Moldova
Recent Economic Developments
Author:
International Monetary Fund
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Publication Date:
24 Jul 1995
eISBN:
9781451824902
Language:
English
Keywords:
ISCR; CR; Moldovan authorities; U.S. dollar; exchange rate; grain distribution enterprise; first quarter; foreign currency; reform program; State farm
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This paper describes economic developments in the Republic of Moldova during the 1990s. In February 1993, the Executive Board of the IMF approved a purchase of resources equivalent to SDR 13.5 million under the compensatory and contingency financing facility to cover the costs associated with the need to import grains because of the drought and subsequent crop failure in Moldova. A World Bank Emergency Drought Recovery Project in an amount equivalent to US$26 million was also approved in February 1993.

Abstract

This paper describes economic developments in the Republic of Moldova during the 1990s. In February 1993, the Executive Board of the IMF approved a purchase of resources equivalent to SDR 13.5 million under the compensatory and contingency financing facility to cover the costs associated with the need to import grains because of the drought and subsequent crop failure in Moldova. A World Bank Emergency Drought Recovery Project in an amount equivalent to US$26 million was also approved in February 1993.

I. Background 1/

1. Introduction

Moldova is a small landlocked country bordered by Ukraine to the north, east, and south, and by Romania to the west. Covering an area of roughly 33,800 square kilometers and with an estimated population of 4.4 million (as of January 1, 1994) its population density is high (Table 1). The majority of the population is Romanian speaking (65 percent); Ukrainians (14 percent), Russians (13 percent), Gagauzi Turks (4 percent), Bulgarians (2 percent), and others (2 percent) account for slightly over one third of the population.

Table 1.

Moldova: Summary Indicators

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Sources: Data provided by the Moldovan authorities; and staff estimates.

1990 figures.

Includes net claims on pension funds.

Expressed in millions of rubles, 1990-91; in millions of US$, 1992-93.

Includes wholesale and foreign trade.

Moldova declared independence on August 27, 1991 and immediately began to establish relations with the international community. Moldova joined the International Monetary Fund (IMF) on August 12, 1992 and is a member of the United Nations, the International Bank for Reconstruction and Development (IBRD), and the European Bank for Reconstruction and Development (EBRD). Moldova is also pursuing membership in the World Trade Organization (WTO).

The Moldovan economy is concentrated in the production and processing of agricultural products. Since achieving independence, it has suffered a severe terms-of-trade shock as the price of imports of energy and other key inputs increased sharply. At the same time, exports to traditional markets have fallen because of lower incomes and economic dislocation in these markets. Ongoing monetary instability in the ruble area, meanwhile, led to payment difficulties and to disruptions in the supply of inputs. Real output has fallen sharply as a result with the estimated cumulative decline in real GDP since 1990 in excess of 60 percent (Table 2). 2/

Table 2.

Moldova: Gross Domestic Product in 1990 Prices

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Sources: Data provided by the Moldovan authorities; and staff estimates.

The Moldovan authorities recognized the need for financial stabilization and economic restructuring at an early stage and, with the assistance of the IMF and other international organizations, identified a program of economic reforms designed to foster financial stabilization and the transition to a market-based economy. By end 1994, considerable progress was made towards the stabilization objective. To consolidate these gains and to secure the benefits of price stability on a lasting basis, the authorities adopted an ambitious target to contain inflation to a level broadly similar to that of the major industrial countries by end-1995.

2. Economic structure and institutions

Moldova has a comparative advantage in agriculture. It is richly endowed with fertile soil--approximately 75 percent of its area is covered by the rich black chernozem soil--and enjoys a temperate climate which makes it possible to raise a wide variety of crops. Agriculture is by far the most important sector of the economy, accounting for about 48 percent of gross domestic product (GDP) in 1994 (Table 3). 1/ The importance of agriculture to the Moldovan economy is enhanced by including the food-processing and agricultural wholesale industries.

Table 3.

Moldova: Sectoral shares of GDP

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Sources: Data provided by the Moldovan authorities; and staff estimates.

