Economy of Moldova

Economy of Moldova
100 Moldovan Lei Banknote
Currency	Moldovan leu (MDL)
Fiscal year	Calendar year
Trade organisations	WTO, GUUAM, CEFTA
Statistics
GDP	$7.944 billion (2014 est.) (nominal)[1] $17.715 billion (2014 est.) (PPP)
GDP rank	143rd (nominal) / 145th (PPP)
GDP growth	4.6% (2014 est.)[2]
GDP per capita	$2,232 (2014 est.) (nominal)[1] $4,979 (2014 est.) (PPP)
GDP by sector	services: 66.2%; industry: 19.9%; agriculture: 13.8% (2013 est.)[3]
Inflation (CPI)	5.0% (CPI, 2014 est.)[4]
Population below poverty line	12.7% (2013)[5]
Gini coefficient	33 (2010)[6]
Labour force	1.232 million (2014)[7]
Labour force by occupation	services: 51.6%; agriculture: 30.5%; industry and construction: 17.9%; (2014)[7]
Unemployment	3.9% (2014)[7]
Average gross salary	4865 MDL, monthly (December 2014)[8]
Main industries	sugar, vegetable oil, food processing, agricultural machinery; foundry equipment, refrigerators and freezers, washing machines; hosiery, shoes, textiles
Ease-of-doing-business rank	63rd[9]
External
Exports	$2.339 billion (2014)[10]
Export goods	foodstuffs, textiles, machinery
Main export partners	Russia 18.3%  Romania 16.7%  Turkey 10.1%  Italy 9.6%  Germany 5.6%  Ukraine 5% (2013 est.) [11]
Imports	$5.317 billion (2014)[10]
Import goods	mineral products and fuel, machinery and equipment, chemicals, textiles
Main import partners	Russia 23.3%  Romania 15.1%  Ukraine 14%  Germany 7.6%  Italy 4.6%  Belarus 4.3% (2013 est.) [12]
FDI stock	$3.224 billion (30 September 2012)
Gross external debt	$5.776 billion (30 September 2012 est.)
Public finances
Public debt	18.1% of GDP (2012 est.)
Revenues	$2.836 billion (2012 est.)[13]
Expenses	$2.931 billion (2012 est.)[13]
Foreign reserves	$2.515 billion (31 December 2012)
Main data source: CIA World Fact Book All values, unless otherwise stated, are in US dollars.

Moldova is a former Soviet country in Eastern Europe. It is landlocked, bordered by Ukraine on the east and Romania to the west. Despite improvements in the economy, the Republic of Moldova remains Europe's poorest nation. Its per capita income is at the same level as most third-world, developing nations.

Background

On January 2, 1992, Moldova introduced a market economy, liberalising prices, which resulted in huge inflation. In 1993, a national currency, the Moldovan leu, was introduced to replace the Soviet ruble. The economic fortunes of Moldova began to change in 2001; since then the country has seen a steady annual growth of between 5% and 10%. Remittances from Moldovans abroad account for a quarter of Moldova's GDP, one of the highest percentages in the world. However, Ion Marandici claims the high level of remittances did not lead to development.^[14]

Overview

Moldova's proximity to the Black Sea gives it a mild and sunny climate. The fertile soil supports wheat, corn, barley, tobacco, sugar beet, and soybeans. Beef and dairy cattle are raised, and beekeeping is widespread. Moldova's best-known product comes from its extensive and well-developed vineyards concentrated in the central and southern regions. In addition to world-class wine, Moldova produces liqueur and sparkling wine. It is also known for its sunflower seeds, walnuts, apples, and other fruits. This makes the area ideal for agriculture and food processing, which accounts for about 40% of the country's GDP.

GDP by sector

Moldova has experienced economic difficulties, like many other former Soviet republics. Since its economy was highly dependent on the rest of the former Soviet Union for energy and raw materials, the breakdown in trade following the breakup of the Soviet Union had a serious effect, exacerbated at times by drought and civil conflict. The Russian ruble devaluation of 1998 had a deleterious effect on Moldova's economy, but economic growth has been steady since 2000.

Moldova has made progress in economic reform since independence. The government has liberalized most prices and has phased out subsidies on most basic consumer goods. A program begun in March 1993 has privatized 80% of all housing units and nearly 2,000 small, medium, and large enterprises. Other successes include the privatization of nearly all of Moldova's agricultural land from state to private ownership, as a result of an American assistance program, "Pamînt" ("land"), completed in 2000. A stock market opened in June 1995.

