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Moldova Economic Growth Analysis - Expert-Grup


Academic year: 2023

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It is necessary to review the current policy for state approval of the economic activities. More specifically, the government stated that it was not satisfied with the consumption-based economic growth model (to which the Moldovan economy is currently returning).

Table 1. Moldova: key long-term economic and socio-economic indicators
Table 1. Moldova: key long-term economic and socio-economic indicators

Economic governance

The poor results of the 2010 privatization auctions seem to point in the same direction. Undeniably, this would solidify support for the government from several quarters: most of the business community, ordinary citizens and the foreign community.

Gross Domestic Product

It is worth mentioning that the destocking process that started at the end of 2008, at the first signs of the global crisis, stopped in the second half of 2009. The positive change in overall demand and the optimistic expectations of companies caused an increase in stocks as early as the third quarter of 2009 (figure 1), but only recently has growth stabilized.


The production of wool (+10%) also increased strongly, but this product has a negligible share in the total production of the subsector. With a moderate decline in crop production, this will result in a 3% increase in agricultural production next year.

Table 3. Consumption of main food staples, kg/per capita if not otherwise indicated
Table 3. Consumption of main food staples, kg/per capita if not otherwise indicated


A clear political decision must be taken on the privatization/restructuring of the thermal power stations. However, the entry of private capital, possibly through PPPs, will require significant changes in management practices.


The demand for construction work is greatly hindered by the average citizen's lack of access to the mortgage programs of commercial banks. In the long term, however, mortgage lending will depend on public confidence in the banking sector and the national currency, macroeconomic and political stability, and the development of the capital market.


36 | The fate of rail transport will depend entirely on the effective restructuring of the national carrier Caile Ferate ale Moldovei. The government should pay attention to the solution of many issues that are critical for the access of domestic service providers to foreign markets.

Labour market

Informal employment in the formal sector is considerable, increasing by 6.4% year-on-year in the third quarter. 40 | The side of new jobs, we expect in the second half of 2011, connected with a more certain and stable recovery of the private sector.

Households’ income and consumption

On the other hand, NBM data (balance of payments and international traffic of natural persons through the banking system) show an increase in the amount of remittances throughout the year by 5.9% (graph 12). Growth in consumption in the first half of 2010 was unevenly distributed, more concentrated in the municipality of Chisinau; in the third quarter of the year, the regions already recorded a greater increase in services provided to the population compared to Chisinau.


We argue that recent price increases had a significant monetary component, which could be influenced by the central bank. In addition to monetary and inflationary cost factors, the CPI level has also been affected by the devaluation of the national currency.

Monetary policy

In most of the year, the national currency has registered a moderate appreciation, as a result of the increase in remittance inflows and continued on the basis of the accelerated growth of exports and remittances. The slow transmission mechanisms of the BKM's monetary policy will limit the central bank's ability to steer the inflation rate to the target corridor in a timely manner and may undermine the credibility of the central bank's monetary policy.

Budgetary policy

This is a telling fact that shows that the current consolidation of public finances has been achieved at the expense of consumers, while companies remain excluded from the formation of budget revenues. If domestic debt continues to build, any tightening of monetary policy (see MONETARY POLICY section) could inflate a bubble in treasury markets, putting new pressure on the state budget.

Banking sector

56 | P a g e Since March 2010, the revival of credit activity has contributed to the improvement of banks' loan portfolios: the share of non-performing loans in total lending fell from 17.37% in early 2010 to 15.23% in October 2010 and continued until the end of 2010. end of the year. This is evident from the large difference between interest rates on loans and deposits (Graph 23): in the period January-October 2010 they fluctuated between 8 and 9 percentage points, twice as high compared to the pre-crisis period.

Foreign trade

Moreover, trade relations with Russia (main trading partner at country level) will become quite a wild card in the aftermath of the general elections in November 2010. In the longer term, greater emphasis should be placed on geographical diversification of exports to reach the target group. the places outside the EU and the former Soviet Union.