Crops typically account for about two thirds of agricultural output with livestock production accounting for the remainder. The most important crop in Moldova is grapes, from which wine and fortified alcoholic beverages are made. Grape production typically accounts for 10 percent of the total value of agricultural production. Grains account for approximately 8 percent of the total value of agricultural production. Moldova is also a major producer of tobacco, sugar beets, sunflower seeds, and fruits and berries (Table 5).

Table 4.

Moldova: Gross Output, Input, and Net Material Product by Sector

(In thousands of lei)

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Source: Data provided by the Moldovan authorities.
Table 5.

Moldova: Value of Agricultural Production

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Source: Data provided by the Moldovan authorities.

Includes values of crops discarded.

Moldovan industry traditionally supplied markets in Russia and other neighboring countries with consumer goods such as carpets, refrigerators and freezers, washing machines, bicycles, tape recorders, radios, stereo systems, color televisions, and furniture. Some large state enterprises formerly supplied electrical motors and instruments for military uses; these firms have been particularly affected by a loss of orders. Industry accounted for 25 percent of total GDP in 1994. The remaining output shares are accounted for by the wholesale and retail sector (4 percent), construction (2 percent), transportation and communications (1 percent), and other service sectors.

As a result of the passive roles assigned to monetary and fiscal policies under central planning, the key institutions in these areas--particularly the Ministry of Finance and the central bank--lacked the technical capacity to design, monitor, and implement macroeconomic policies. Significant progress has been made in overcoming this legacy. A wide range of technical assistance provided by bilateral and multilateral institutions has contributed to a marked strengthening of these institutions. Further work is required, however, particularly in terms of enhancing the quality and coverage at the statistical base.

3. Economic reforms

The Government of Moldova identified an ambitious program of market-based economic reforms shortly after independence in 1991. Although a start was made in identifying the legal framework necessary to support a market economy, several factors impeded the reform process from an early date. In 1992, the country experienced a severe drought which resulted in substantial crop losses. The reform process also suffered a setback following the unilateral succession of the Transnistria region in 1992 and the outbreak of an armed conflict. 1/ The situation stabilized in 1993 with the cessation of hostilities, and the Transnistrian authorities and the Moldovan Government have since made efforts to minimize the disruption to economic relations between the two parts of the country. Nevertheless, the de facto semi-autonomous status of the Transnistria region has hampered the macroeconomic stabilization effort, largely owing to the lack of cooperation in custom administration and the potentially negative effects on foreign investment. 2/

Despite these difficulties, the Moldovan authorities persevered with economic reforms. Their efforts were supported by the international financial institutions, especially the IMF and the IBRD. In February 1993, the Executive Board of the IMF approved a purchase of resources equivalent to SDR 13.5 million under the compensatory and contingency financing facility (CCFF) to cover the costs associated with the need to import grains because of the drought and subsequent crop failure in Moldova. A World Bank Emergency Drought Recovery Project in an amount equivalent to US$26 million was also approved in February 1993. The first purchase equivalent to SDR 22.5 million under the systemic transformation facility (STF) was made in September 1993. A second purchase equivalent to SDR 22.5 million was approved by the IMF Executive Board in mid-December 1993. A World Bank Rehabilitation Loan in an amount equivalent to US$60 million to support the Government’s reform program was also approved in October 1993.

The introduction of a national currency, the leu, was viewed as necessary to insulate the Moldovan economy from the continued instability of the ruble area. The program of financial stabilization and structural reforms implemented in conjunction with the introduction of the leu was supported by the IMF through a stand-by arrangement (SBA) in an amount equivalent to SDR 51.75 million that was approved in mid-December 1993. The program, which covered the period through March 1995, was designed to secure a stable leu through the adoption of tight financial policies. The program also sought to advance economic restructuring through the liberalization of the domestic and international trade and payments systems and the introduction of key structural reforms. In addition to IMF support, the program was supported by other bilateral and multilateral donors, including the World Bank through a US$60 million Structural Adjustment Loan. The IMF Executive Board approved a purchase of Fund resources in an amount equivalent to SDR 12.2 million under the CCFF in December 1994 in response to a drought in the summer of 1994 and a series of natural calamities which damaged or destroyed many crops. 1/