Inflation was brought down from over 105% in 1994 to 11% in 1997. Though inflation spiked again after Russia’s 1998 currency devaluation, Moldova made great strides in bringing it under control: 18.4% in 2000, 6.3% in 2001, and 4.4% in 2002. In 2003 inflation escalated again – due mainly to a drought-driven rise in agricultural prices – reaching 15.7%, although it was reigned in to 12.5% in 2004. The local currency appreciated considerably in 2003 and the first months of 2004. By May, the leu had reached its highest level since the end of 1999. After the National Bank of Moldova increased considerably its purchases on the foreign exchange market, the leu stabilized in November–December 2004 at 12.00-12.50 to the US dollar.

Moldova continues to make progress toward developing a viable free-market economy. The country recorded its fifth consecutive year of positive GDP growth in 2004, with year-end real GDP growth of 8%. This growth is impressive considering that, prior to 2000, Moldova had recorded only one year of positive GDP growth since independence. Budget execution in 2004 was also impressive, as actual consolidated budget revenues exceeded projections by 1.4% for most of the year.

Privatization results in 2004 were not significant: several smaller companies and one winery were privatized in 2004, but the government postponed indefinitely the privatization of several larger state enterprises, including two electricity distribution companies. Sporadic and ineffective enforcement of the law, economic and political uncertainty, and government harassment and interference continue to discourage inflows of foreign direct investment.

Imports continued to increase more rapidly than exports during the first nine months of 2004; Moldova’s terms of trade worsened, as higher-priced energy imports outpaced the value of Moldova’s main exports—agricultural and agro-processing goods.

During 2002, Moldova rescheduled an outstanding Eurobond, in the amount of $39.6 million, to avoid a potential default. In May 2004, Moldova redeemed promissory notes with a total value of $114.5 million to Russian Gazprom for just $50 million. Moldova informed its bilateral creditors in mid-2003 that it would no longer service its debts. The 2004 budget did provide funds for external debt service (interest) at some 6% of the government budget, the 2005 budget projects external debt service at some 4%. The International Monetary Fund (IMF) and World Bank resumed lending to Moldova in July 2002, and then suspended lending again in July 2003. Although Moldova passed a poverty reduction strategy in 2004, it has yet to reach an agreement with international financial institutions.

70% of total electrical energy power consumed in Moldova is imported from Ukraine and only 30% is produced in Moldova.

Macroeconomic situation

As a whole, Moldova is doing well, despite a series of consecutive shocks, which included the doubling of the price of imported natural gas and Russia's ban on imports of Moldovan wine in 2006, and a severe drought in 2007. Growth is estimated at 5 percent in 2007 and is projected to increase to 7 percent in 2008. Investment is picking up, and is beginning to replace remittances as the main source of growth—an encouraging sign that the earlier model of consumption-driven growth is changing.

Moldova increasingly faces the challenges experienced by other transition economies. Improved growth prospects have come with strong appreciation pressures from foreign exchange inflows, and a widening trade deficit. Foreign direct investment (FDI) has picked up and is estimated to have reached 12 percent of GDP in 2007, compared with 7 percent in 2006.

The main macroeconomic concern is inflation, which at 13 percent remains high for the region.

A deterioration in the merchandise trade balance due to strong import growth has been offset by improvements in net income and transfers, with a small improvement in the current account deficit to 12 percent of GDP. A resumption of wine exports to Russia in October was a major positive development, although volumes are likely to recover slowly.

Fiscal policy remained tight, ending 2007 with a modest deficit of 0.3 percent of GDP. Strong revenue performance was driven by robust VAT on imports, while expenditure was kept in line with the budget. However, the tax cuts introduced in 2008 may undermine the favorable fiscal position.

Monetary tightening in 2007 was complicated by the strong inflow of foreign exchange. The National Bank of Moldova increased reserve requirements from 10 to 15 percent, and raised policy interest rates by 2.5 percentage points. Nevertheless, the possibility of second-round effects from the drought, liquidity pressures from growing remittances and FDI, and the continued strong growth in credit and broad money suggest that upside risks to inflation are not yet fully contained.

In spite of some favorable background, the Republic of Moldova remains Europe's poorest nation, resisting pursuing the types of reforms that have vastly improved the economies of some of its Eastern European neighbors. The Communist Party retained political control after winning the March 2005 parliamentary elections and re-elected its leader, Vladimir Voronin, as president in collaboration with the opposition. Although the government maintains a pro-Western stance, it has had trouble pursuing structural reforms and has made little progress on the International Monetary Fund's program to attract external financial resources. The parliament approved the government's economic growth and strategy paper in December 2004, but international financial institutions and Western investors will not be satisfied until the government begins to address fiscal adjustment, wage restraint, and payment of debt arrears. Despite the fact that the pace of privatization and industrial output has slowed, GDP growth was 7.3 percent in 2004, consumption continues to grow, and the currency continues to appreciate. The impasse in the pro-Russian Transnistria enclave, plagued by corruption and the smuggling of arms and contraband, continues despite international attempts at mediation.

