Consumption-based economic growth remains Moldova's only medium-term option, Expert-Grup

Economic growth based on consumption remains the only medium-term option for Moldova as the transition to a new model based on investment and higher exports should be regarded as an objective for the future, according to the Moldova Economic Growth Analysis (MEGA) Survey presented by Expert-Grup at a conference on Tuesday, Info-Prim Neo reports. With a GDP growth of 6.9% in 2010, Moldova has returned to its pre-crisis production level, faring rather well compared to other countries in the region. GDP growth in the first half of 2011 has been even more impressive, of 8.4%. However, the quality of this growth hasn't been what the country needs for sustainable development, said the experts. Ana Popa, coordinator of the authors' group, noted that economic growth has been mainly fueled by increased household consumption (+12%). Both salaries and consumer credits increased, but consumption growth was mainly due to remittances. “Gross capital formation also increased in this period, by 32.5%. But this growth shouldn't be a reason for exaggerated jubilation. 2011 is the last year when the zero-rate tax on reinvested income is preserved for companies, which were quick to make significant investments in equipment and machinery, and this will continue until the end of 2011. But an analysis of foreign direct investment attracted in the first quarter shows that reinvested income rose 6 times, while the companies' equity rose only 33 percent. This is why we don't expect this indicator to have a significant role in GDP formation in the next year or anytime soon”, said Ana Popa. She isn't very optimistic about higher exports either, despite a significant rise in 2010 and the first half of 2011. “It all comes down to external demand, which could diminish amid financial woes experienced by some of our foreign partners, and to internal supply, which is not diversified enough, in addition to being burdened by high logistical costs and complicated bureaucratic procedures imposed on businesses”, said Ana Popa. The authors recommend the Government to profit from the inflow of remittances to promote public and private investments. Otherwise, in the long run Moldova will experience price increases rather than production and employment growth. Attending the conference, IMF Resident Representative in Moldova Tokhir Mirzoev stressed that Moldova could obtain sustainable economic growth only if it firmly promoted structural reforms, in particular fiscal reform, and if it improved the business climate.