II. Real Sector Developments

1. Introduction

Important progress was made towards financial stabilization in 1994 under the IMF-supported financial program implemented by the Moldovan Government. Inflation declined significantly (Chart 1); monthly inflation fell from hyperinflation levels in 1993 to under 3 percent by year-end. The exchange rate of the leu broadly stabilized in nominal terms and appreciated sharply in real terms owing to the (initial) large inflation differential. Real interest rates were positive by wide margins throughout the year as the NBM persevered with tight credit policies. The improved price performance and the relative stability of the leu in foreign exchange markets permitted nominal interest rates to decline through the second half of 1994.

Chart 1.
Chart 1.

MOLDOVA Production, Inflation, and Energy Consumption

Citation: IMF Staff Country Reports 1995, 073; 10.5089/9781451824902.002.A001

1/ Excluding production of private Joint ventures and enterprises in the town of Bindery, beginning January 1994.

These gains were achieved despite a marked deterioration in the real economy. The authorities estimate that real output declined by 30 percent. This reflects mainly the effects of drought (and other natural calamities) which led to a steep drop in most crop yields. The output decline was not limited to the agricultural sector, but extended also to the industrial sector. (The decline in industrial production is explained in part by a slowdown in the processing of agricultural production.) By year end, however, the level of industrial production stabilized and remained broadly stable through the first quarter of 1995.

2. Sectoral developments

The value of gross agricultural production in constant prices declined by 27 percent in 1994 (Table 5). This can be attributed to the effects of drought and other natural calamities. The value of crops declined by 31 percent in the period, with the production of maize, wheat and barley especially affected. The production of maize and wheat both fell by about 50 percent, while barley production declined by 64 percent (Table 6). Oilseeds (sunflowers and soybeans) were less affected by the poor growing conditions, although production levels were still about 25 percent below year-earlier levels. Both of these crops along with sugar beets, the production of which declined by 32 percent, are important inputs in the food processing sector. Grape production fell by 28 percent and this contributed to a further slowdown in the agricultural processing industry. The value of livestock production fell by somewhat less--15 percent--despite a very substantial decline in herd and flock sizes through the early 1990s, as shortages of feed grains and a loss of profitability at higher feed prices led to the culling of herds. By year-end 1994, stocks of swine and poultry were about 40 percent below their 1990 levels (Table 7).

Table 6.

Moldova: Agricultural Production and Yields

(In thousands of tonnes)

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Source: Data provided by the Moldovan authorities.

Clean weight.

Table 7.

Moldova: Animal Husbandry

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Source: Data provided by the Moldovan authorities.

Slaughter weight.

Productivity measures exclude private subsidiary agriculture.

At beginning of the year, kilograms per cow.

The share of agricultural production accounted for by private farms has grown steadily in current prices, from about 23 percent of total value added in 1990 to 37 percent in 1994 (Table 8). In constant 1983 prices, however, the share of private farms has actually fallen. This suggests that private farms have adjusted more rapidly than state farms or cooperatives to price liberalization.

Table 8.

Moldova: Value Added in Agriculture by Form of Ownership

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Source: Data provided by the Moldovan authorities.

The value of industrial production in constant prices declined 30 percent in 1994 (Table 9). The fall in industrial output was broadly based; all major industrial sectors contracted. In total, the value of production of heavy industry in constant prices has fallen by almost 60 percent since 1990. The decline in the heavy industry sector was broadly based: the production of tractors, refrigerators and freezers, and washing machines was all reduced significantly (Table 10). Much of Moldova’s heavy industry is located in Transnistria, which accounts for the total production of large electric motors, power transformers, gas containers and slate (Table 11). The value of production in the light industry sector (textiles, clothing and leather and shoes) fell in constant prices by almost 50 percent. Reflecting the reduced crop yields in 1994, the value of food industry output declined about 21 percent in the year.

