New economic forecasts: “Reform” on the parking spot. Info-Prim Neo Economic Commentary

The International Monetary Fund has cut a half of the forecasts on economic growth in the Republic of Moldova for 2006 – from 6% to 3%. In other words, IMF is more pessimistic than the Government regarding the perspectives of the Moldovan economy for this year. For 2007, the Fund maintains the same forecast as for 2006 – 3%, compared with previous 5.5%. Regarding the inflation rate, the forecasts for this year were increased from 9.4% up to 10.5% and for 2007 – from 8.7 to 10.5%. The Government has also negatively changed its forecasts, but it keeps though a doze of optimism: from 6.5% to 4%, regarding GDP for this year and from 6% to 4% in 2007. As well, an inflation of 12% is anticipated, compared with those 10% initially planned for 2006. The forecast for 2007 constitutes 10.5%. What can these negatively revised forecasts mean and how will they be understood by citizens? The reduction of economic growth’s pace will emphasize more the low quality evolutions registered in the national economy. Agriculture, with a share of 25% in GDP, is hardly moving on, so it will not be able to substantially contribute to the growth of economy. Industry, on the whole is in very unpleasant situation. Investments in infrastructure are poor and imports are decreasing. The only field that is going up is consumption which is fed by the remittances from abroad and also by the taxes on import. Thus, the economic growth, though maintained, is not qualitative and will be rather seen in statistics than in citizen’s perception. More, an annual inflation of 12%, meaning a very fast increase in prices, could make population think that the poverty is growing rather than the economy in 2006-2007 is. This general perception is more probable to emerge in villages and towns, where the incomes are lower than in Chisinau and Balti. At the same time, the lasting wine crisis could transform itself into a social problem. Many factories will hardly face this shock and could go bankrupt, and others could reduce their production volumes. And this means a significant increase in unemployment and provides an understood ground for migration tendencies. The general conclusion is that a 4% increase of GDP forecasted by the Government is more a stagnation than progress, almost a lack of development. But Moldova at present needs not only economic growth, but also economic development, objective the Government could not yet fulfill. As a result, the economic shocks Moldova is facing will expand the process of transition to the market economy for several years ahead. The announcement presented by the Minister of Economy and Commerce, Valeriu Lazar, according to which the Government has drafted a new social-economic development vision which includes, in particular, that the state will have a more “liberal” tackling in the regulatory and structural field, will pay more attention to services and will give up to “the method of settling priority fields”, is very gladdening, but the results of this strategy will not be visible in the next years. However, if implemented it could make the Moldovan economy for the foreign investors a little more attractive. For the moment, we are beating time rather than moving forward, and this situation might prove very dangerous.