Moldova witnesses an expanding trade deficit. Info-Prim Neo economic analysis

The information about foreign trade in the first eleven months of 2007 provided by the National Bureau of Statistics is not at all optimistic, but gives reasons for mediation, say experts. According to analyst Alex Oprunenco, two important tendencies become more evident in the foreign trade: the quick deterioration of the commercial deficit and the geographic reorientation of the Moldovan exports. The commercial deficit over January-November 2007 exceeded the new psychological barrier of 2 billion USD. The expert says that this indicator sets new record goals for the near future. The expansion of the trade deficit shows a simple reality: imports into Moldova grow quicker (+38.5% in eleven months) than exports (+30.5%). The imports go up robustly owing to fundamental and circumstantial factors: the internal demand for investments and consumption is very high and the Moldovan companies cannot cope with it. This demand is greatly supported by the remittances sent by the Moldovan migrant workers from abroad, the inflow of foreign direct investments, the bilateral and multilateral support. The fact that all these three sources have increased during the past few years determined the maintenance of a high internal demand for consumption and investments. At the same time, Oprunenco says that a part of the imports cover the companies’ costs of extending the business and will support the exports and/or will substitute some of the imports for an average or long period of time. The circumstantial factor is the considerable rise in the price of energy, not mentioning the high rates of inflation in the EU and the neighbouring countries. Moldova imports the largest part of the necessary energy. Respectively, the increase in the price of energy has led to the rise in the value of imports. Taking into account the fact that the largest part of experts in the field consider that the global economy should get used to expensive energy, it is logical to think that this factor that determines the growth of imports will persist in the neat future. The only realistic approach to minimising the impact of expensive energy is the implementation of technologies that ensure a reduced consumption of energy and increase the utilisation of local sources and renewable energy resources. [Substitution or protection of market against imports is not a reasonable solution] Alex Oprunenco says that taking into consideration Moldova’s geo-economic characteristics and the integration into the global and regional economic processes, the substitution or protection of the market against imports is not the most feasible and reasonable solution. The Government’s policies must aim at increasing the Moldovan exports, not at limiting imports. The policies should envisage the diversification of the Moldovan economy that must have a better value because the promotion of traditional exports is not a sustainable solution. At the same time, all these measures require the diminution of the administrative and fiscal burden, combating of corruption, authentic protection of competition etc, measures that the authorities embrace declaratively, but do not implement with the necessary perseverance. According to the expert, another important tendency in the foreign trade is the development of exports, which see healthy growth rates. But this growth must not serve as reason for overestimation for the economic observers and decision makers, he says. [The export of Moldovan products to the EU is overestimated] The fact that the European Union became the main destination for the Moldovan exports to the detriment of the CIS market – one more proof that Moldova makes progress on the path to European integration - is a half-truth, says Oprunenco. On the one hand, the Moldovan exports destined for the EU increased both in volume and in value. On the other hand, there are two more important factors that contributed to higher exports to the EU. The first is the accession of Romania and Bulgaria to the EU on January 1, 2007, after which the trade figures of the two states were added to the EU figures. If the exports destined for Romania and Bulgaria were excluded from the present statistics, the exports to the CIS would exceed the exports to the EU by about 20%. The second factor is the imposition of a ban on Moldovan wine imports by Russia in March 2006 as a result of which the share of Russia, and respectively of CIS, in the Moldovan exports decreased. As the wine exports to Russia resumed, the EU’s share in the Moldovan exports could diminish. [We cannot yet speak of enhanced competitiveness of the Moldovan exports] The analyst considers that the authorities’ opinion that the rise in exports to the EU proves the Moldovan products’ competitiveness is at least incorrect from academic viewpoint because apparently it does not take into account the geographical expansion of the EU market (the accession of Romania, the second largest importer, and of Bulgaria) and the modification of the commercial regime with the European Union, meaning the introduction of the GSP+ incentive on January 1, 2006. The rise in exports to the EU has led to the reconfiguration of the categories of products exported by Moldova. The exports of textiles have considerably increased, exceeding the exports of food products and alcoholic drinks, which are the main Moldovan exports, and of some metal objects (metal scrap for instance that is frequently re-exported) that benefit from more advantageous export conditions under the GSP+. At the same time, the export of alcoholic drinks to the EU over the first ten months of 2007 decreased about twofold compared with the corresponding period of 2006. Certainly, the expert says, this happened because the food products and alcoholic drinks must meet more exigent requirements. The authorities and companies slowly implement the necessary quality norms and standards, while the free trade regime with Romania and the preferential regime with Bulgaria were abolished when the two countries joined the EU. In general, the trade with Romania is very relevant in this context: the shift from free trade regime to GSP+ did not hinder the Moldovan exports from growing (+40.7% over January- November 2007), while Romania outran Russia as destination country during last summer. We do not think that the general competitiveness of the Moldovan exports has improved, the expert said, stressing that most probably they go through a geographic and assortment restructure, but in the limits delimitated in the last decade. Our exports are intensive by the labour input, but not technologically. They are also very dependent on the trade regimes set by our partners, the expert says. The granting of Autonomous Trading Preferences and the approaching of Moldova to the EU will continue to favour the Moldovan exports to the EU markets even if the ban on wine imports was lifted. What is important is that the Moldovan exports should aim at different markets, include a wide range of products, tend to cover more and more products with high technological input and meet the international quality standards.