Table 9.

Moldova: Value of Industrial Production by Sector

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Source: Data provided by the Moldovan authorities.

Excluding Transnistria.

Table 10.

Moldova: Output of Selected Products

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Source: Data provided by the Moldovan authorities.
Table 11.

Moldova: Share of Transnistria Production for Selected Goods

(In percent)

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Source: Data provided by the Moldovan authorities.

3. Price and labor market developments

a. Price liberalization

Moldova officially liberalized the prices of most consumer goods in January 1992. The prices of key food staples (bread and dairy products) as well as rents, trolley fares and utility charges remained subject to price controls, with the costs of production subsidized through the budget. The extent of the subsidy element was reduced substantially in several stages in late 1993 and the first half of 1994. In September 1993, the price of most varieties of bread were liberalized fully and the prices of the remaining bread still subject to controls were brought to roughly 50 percent of their production costs. Milk prices were raised to bring them to within 50 percent of cost. Milk prices were subsequently raised in January 1994 to bring them to 75 percent of the cost of production. Remaining subsidies on these foodstuffs were eliminated in June 1994. 1/

Following price liberalization, wholesale and retail prices were regulated indirectly by margin controls which limited the allowable mark-ups to between 10 and 20 percent for food staples and consumer goods, respectively. Luxury goods were not subjected to margin controls. Imported goods are exempted at the wholesale level, but were subjected to margin controls at the retail level. Margins on wholesale and retail outlets were raised in October 1993, from 10 and 20 percent to 20 and 30 percent, for food products and consumer products respectively. The margins on all goods with limited exceptions were eliminated in early 1995.

b. Investment, employment and wages

Despite the severe contraction in real output and the steep decline of industrial production, official unemployment remained low in 1994. Enterprise managers appear to have responded to lower sales by producing for inventory, hoarding labor--incurring substantial wage arrears in the process--and by putting workers on unpaid leave. Firms have also responded to the decline in orders and production by sharply curtailing investment in fixed capital. Real fixed investment fell in excess of 50 percent in 1994 (Table 12). Real investment has fallen in real terms over the past five years, resulting in a marked aging of the capital stock and a concomitant decline in productive capacity. The aggregate investment figures also reveal that there has been an increase in investment in the housing stock. Housing has roughly doubled as a share of current investment since 1990, from 18 to almost 35 percent of total investment (Table 13). This can be attributed to the privatization of the housing stock and the distribution of land which have increased the attractiveness of housing.

Table 12.

Moldova: Gross Fixed Investment at Constant Prices

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Source: Data provided by the Moldovan authorities.
Table 13.

Moldova: Gross Fixed Investment at Current Prices

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Source: Data provided by the Moldovan authorities.

The available information suggests that firms adjusted to the terms-of-trade shock and loss of markets by reducing investment in an attempt to maintain employment levels. Labor market developments in 1994 support this proposition. 1/ Fewer than 15 thousand persons were officially registered as unemployed at the beginning of the year (comparable to an unemployment rate of about 1 percent). Although this figure increased significantly through the year, to over 20 thousand workers by year-end, the rate of unemployment remained well below 2 percent. These figures exclude the number of workers on unpaid leaves and individuals on shortened work weeks, however. Over 36 thousand workers were on unpaid leave of a month or more, on average, in 1993. This increased to over 220 thousand individuals on unpaid leaves in excess of two months by end-1994. Including these individuals in the number of unemployed raises the unemployment rate to about 18 percent.

The discrepancy between changes in output and employment suggests that labor is relatively immobile. This may result from the provision of nonwage benefits by state enterprises, such as housing and social services, which tie workers to their firms despite long periods of unpaid leave. At the same time, wages remained broadly stable in real terms over the course of the year (Chart 2). Average real wages have declined significantly since the early 1990s, however. Workers are frequently paid in-kind and must sell or exchange these goods for other goods and basic necessities. It is also common for enterprises to arrange barter transactions for the direct shipment of foodstuffs from agricultural processing plants and state farms for distribution to their employees in lieu of wages.