Doing business

According to the Global Competitiveness Report,^[15] the Most Problematic Factors for Doing Business are the access to finances, corruption and bureaucracy.

From a list of 14 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings.

Trade policy

According to the World Bank, Moldova's weighted average tariff rate in 2001 (the most recent year for which World Bank data are available) was 2.8 percent. (The World Bank has revised the figure for 2001 downward from the 3.9 percent reported in the 2005 Index.) A 2004 World Bank report notes a "range of informal barriers to both imports and exports in Moldova, such as cumbersome and restrictive trade procedures, corruption, burdensome and inappropriate regulations and high transport costs." Based on the revised trade factor methodology, Moldova's trade policy score is unchanged.

Fiscal burden

Moldova's top income tax rate is 22 percent. The top corporate tax rate has been cut to 18 percent from 20 percent, effective January 2005. In 2003, government expenditures as a share of GDP increased 1.2 percentage points to 33.6 percent, compared to the 3.0 percentage point increase in 2002.

Government intervention

The World Bank reports that the government consumed 17.7 percent of GDP in 2003. In the same year, based on data from the International Monetary Fund, Moldova received 4.93 percent of its revenues from state-owned enterprises and government ownership of property.

Monetary policy

Between 1995 and 2004, Moldova's weighted average annual rate of inflation was 11.99 percent.

Foreign investment

The Moldovan government does not maintain many formal barriers to foreign investment, and the Moldovan embassy reports that foreign investors are free to "place their investments throughout the Republic of Moldova, in any area of business activity, as long as it does not go against the interests of the national security, anti-monopoly legislation, environment protection norms, public health and public order." However, there are significant informal barriers and indications that the formal reasons to block investment are liberally applied. According to the International Monetary Fund, "despite efforts to simplify licensing and business registration, there has been no significant improvement in the business climate. Moreover, the privatization program has stalled, while corruption remains widespread and governance weak. Government interference in the private sector…casts doubt over the authorities' commitment to market-oriented reforms." The Economist Intelligence Unit reports that the "poor investment climate, including annulments of some earlier sales, continues to deter many Western investors. Between 2001 and 2004 the government privatized less than 60 of the 480-odd enterprises scheduled for sale." Foreign investors may not purchase agricultural or forest land. The IMF reports that both residents and non-residents may hold foreign exchange accounts, but approval is required in some cases. Payments and transfers require supporting documentation and approval of the National Bank of Moldova if they exceed specified amounts. Nearly all capital transactions require approval by or registration with the National Bank of Moldova.

Banking and finance

There are no official barriers to founding foreign banks or branches in Moldova. The central bank has increased the minimum capital requirement, which is expected to contribute to consolidation in the banking sector. First Initiative reports that the banking sector "consists of 16 commercial banks (2003). There are 14 locally-owned banks, while the two remaining ones are from Russia and Romania. The banking sector is highly concentrated with the five largest banks accounting for over 70% of lending in 2002. Unlike the banking sector, the insurance sector has high levels of foreign-participation. The largest insurance firm in Moldova, the former state insurance company, is owned by an Australian company." Moldova's stock exchange is very small, listing fewer than 25 companies in 2002. The Moldovan embassy reports that the government holds shares in two banks—JSCB "Banca de Economii" SA and JSCB "EuroCreditBank"—including a controlling share of Banca de Economii. The Economist Intelligence Unit reports that foreign investment accounts for approximately 50 percent of total banking capital.

• List of banks in Moldova

Wages and prices

The government influences prices through the large state-owned sector. According to the Ministry of Economy, the state regulates the prices of goods and services provided by monopolies and the prices of electric or thermal energy, land, medical services, and services offered by local tax regions. Moldova has two legal monthly minimum wages: one wage for state employees and another, higher wage for the private sector.

In 2014, the average monthly salary in the economy was 4172 lei, up by 10.8% (5.4% if inflation adjusted) against 2013.
In December 2014 the average salary for state employees was 4000 lei and the average salary in private sector was 5233 lei, up by 14.4% and 13.7% against 2013 respectively.^[8]

Property rights

The U.S. Department of Commerce reports that the "legal system has improved in recent years. Moldova has a documented and consistently applied commercial law." Nevertheless, much more needs to be done. According to the U.S. Department of State, "The Constitution provides for an independent judiciary; however, the executive branch has exerted undue influence on the judiciary. Many observers believe that arrears in salary payments also make it difficult for judges to remain independent from outside influences and free from corruption."

