to their large animal production (about 81 percent of overall livestock production on country).

Industry

Nor does industry do well…

According to the same NBS data, industrial enterprises altogether manufactured production worth 23.27 billion lei (1.94 billion dollars) in current prices in 2009. The industrial production index was about 78 percent in comparable prices, compared with January-December 2008. This index exceeded 84 percent in December 2009. The decline in industrial output, compared with January-December 2008, was a consequence of the fall in extractive industry by more than 32 percent, processing industry by over 24 percent, energy sector by 1.5 percent, etc., which reduced the overall production by about 23 percent.

The decline in overall industrial output in the period concerned was particularly linked to the slowdown of the following key industrial activities: manufacturing of non-ferrous minerals; fruit and vegetable processing and canning; manufacturing of textiles; winemaking; processing and canning of meat and meat products; manufacturing of distilled spirits, etc. Businesses covered by the monthly statistical research explain the fall in production volume by difficulties to sell their products, especially the reduction of demand from foreign companies, as well as from domestic consumers of industrial production; shortage of raw material; shortage of funds, etc.

Relations with donors

IMF provides funds, but calls to account…

On January 29, 2010 the Board of Directors of the International Monetary Fund (IMF) approved the economic programme with the Republic of MoldovaRO sustained by the Extended Credit Facility (ECF) and Extended Fund Facility (EFF). The financial assistance will be equivalent to 369.6 million Special Drawing Rights (SDR) or about 574.4 million dollars, and aims to support the country economic programme with the view to restore the fiscal and external durability, maintain financial stability, reduce poverty and ensure economic growth. Once approved, Chisinau is able to get immediate access to 60 million Special Drawing Rights (about 93.2 million US dollars) and next tranches will be disbursed after semi-annual revisions. The new programme continues the three-year programme funded via the Poverty Reduction and Growth Facility (PRGF) approved by the Board of Executive Directors in May 2006, which ended in May 2009. The 2010–12 programme of authorities aims to restore fiscal and external durability and encourage economic growth. The budgetary-fiscal policy foresees the gradual achieving of a durable situation in 2010 or even before if possible. The monetary policy will focus on maintaining stability of prices. Structural reforms will sustain the recovery inclusively through more flexibility of strongly regulated economy. The programme will also enhance expenses for elementary social services and poverty reduction. In particular, the budgetary-fiscal policy foresees for 2010 a very necessary adjustment to strong necessities of public investments and social expenses. In an effort to reduce the deficit, the authorities restructured the uncovered salary rises and optimised expenses for materials and subsidies. As well, the budget foresees larger expenses for directed social assistance to protect families in need. The monetary policy will sustain the emerging economic recovery, given the relatively low inflation rate. In order to ensure an exchange rate in accordance with basic economic principles, interventions on currency market will be limited to attenuating short-term fluctuations. The National Bank will carefully monitor the financial condition of banks and will get involved just in case of necessity. Structural reforms aim to relieve the growth potential of economy and support the budgetary-fiscal framework. A broader liberalisation and regulation programme aims to encourage competition and economic growth by private sector. In order to maintain the sustained social insurance system in financial terms, early retirement advantages for public functionaries will be gradually removed and the indemnity system for sick leaves will be reorganised. As well, the authorities will have to get rid of large quasi fiscal arrears in heating sector.

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