Economy of Moldova
Encyclopedia
Moldova
is the second smallest of the former Soviet republics
and the most densely populated. Industry accounts for only 20% of its labor force, while agriculture's share is more than one-third. It remains the poorest country in Europe. It is landlocked, bounded by Ukraine
on the east and Romania
to the west. Despite improvements on the economy the Republic of Moldova remains Europe's poorest nation.
, liberalizing prices, which resulted in huge inflation
. From 1992 to 2001, the young country suffered its worst economic crisis, leaving most of the population below the poverty line. In 1993, a national currency, the Moldovan leu
, was introduced to replace the Soviet ruble
. The end of the planned economy
also meant that industrial enterprises would have to buy supplies and sell their goods by themselves, and most of the management was unprepared for such a change. Moldova's industry, especially machine building, became all but defunct, and unemployment
skyrocketed. 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%. The early 2000s also saw a considerable growth of emigration of Moldovans looking for work (mostly illegally) in Italy
, Portugal
, Spain
, Greece
, Cyprus
, Turkey
, and other countries, in addition to work in Russia
. Remittances from Moldovans abroad account for almost 38% of Moldova's GDP, the second-highest percentage in the world. However, Ion Marandici claims the high level of remittances did not lead to development. Officially, Moldova's annual GDP is on the order of $1,000 per capita; however, a significant part of the economy goes unregistered due to corruption.
, corn
, barley
, tobacco
, sugar beet
, and soybean
s. 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
s 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.
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 note
s 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.
'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.
an 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
investor
s 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.
, the Most Problematic Factors for Doing Business is the access to finance
s, corruption
and bureaucracy
.
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.
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.
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.
In 2010, the average monthly salary in the private sector was 3144 lei (equivalent of 253.5 U.S. dollars), up by 8.4% against 2009.
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.
's 2004 score for Moldova is 2.3. Therefore, Moldova's informal market score is 4 in 2005.
Table 1. Moldovan Real GDP Growth and CPI Inflation, 2006–09 (Percent) *Note: GDP figures for 2008 and 2009 are April 2008 forecasts, current projections differ*
Table 2. Moldova: External and Fiscal Balances, Government Debt, 2006–08 (Percent)
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:
40.6 (1997)
Agriculture - products:
vegetables, fruits, wine, grain, sugar beets, sunflower seed, tobacco; beef, milk
Industrial production growth rate:
17% (2003 est.)
Electricity:
Electricity - production by source:
Oil:
Natural gas:
Current account balance:
$-148.4 million (2004 est.)
Exports - commodities:
foodstuffs, textiles, machinery
Imports - commodities:
mineral products and fuel, machinery and equipment, chemicals, textiles (2000)
Reserves of foreign exchange & gold:
$390 million (2004 est.)
Moldova
Moldova , officially the Republic of Moldova is a landlocked state in Eastern Europe, located between Romania to the West and Ukraine to the North, East and South. It declared itself an independent state with the same boundaries as the preceding Moldavian Soviet Socialist Republic in 1991, as part...
is the second smallest of the former Soviet republics
Republics of the Soviet Union
The Republics of the Soviet Union or the Union Republics of the Soviet Union were ethnically-based administrative units that were subordinated directly to the Government of the Soviet Union...
and the most densely populated. Industry accounts for only 20% of its labor force, while agriculture's share is more than one-third. It remains the poorest country in Europe. It is landlocked, bounded by Ukraine
Ukraine
Ukraine is a country in Eastern Europe. It has an area of 603,628 km², making it the second largest contiguous country on the European continent, after Russia...
on the east and Romania
Romania
Romania is a country located at the crossroads of Central and Southeastern Europe, on the Lower Danube, within and outside the Carpathian arch, bordering on the Black Sea...
to the west. Despite improvements on the economy the Republic of Moldova remains Europe's poorest nation.
Background
On January 2, 1992, Moldova introduced a market economyMarket economy
A market economy is an economy in which the prices of goods and services are determined in a free price system. This is often contrasted with a state-directed or planned economy. Market economies can range from hypothetically pure laissez-faire variants to an assortment of real-world mixed...
, liberalizing prices, which resulted in huge inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
. From 1992 to 2001, the young country suffered its worst economic crisis, leaving most of the population below the poverty line. In 1993, a national currency, the Moldovan leu
Moldovan leu
The leu is the currency of Moldova. Like the Romanian leu, the Moldovan leu is subdivided into 100 bani . The name of the currency originates in Romania and means "lion".-History:...
, was introduced to replace the Soviet ruble
Soviet ruble
The Soviet ruble or rouble was the currency of the Soviet Union. One ruble is divided into 100 kopeks, ....