Regulation

"Bureaucratic procedures are not always transparent and red tape often makes processing unnecessarily long," reports the U.S. Department of Commerce. "[C]ommercial law is a confusing patchwork of narrow statutes and an outdated civil code. With USAID experts, a draft civil code has been developed which follows the current European practice of incorporating commercial law provisions." The same source reports that anti-corruption laws "are not effectively enforced and corruption exists at an advanced level." A report provided by the World Bank indicates that labor laws are somewhat rigid.

Informal market

Transparency International's 2004 score for Moldova is 2.3. Thereafter, Moldova's informal market score is 4 in 2005. In 2011 the corruption score for Moldova is 2.9, better than it was in 2004, concluding TI.^[16]

Tourism

• Total: 238,053 as of 2014^[17]
  • International Tourism: 195,008
    • Inbound: 14,362
    • Outbound: 180,646
  • Domestic Tourism: 43,045

Most of foreign tourists were from: Romania (21,2%), Russia (13,9%), Ukraine (10,7%), Germany (4,9%), Turkey (4,8%), Italy (4,0%), USA (3,9%), Israel (3,7%), Poland (3,0%), UK (2,9%), Bulgaria (2,7%), Belarus (2,5%), The Netherlands (2,3%), Austria (1,9%), Sweden (1,7%), France (1,3%), Lithuania (1,2%).

There are around 15000 sights and 300 natural zones within Moldova, which represent a great potential for domestic and international tourists.

Statistics

GDP Nominal (in US Dollars - Current Prices)^[1]

GDP Purchasing-Power-Parity (in US Dollars - Current Prices)^[18]

GDP Growth (Constant Prices)^[19]

Inflation (Average Consumer Prices)^[4]

Public Debt (% of GDP)^[20]

External Debt (in US Dollars)^[21]

• Per capita GDP (2011 est.):$2022 ($760 in 2004; $540 in 2003: $448 in 2002; $422 in 2001).
• Natural resources: Lignite, phosphates, gypsum, arable land, and limestone.
• Agriculture: Products—vegetables, fruits, wine and spirits, grain, sugar beets, sunflower seeds, meat, milk, eggs, tobacco, walnuts.
• Industry: Types—processed foods and beverages, including wine and refined sugar; processed fruit and vegetable products, including vegetable oil; dairy and meat products; tobacco items; metal processing and production of machinery; textiles and clothing, shoes; furniture.
• Trade (2011): Exports--$2.221 billion (of which 49% go to European union member countries : foodstuffs, wine, textiles, clothing, footwear and machinery. Major markets--Russia, Romania, Italy, Ukraine, Germany. Imports-- $5.191 billion (of which 58% come from countries outside the former Soviet Union): gas, oil, coal, steel, machinery and equipment, chemical products, textiles, foodstuffs, automobiles, and other consumer durables. Major suppliers—Ukraine, Russia, Germany, Italy, Romania,
• Currency: Moldovan Leu (plural Lei).
• Exchange rate: Lei/US$ (2011): 11.80; (13.94 average in 2003); (13.57 average in 2002);(12.40 average in 2004)

Investment (gross fixed): 17.1% of GDP (2004 est.)

Household income or consumption by percentage share: lowest 10%: 2.2% highest 10%: 30.7% (1997)

Distribution of family income - Gini index: 33.1 (2003)

Agriculture - products: vegetables, fruits, wine, grain, sugar beets, sunflower seed, tobacco; beef, milk

Industrial production growth rate: 17% (2003 est.)

Electricity:

• production: 1,064 million kWh (2010)
• consumption: 4,102 million kWh (2010)
• exports: 0 kWh (2010)
• imports: 3,038 million kWh (2010)

Electricity - production by source:

• fossil fuel: 90.6%
• hydro: 9.4%
• other: 0% (2001)
• nuclear: 0%

Oil:

• production: 0 barrels per day (0 m³/d) (2001 est.)
• consumption: 24,000 barrels per day (3,800 m³/d) (2001 est.)
• exports: NA
• imports: NA

Natural gas:

• production: 0 m³ (2001 est.)
• consumption: 2.05 billion m³ (2001 est.)
• exports: 0 m³ (2001 est.)
• imports: 2.05 billion m³ (2001 est.)

Current account balance: $-148.4 million (2004 est.)

Exports - commodities: foodstuffs, textiles, machinery, medicals (2011)

Imports - commodities: mineral products and fuel, machinery and equipment, chemicals, textiles (2010)

Reserves of foreign exchange & gold: $2.0 billion (2011 est.) ($390 million in 2004)

See also

• Economy of Europe
• Moldova

References

 This article incorporates public domain material from websites or documents of the CIA World Factbook.

External links

• National Bureau of Statistics of Moldova
• National Bank of Moldova
• International Monetary Fund: Republic of Moldova: Statistical Appendix