Global markets

Quarterly GDP, y-o-y % change, 2008-2011

Another very important evolution in the third quarter of 2010 is the increase in gross fixed capital formation, mainly determined by maintenance and repair works (37% annual increase in January-September 2010). An increase in capital works and new buildings was recorded only in the third quarter; however, this has been partly created by the construction of new houses for flood-affected individuals in the Hancesti neighborhood.

Evolution of gross capital formation, 2009-Q3’2010

Gross Value-Added growth by economic sectors, y-o-y % change

Index of agricultural total and sub-sectors outputs, 1990=100%, and corresponding trends. 26

The severe winter of 2010 damaged the production of some fruits (such as peaches); however, the average yield and total production of the fruit sector represents a growth rate of about 55%. According to our estimates, production for most crops remained profitable in 2010 and thus farmers have more resources to invest next year.

Industrial production growth in CIS countries, y-o-y % change

These developments only confirm the historical trend of contraction of the domestic energy sector compared to other sectors. As the construction sector is expected to strengthen next year, we expect further acceleration in mining growth, where this figure will rise to 15%.

Volume of construction works, million MDL, and annual growth index, 2000=100%

Real estate prices will remain stable in the first half of the year and rise moderately in the second half of the year. For a typical twenty-year mortgage loan, the commercial bank would ask the customer to prove a monthly income five times higher than the average wage per economy, while the total cost of credit would be twice the value of the credit yourself.

Index of volume of retail trade and services rendered to the population, December

The accounts of the company represent a financial quagmire while the management practices are extremely inefficient and outdated. To mention just one example, the tickets bought in advance at 'Caile Ferate ale Moldovei' are more expensive (!) than those bought on the day of travel, which is completely against the modern marketing approach).

Physical volume of cargo and passengers transportation

The latter requires the effective introduction of digital tachographs, without which Moldovan carriers will simply not be allowed to cross the EU border. As mentioned in previous issues of MEGA, it is imperative for Moldova to establish a strong, independent, proactive and transparent antitrust agency.

Employment growth, y-o-y % change

At the beginning of 2010, men were more exposed to the negative impact of the crisis due to the dominance among employees in the sectors with the biggest decline (construction and agriculture). However, the strength of this employment growth depends on the business climate, political and macroeconomic stability in the country.

Growth of households’ income by sources, y-o-y % change

The two divergent trends were also identified at the beginning of the economic crisis, when the remittances reported in the BoP fell faster than the remittances reported in the HBS. The explanation may be the same, some of the transfers reported in the balance of payments are actually payments for goods and services provided from Moldova or even investment transfers paid as remittances due to lower administration and transaction costs.

Growth of remittances and average monthly wage, y-o-y % change

This development indicates the optimism of the employers who are able to increase the wages based on their expectation about growing demand. Initially, this cannot strongly influence the share of income wages in the households' budgets, due to the ever-decreasing employment rate; however, some groups of the population will certainly benefit from it.

Consumer credit and deposits of natural persons (y-o-y % change, columns) and interest

The government should implement performance monitoring mechanisms in the public sector in order to ensure that the evolution of public salaries corresponds to the quality of services provided. The government should work on developing a well-designed means-tested mechanism and update it gradually in the context of changing economic conditions.

CPI index in some countries in Central and Eastern Europe and Commonwealth of

The inflation of the costs of energy resources was mainly determined by the increase in the prices of imported natural gas and fuels. This started in October and was determined by the increase in storage costs for agricultural products, which pushed up the prices of fruit and vegetables.

Correlation between CPI, money in circulation (M0) and remittances, y-o-y % change

These findings somewhat contradict the central bank's claim that prices are determined purely by the cost of production and that inflationary pressures cannot be addressed by monetary policy. Inflation could only be tackled in the long term through better synergy between monetary and economic policies, promoted by the central bank in collaboration with the responsible ministries (the Ministry of Economy and Trade, the Ministry of Finance, the Ministry of Agriculture and Food Industry) and the relevant ministries. regulatory authorities.