. The end of the planned economy
Planned economy
A planned economy is an economic system in which decisions regarding production and investment are embodied in a plan formulated by a central authority, usually by a government agency...
also meant that industrial enterprises would have to buy supplies and sell their goods by themselves, and most of the management was unprepared for such a change. Moldova's industry, especially machine building, became all but defunct, and unemployment
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
skyrocketed. 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%. The early 2000s also saw a considerable growth of emigration of Moldovans looking for work (mostly illegally) in Italy
Italy
Italy , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...
, Portugal
Portugal
Portugal , officially the Portuguese Republic is a country situated in southwestern Europe on the Iberian Peninsula. Portugal is the westernmost country of Europe, and is bordered by the Atlantic Ocean to the West and South and by Spain to the North and East. The Atlantic archipelagos of the...
, Spain
Spain
Spain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...
, Greece
Greece
Greece , officially the Hellenic Republic , and historically Hellas or the Republic of Greece in English, is a country in southeastern Europe....
, Cyprus
Cyprus
Cyprus , officially the Republic of Cyprus , is a Eurasian island country, member of the European Union, in the Eastern Mediterranean, east of Greece, south of Turkey, west of Syria and north of Egypt. It is the third largest island in the Mediterranean Sea.The earliest known human activity on the...
, Turkey
Turkey
Turkey , known officially as the Republic of Turkey , is a Eurasian country located in Western Asia and in East Thrace in Southeastern Europe...
, and other countries, in addition to work in Russia
Russia
Russia or , officially known as both Russia and the Russian Federation , is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects...
. Remittances from Moldovans abroad account for almost 38% of Moldova's GDP, the second-highest percentage in the world. However, Ion Marandici claims the high level of remittances did not lead to development. Officially, Moldova's annual GDP is on the order of $1,000 per capita; however, a significant part of the economy goes unregistered due to corruption.
Overview
Moldova's proximity to the Black Sea gives it a mild and sunny climate. The fertile soil supports wheatWheat
Wheat is a cereal grain, originally from the Levant region of the Near East, but now cultivated worldwide. In 2007 world production of wheat was 607 million tons, making it the third most-produced cereal after maize and rice...
, corn
Maize
Maize known in many English-speaking countries as corn or mielie/mealie, is a grain domesticated by indigenous peoples in Mesoamerica in prehistoric times. The leafy stalk produces ears which contain seeds called kernels. Though technically a grain, maize kernels are used in cooking as a vegetable...
, barley
Barley
Barley is a major cereal grain, a member of the grass family. It serves as a major animal fodder, as a base malt for beer and certain distilled beverages, and as a component of various health foods...
, tobacco
Tobacco
Tobacco is an agricultural product processed from the leaves of plants in the genus Nicotiana. It can be consumed, used as a pesticide and, in the form of nicotine tartrate, used in some medicines...
, sugar beet
Sugar beet
Sugar beet, a cultivated plant of Beta vulgaris, is a plant whose tuber contains a high concentration of sucrose. It is grown commercially for sugar production. Sugar beets and other B...
, and soybean
Soybean
The soybean or soya bean is a species of legume native to East Asia, widely grown for its edible bean which has numerous uses...
s. Beef and dairy cattle
Dairy cattle
Dairy cattle are cattle cows bred for the ability to produce large quantities of milk, from which dairy products are made. Dairy cows generally are of the species Bos taurus....
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
Wine
Wine is an alcoholic beverage, made of fermented fruit juice, usually from grapes. The natural chemical balance of grapes lets them ferment without the addition of sugars, acids, enzymes, or other nutrients. Grape wine is produced by fermenting crushed grapes using various types of yeast. Yeast...
, Moldova produces liqueur
Liqueur
A liqueur is an alcoholic beverage that has been flavored with fruit, herbs, nuts, spices, flowers, or cream and bottled with added sugar. Liqueurs are typically quite sweet; they are usually not aged for long but may have resting periods during their production to allow flavors to marry.The...
s and sparkling wine
Sparkling wine
Sparkling wine is a wine with significant levels of carbon dioxide in it making it fizzy. The carbon dioxide may result from natural fermentation, either in a bottle, as with the méthode champenoise, in a large tank designed to withstand the pressures involved , or as a result of carbon dioxide...
. It is also known for its sunflower seeds, walnuts, apples, and other fruits. This makes the area ideal for agriculture
Agriculture
Agriculture is the cultivation of animals, plants, fungi and other life forms for food, fiber, and other products used to sustain life. Agriculture was the key implement in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the...
and food processing, which accounts for about 40% of the country's GDP.
