Is Moldova a poor country? Economic analysis by Info-Prim Neo

The Republic of Moldova is not the poorest state in Europe. Such an opinion was expressed by President Vladimir Voronin during a recent TV program. The head of state joked about those that consider Moldova the poorest country on the continent. The officials and their opponents have argued over the topic “Is Moldova a Poor Country?” for a long time. “The longer I am in Moldova, the more things I cannot understand,” said a foreign expert, minister in the first Polish government after the collapse of Socialism. “You say that you are poor, but the shops are full of everything and do not go bankrupt; the people dress well and build nice houses,” the expert said. The statistics, both national and those presented by international institutions, defy yet the opinions based only on criteria and indicators. [The country with the lowest gross salary in Europe] The minimum gross salary of 46.29 euros a month in Moldova remains the lowest in Europe, being almost 34 times lower than in Luxemburg, which takes the first position in a list drawn up by the Federation of European Employers (FedEE). The minimum salary in Montenegro and Ukraine is closer to that in Moldova - 55.00 euros and 68.21 euros respectively. The minimum salary in Romania is 140.64 euros. When drawing up the list, FedEE took into account the remuneration of the employees with a full working program aged over 23. In Moldova, the Federation of European Employers fixed a minimum salary of 766.1 lei on January 1, 2007, which was later modified. From July 1, 2007, the tariff salary for the first qualification category, the lowest one, of the employees working in organizations with financial autonomy was raised to 900 lei, calculated for a full working program of 169 hours on average per month. The salary per hour is 5.33 lei. But in this case too, Moldova remains among the last countries in the world with the lowest minimum salary. The minimum salary in Moldova is about 34 times lower than in Luxemburg, where the minimum salary is 1,570.28 euros a month. [The minimums subsistence level rose quicker than the real salary] The minimum subsistence level in 2007 increased by 17.6% to 1,099.4 lei on average per month for a person (1,142.1 lei at yearend), while the yearly salary rose by 8%. The salary in economy in 2007 was 2,063 lei. The average nominal pay of a salary earner in December 2007 was 2,630 lei, an increase of 20% compared with December 2006. The minimum subsistence level in urban areas is higher than in rural areas - 1,189.2 lei and, respectively, 1,036.3 lei. This discrepancy is mainly due to the different structure of the consumption expenses and to the higher share of the self-consumption in rural areas. The non-consumer basket in urban areas made up 44.2% of the minimum subsistence level, while in rural areas – 34.4% (on average per country, this figure is 39.3%). The average salary per economy covered 171.9% of the minimum subsistence level in 2006 and, respectively, 178.1% in 2007. But this is similar to the average temperature in the hospital, which does not help, especially those with temperatures much higher than normal. For instance, the average salary in agriculture is 1,098.6 lei, while the minimum subsistence level for the population able to work, according to the same official statistics, is larger – 1,159.5 lei. The statistics show that 32.8% of the working population or about 409,000 people work in agriculture. The salary in healthcare (1,703.2 lei) and education (1,351.3 lei) in 2007 was higher than the minimum subsistence level, but, the statisticians say, “we must take into account the fact that every salary earner takes care of at least one child and the salaries are used to cover the common expenses of the household). The pensioners are in a much more difficult situation. The average monthly pension on January 1, 2008 was 548.3 lei and it covered 58.1% of the minimum subsistence level for this group of people. In 2006, it covered 55.3% of the minimum subsistence level. Given that the monthly allowance for taking care of children under 1.5 is 230.7 lei on average for insured persons and 100 lei for uninsured persons, this social benefit covers only 58.5% of the necessities of the children younger than one year (at a minimum subsistence level of 394.3 lei) and, respectively, 25.4% (1,118.8 lei). [Half of the money goes on food] The structure of consumption expenses also shows that the population lives in poverty. Last year, the cost of food products made up 44.6% of the total consumption expenses (in poor families up to 70%), the maintenance of the house – 14.4% of the incomes, the clothes and footwear – 11.9%. Even if less money is spent on food products compared with 2006, the rise in the prices of food products will seriously hit the population, especially the poor and numerous families. The prices of gas, electricity and other utilities are higher and higher. It was more expensive to maintain a house in 2007, if taking into account that 11.3% of the family incomes in 2006 were used to maintain the dwellings. The Moldovans last year spent only 0.6% of the incomes used for consumption on education, 2.1% - on recreation, 4.9% - on medical treatment and health, 2.2% - on alcoholic drinks and tobacco. This is an expenditure structure typical of a poor family. [In the group of “the defeated”] Late in January, the Austrian journal Der Standard published a study on the purchase power in Eastern Europe titled “RegioData”. “The purchase power in Eastern Europe is increasing swiftly“, said Der Standard, stressing that despite the upward trend, the West European living standards could be reached in only ten years. One of the reasons is the wide discrepancy between towns and villages in the Eastern countries: “The towns profit, but the villages remain poor“. The purchase power at European level rose on average by 400 euros per household in 2007. The study “RegioData” divides the countries into three categories by the purchase power compared with that in Austria. The list of countries with a purchase power that makes up more than 40% of Austria’s is headed by Slovenia with 80%. It is followed by Czech Republic, Hungary, Slovakia, Croatia, and Poland. Romania, with a purchase power of 23.7% of Austria’s, forms part of the same category as Russia, Bulgaria and Turkey. The last category, of “the defeated”, includes such countries as Serbia, Bosnia, Macedonia and Albania, followed “from far away” by Ukraine, Moldova, and Belarus. [The labor market is changing and should bode well for convergence to higher income levels] In an article titled “Moldova’s Labor Market: Prospects Improving?”, the Resident Representative of the International Monetary Fund in Moldova, Johan Mathisen says that the ongoing labor market restructuring in Moldova could lead to higher income levels. According to the author, as the overall structure of the economy and labor market increasingly resembles other transition countries, the “surplus” of workers might be increasingly exhausted. The resulting labor market tightening might have already started as there is anecdotal evidence of labor shortages in certain sectors and sporadic attempts to attract Moldovans working aboard. However, while some sectoral labor shortage may occur as new industries develop, any tightening of the labor market will most likely be gradual as there might still be a lot of people willing to enter the workforce if job prospects improve. These trends will help speed up the convergence process (so as to faster reach European living standards). But whether they do occur, surely depends on improving the business environment to attract the necessary investments, ensure legislation supports labor flexibility between sectors as well as maintaining a close link between salary and productivity increases, Johan Mathisen said. However, further improvements are essential in order to reach the European standards.