Comparative evolution of monetary aggregates and CPI, y-o-y % change

During the year 2010, the NBM significantly reduced its interventions in the Forex market, causing the national currency to follow an almost free-floating trend. In this respect, the NBM's foreign exchange policy differs significantly from 2009, when the central bank made large purchases of foreign currency to accumulate its international reserves, resulting in a depreciation of the national currency.

NBM foreign currency net purchases (USD equivalent) and MDL/USD exchange rate,

49 | P a g e This phenomenon is determined by the increased demand for liquidity due to economic uncertainty and a lack of confidence in commercial banks. Implicitly, these movements show that the Bank is aware of the aforementioned monetary-induced inflationary pressures.

Cross-correlogram of CPI and lagged NBM policy rate: high positive correlation on the left-

The main arguments in favor of monetary policy tightening are looming monetary inflationary pressures and the current strong economic recovery. Most of these non-bank financial institutions are highly interconnected with the banking system, which limits the transmission effect of the central bank's monetary policy.

Public revenue and expenditures, y-o-y % change

The driving forces behind the increases in public expenditure continued to be the health, education and social spheres, which continue to take 74% of the state budget (figure 20) – lower than earlier in 2010, but higher compared to the same period on.

Structure of budgetary expenditures, % of total

In addition to reducing budget expenditures as a share of GDP, the government should strive to rebalance the structure of budget formation. Thus, on the one hand, the state stimulates domestic demand with its expenditure policy, and on the other hand, with its fiscal policy, it taxes this same domestic demand.

Banks’ new loans (y-o-y % change) and real interest rate (%, right axis)

Share of non-performing loans and allowances for loan losses, % of total loans

Banks’ average lending and deposit rates (%) and the interest spread (p.p.)

Relative improvement in the loan portfolio enabled banks to reduce their provisions for loan losses, which bodes well for further increases in lending activity (Figure 22). 57 | P a g e The increase in lending activity alongside falling deposit rates contributed to a slight decrease in the liquidity and capital adequacy indicators (figure 24).

Liquidity and capital adequacy indicators, %

Although these indicators remain low compared to pre-crisis periods, they are above the levels of -0.39%), which is a promising sign for further consolidation of banking activity. These are mainly systemic factors related to the high market concentration (the Herfindahl-Hirschman Index calculated for the bank credit market at the end of the third quarter of 2010 was 0.196, demonstrating an increased market concentration of the five largest banks), a shortage of term liquidity (the share of long-term deposits amounted to only 7.2% of the total deposit stock), poor protection of the rights of lenders, low efficiency of the banking system (the ratio of operating costs to operating income is one of the highest in Central and Eastern -Europe) and insufficient alternatives to bank loans.

Quarterly growth of Moldovan exports and imports, y-o-y % change

The slow recovery of major European economies will continue to negatively impact growth prospects in Moldova. Moreover, this vision should be at the core of the transition to the new export-led development model trumpeted some time ago.

Table 4. Selected World Economic Outlook projections, y-o-y % change
Table 4. Selected World Economic Outlook projections, y-o-y % change

Growth of Moldovan exports to selected countries and country groupings ∗ , y-o-y % change,

Budget deficit and public debt in selected euro area countries, % of GDP, 2009

Trends in key commodity markets remained closely linked to the prospects and pace of global economic recovery: better recovery prospects drove commodity markets higher, while commodity markets were excessively sensitive to hampering and endangering the former. Overall, the recovery in commodity markets has been stronger and faster than during previous recessions (Chart 28), mainly reflecting stronger than expected demand from developing and emerging economies, smaller increases in excess inventories relative to average equity utilization ratios, high exchange rate fluctuations, volatility for most of the period and the low real interest rates in the United States.

Main commodity indexes, 2005 = 100%, December 2009 – October 2010

The weak outlook for the advanced economies is partially offset by buoyant growth prospects in emerging Asia and Latin America which are expected to grow by 8.4% and 4% in 201118. is so different from the one just five years ago.


Table 1. Moldova: key long-term economic and socio-economic indicators
Table 3. Consumption of main food staples, kg/per capita if not otherwise indicated
Table 4. Selected World Economic Outlook projections, y-o-y % change



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