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
Soviet Union
The Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....
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
Privatization
Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations...
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
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
assistance program, "Pamînt" ("land"), completed in 2000. A stock market
Stock market
A stock market or equity market is a public entity for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.The size of the world stock market was estimated at about $36.6 trillion...
opened in June 1995.
Inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
was brought down from over 105% in 1994 to 11% in 1997. Though inflation spiked again after Russia
Russia
Russia or , officially known as both Russia and the Russian Federation , is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects...
’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
National Bank of Moldova
The National Bank of Moldova is the central bank of the Republic of Moldova.The National Bank of Moldova is a legal, public, autonomous person responsible to the Parliament. The main objective of the NBM is the achievement and maintenance of the stability of the national currency...
increased considerably its purchases on the foreign exchange market, the leu
Moldovan leu
The leu is the currency of Moldova. Like the Romanian leu, the Moldovan leu is subdivided into 100 bani . The name of the currency originates in Romania and means "lion".-History:...
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
Foreign direct investment
Foreign direct investment or foreign investment refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.. It is the sum of equity capital,other long-term capital, and short-term capital as shown in...
.
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
Eurobond
A Eurobond is an international bond that is denominated in a currency not native to the country where it is issued. It can be categorised according to the currency in which it is issued. London is one of the centers of the Eurobond market, but Eurobonds may be traded throughout the world - for...
, in the amount of $39.6 million, to avoid a potential default. In May 2004, Moldova redeemed promissory note
Promissory note
A promissory note is a negotiable instrument, wherein one party makes an unconditional promise in writing to pay a determinate sum of money to the other , either at a fixed or determinable future time or on demand of the payee, under specific terms.Referred to as a note payable in accounting, or...
s with a total value of $114.5 million to Russian Gazprom
Gazprom
Open Joint Stock Company Gazprom is the largest extractor of natural gas in the world and the largest Russian company. Its headquarters are in Cheryomushki District, South-Western Administrative Okrug, Moscow...
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
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
(IMF) and World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
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
Ukraine
Ukraine is a country in Eastern Europe. It has an area of 603,628 km², making it the second largest contiguous country on the European continent, after Russia...
and only 30% is produced in Moldova.
Macroeconomic situation
Mainly, Moldova is doing well, despite a series of consecutive shocks, which included the doubling of the price of imported natural gas and RussiaRussia
Russia or , officially known as both Russia and the Russian Federation , is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects...
's ban on imports of Moldovan wine
Moldovan wine
With a production of 124,200 tons of wine , Moldova has a well established wine industry. It has a vineyard area of of which are used for commercial production. The remaining are vineyards planted in villages around the houses used to make home-made wine, or "vin de casa"...
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
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
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
FDI
-Medical:* FDI World Dental Federation, Fédération dentaire internationale. The World Dental Federation also have an , also known as the FDI.* first dorsal interosseous, one of the four dorsal interossei muscles of the hand -Finance:* FDi magazine, a UK-based publication that covers foreign direct...
) 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
Vat
Vat or VAT may refer to:* A type of container such as a barrel, storage tank, or tub, often constructed of welded sheet stainless steel, and used for holding, storing, and processing liquids such as milk, wine, and beer...
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
National Bank of Moldova
The National Bank of Moldova is the central bank of the Republic of Moldova.The National Bank of Moldova is a legal, public, autonomous person responsible to the Parliament. The main objective of the NBM is the achievement and maintenance of the stability of the national currency...
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
FDI
-Medical:* FDI World Dental Federation, Fédération dentaire internationale. The World Dental Federation also have an , also known as the FDI.* first dorsal interosseous, one of the four dorsal interossei muscles of the hand -Finance:* FDi magazine, a UK-based publication that covers foreign direct...
, and the continued strong growth in credit and broad money suggest that upside risks to inflation are not yet fully contained.
Currently
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 EuropeEastern Europe
Eastern Europe is the eastern part of Europe. The term has widely disparate geopolitical, geographical, cultural and socioeconomic readings, which makes it highly context-dependent and even volatile, and there are "almost as many definitions of Eastern Europe as there are scholars of the region"...
an neighbors. The Communist Party retained political control after winning the March 2005 parliamentary elections and re-elected its leader, Vladimir Voronin
Vladimir Voronin
Vladimir Nicolaevici Voronin is a Moldovan politician. He was the third President of Moldova from 2001 until 2009 and has been the First Secretary of the Party of Communists of the Republic of Moldova since 1994...
, as president in collaboration with the opposition
Opposition (politics)
In politics, the opposition comprises one or more political parties or other organized groups that are opposed to the government , party or group in political control of a city, region, state or country...
. 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
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
'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
Western world
The Western world, also known as the West and the Occident , is a term referring to the countries of Western Europe , the countries of the Americas, as well all countries of Northern and Central Europe, Australia and New Zealand...
investor
Investor
An investor is a party that makes an investment into one or more categories of assets --- equity, debt securities, real estate, currency, commodity, derivatives such as put and call options, etc...
s will not be satisfied until the government begins to address fiscal adjustment
Fiscal adjustment
A fiscal adjustment is a reduction in the government primary budget deficit, and it can result from a reduction in government expenditures, an increase in tax revenues, or both simultaneously....
, 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
Transnistria
Transnistria is a breakaway territory located mostly on a strip of land between the Dniester River and the eastern Moldovan border to Ukraine...
enclave, plagued by corruption
Political corruption
Political corruption is the use of legislated powers by government officials for illegitimate private gain. Misuse of government power for other purposes, such as repression of political opponents and general police brutality, is not considered political corruption. Neither are illegal acts by...
and the smuggling of arms
Weapon
A weapon, arm, or armament is a tool or instrument used with the aim of causing damage or harm to living beings or artificial structures or systems...
and contraband
Contraband
The word contraband, reported in English since 1529, from Medieval French contrebande "a smuggling," denotes any item which, relating to its nature, is illegal to be possessed or sold....
, continues despite international attempts at mediation.
Doing business
According to the Global Competitiveness ReportGlobal Competitiveness Report
The Global Competitiveness Report is a yearly report published by the World Economic Forum. The first report was released in 1979. The 2011–2012 report covers 142 major and emerging economies....
, the Most Problematic Factors for Doing Business is the access to finance
Access to finance
Access to finance refers to the possibility that individuals or enterprises can access financial services, including credit, deposit, payment, insurance, and other risk management services...
s, corruption
Political corruption
Political corruption is the use of legislated powers by government officials for illegitimate private gain. Misuse of government power for other purposes, such as repression of political opponents and general police brutality, is not considered political corruption. Neither are illegal acts by...
and bureaucracy
Bureaucracy
A bureaucracy is an organization of non-elected officials of a governmental or organization who implement the rules, laws, and functions of their institution, and are occasionally characterized by officialism and red tape.-Weberian bureaucracy:...
.
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 taxIncome tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
rate is 22 percent. The top corporate tax
Corporate tax
Many countries impose corporate tax or company tax on the income or capital of some types of legal entities. A similar tax may be imposed at state or lower levels. The taxes may also be referred to as income tax or capital tax. Entities treated as partnerships are generally not taxed at the...
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 UnitEconomist Intelligence Unit
The Economist Intelligence Unit is part of the Economist Group.It is a research and advisory company providing country, industry and management analysis worldwide and incorporates the former Business International Corporation, a U.S. company acquired by the parent organization in 1986...
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
National Bank of Moldova
The National Bank of Moldova is the central bank of the Republic of Moldova.The National Bank of Moldova is a legal, public, autonomous person responsible to the Parliament. The main objective of the NBM is the achievement and maintenance of the stability of the national currency...
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 RussiaRussia
Russia or , officially known as both Russia and the Russian Federation , is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects...
and Romania
Romania
Romania is a country located at the crossroads of Central and Southeastern Europe, on the Lower Danube, within and outside the Carpathian arch, bordering on the Black Sea...
. 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
The Economist
The Economist is an English-language weekly news and international affairs publication owned by The Economist Newspaper Ltd. and edited in offices in the City of Westminster, London, England. Continuous publication began under founder James Wilson in September 1843...
Intelligence Unit reports that foreign investment accounts for approximately 50 percent of total banking capital.
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 2010, the average monthly salary in the private sector was 3144 lei (equivalent of 253.5 U.S. dollars), up by 8.4% against 2009.
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 USAIDUnited States Agency for International Development
The United States Agency for International Development is the United States federal government agency primarily responsible for administering civilian foreign aid. President John F. Kennedy created USAID in 1961 by executive order to implement development assistance programs in the areas...
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 InternationalTransparency International
Transparency International is a non-governmental organization that monitors and publicizes corporate and political corruption in international development. It publishes an annual Corruption Perceptions Index, a comparative listing of corruption worldwide...
's 2004 score for Moldova is 2.3. Therefore, Moldova's informal market score is 4 in 2005.
Statistics
- GDP (billions)
- $ 4.3 (First Quarter) - 2010;
- $ 7.2 - 2009;
- $ 3.1 - 2008;
- $ 4.10 — 2007;
- $ 3.98 — 2006;
- $ 2.76 — 2005;
- $ 2.6 — 2004;
- $ 2.0 — 2003;
- $ 1.6 — 2002;
- $ 1.5 — 2001.
- 3.0% — 2007;
- 4.8% — 2006;
- 7.5% — 2005
- 5.7% — 2004
- 6.3% — 2003;
- 7.2% — 2002;
- 6.1% — 2001.
Table 1. Moldovan Real GDP Growth and CPI Inflation, 2006–09 (Percent) *Note: GDP figures for 2008 and 2009 are April 2008 forecasts, current projections differ*
| % | 2006 | 2007 | 2008 | 2009 |
| Real GDP Growth | 4.0 | 5.0 | 7.0 | 8.0 |
| CPI Inflation | 12.7 | 12.6 | 11.4 | 7.9 |
Table 2. Moldova: External and Fiscal Balances, Government Debt, 2006–08 (Percent)
| to GDP (%) | 2006 | 2007 | 2008 |
| Current Account Balance | |||
| General Government Balance | 0.2 | ||
| Gross Government Debt | 34.6 | - | - |
- Per capita GDP (2004 est.):$ 760 ($ 540 in 2003: $448 in 2002; $422 in 2001).
- Natural resourcesNatural ResourcesNatural Resources is a soul album released by Motown girl group Martha Reeves and the Vandellas in 1970 on the Gordy label. The album is significant for the Vietnam War ballad "I Should Be Proud" and the slow jam, "Love Guess Who"...
: Lignite, phosphates, gypsum, arable land, and limestone. - AgricultureAgricultureAgriculture is the cultivation of animals, plants, fungi and other life forms for food, fiber, and other products used to sustain life. Agriculture was the key implement in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the...
: Products—vegetables, fruits, wine and spirits, grain, sugar beets, sunflower seeds, meat, milk, eggs, tobacco, walnuts. - IndustryIndustryIndustry refers to the production of an economic good or service within an economy.-Industrial sectors:There are four key industrial economic sectors: the primary sector, largely raw material extraction industries such as mining and farming; the secondary sector, involving refining, construction,...
: 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. - TradeTradeTrade is the transfer of ownership of goods and services from one person or entity to another. Trade is sometimes loosely called commerce or financial transaction or barter. A network that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and...
(2003): Exports--$790 million (of which 46% go to countries outside the former Soviet UnionSoviet UnionThe Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....
): foodstuffs, wine, textiles, clothing, footwear and machinery. Major markets--RussiaRussiaRussia or , officially known as both Russia and the Russian Federation , is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects...
, RomaniaRomaniaRomania is a country located at the crossroads of Central and Southeastern Europe, on the Lower Danube, within and outside the Carpathian arch, bordering on the Black Sea...
, ItalyItalyItaly , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...
, UkraineUkraineUkraine is a country in Eastern Europe. It has an area of 603,628 km², making it the second largest contiguous country on the European continent, after Russia...
, GermanyGermanyGermany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
. Imports-- $1,403 million (of which 58% come from countries outside the former Soviet Union): gas, oil, coal, steel, machinery and equipment, chemical products, textiles, foodstuffs, automobiles, and other consumer durables. Major suppliers—Ukraine, Russia, Germany, Italy, Romania, - CurrencyCurrencyIn economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...
: Moldovan Leu (plural Lei). - Exchange rateExchange rateIn finance, an exchange rate between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency...
: Lei/US$ (2004): 12.33; 12.46 (end of year); (13.94 average in 2003); (13.57 average in 2002)
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:
40.6 (1997)
Agriculture - products:
vegetables, fruits, wine, grain, sugar beets, sunflower seed, tobacco; beef, milk
Industrial production growth rate:
17% (2003 est.)
Electricity:
- production: 3.876 TWhTWHTWH or twh could refer to:*Tennessee Walking Horse, a breed of horse* Toronto Western Hospital, a hospital in Toronto, Canada* TWH Bus & Coach, a bus company in Romford, England* Terrawatt-hour, measure of electrical energy, 1012 watt-hours...
(2002) - consumption: 4.605 TWh (2002)
- exports: 0 kWh (2002)
- imports: 1 TWh (2002)
Electricity - production by source:
- fossil fuel: 90.6%
- hydro: 9.4%
- other: 0% (2001)
- nuclear: 0%
Oil:
- production: 0 oilbbl/d (2001 est.)
- consumption: 24000 oilbbl/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
Imports - commodities:
mineral products and fuel, machinery and equipment, chemicals, textiles (2000)
Reserves of foreign exchange & gold:
$390 million (2004 est.)