Chart 2
Chart 2

MOLDOVA Labor Market and Privatization

Citation: IMF Staff Country Reports 1995, 073; 10.5089/9781451824902.002.A001

1/ As of December 1994.

c. Inflation

Important progress toward price stability was made in 1994. The threat of hyperinflation receded early in the year as a result of tight monetary policies and by year-end, with the monthly rate of inflation under 3 percent, the Moldovan authorities adopted the ambitious target of achieving price stability--inflation broadly consistent with that in the major industrial countries--by year-end 1995. The success achieved by the Moldovan authorities in containing inflationary pressures can be directly attributed to tight monetary policy pursued by the NBM since the second half of 1993. The rate of inflation remained high through the fourth quarter of 1993 and the first quarter of 1994, however, despite the tight monetary policies of the NBM. Several institutional factors may account for this outcome: the reduction of subsidies on foodstuffs in September 1993, the pass through of higher import prices which resulted in a series of staggered increases in key administered prices, such as energy, statistical anomalies, and several factors associated with the introduction of the leu in November. 1/

Inflation declined substantially through 1994, starting in the second quarter. This reflected the continuation of tight financial policies, the strengthened credibility of the program, and the resulting increase in the demand for leu. At the same time, the impressive performance through the summer months--prices actually fell slightly in August--can be attributed to seasonal factors, as food prices declined by 1.4 percent (Table 16). Inflation accelerated slightly in the fourth quarter, owing primarily to the loss of important crops but remained within the programmed target for the year as a whole. Price pressures continued to moderate through early 1995, as monthly inflation averaged under 2 percent in the first quarter and fell to 0.6 percent in April.

Table 14.

Moldova: Composition of Labor force by Sector

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Source: Data provided by the Moldovan authorities.

Excludes people with other occupations.

May include double counting.

Includes people of working age only; may include double counting.

“Housekeeping” includes persons on maternity leave.

Table 15.

Moldova: Employment by Sector

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Source: Moldovan authorities.

Preliminary.

Includes employment in personal subsidiary agriculture.

Trade, catering, material and technical supply, sale and state purchases.

Includes film, media, forestry, and computer services.

Includes passenger transport, municipal and everyday services, and administration.

Table 16.

Moldova: Inflation and Interest Rates, 1993-94

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Sources: Data provided by the Moldovan authorities; and staff estimates.

Monthly percentage change.

Data through Q1 1994 adjusted to correct for the Sauerbeck price index formula and to exclude price developments in Transnistria.

Monthly percentage change. Data not adjusted to correct for Sauerbeck price index or price developments in Transnistria.

Monthly interest rate on three-month credit.

Average interest rate on three-month credit extended by the four largest banks.

4. Structural reforms

The authorities recognize that successful adjustment to the terms-of-trade shocks and loss of traditional export markets requires an acceleration of structural reforms. In support of this objective, the Government has begun to implement a program of measures which focuses on the disengagement of the Government from direct involvement in the economy and the fostering of market forces. The first element of this program is the establishment of the framework of legislation to support a market economy. Much of this was implemented by early 1994. 1/ Although these laws established key aspects of the legal basis for a market economy, much of the legislation remained untested in judicial proceedings and serious flaws in the legislation were identified in 1994. The law on bankruptcy is a prime example. Little progress was made during the course of 1994 in enforcing the bankruptcy provisions. Although a process for the identification of bankrupt state enterprises had been developed, the effectiveness of the measure was limited by the fact that bankruptcy was determined administratively, not by the creditors, and required the approval of the branch ministries to which the enterprises reported. These factors led to protracted delays in the initiation of bankruptcy proceedings and greatly weakened the effectiveness of other efforts to promote financial discipline. In view of these problems the authorities agreed to revise the legislation to make it conform with the needs of a market economy by, inter alia, permitting creditors to initiate bankruptcy proceedings. The revised legislation is to be prepared by end-May 1995 and is expected to be promulgated later in the year. 2/

Policies to promote the efficient use of land are of crucial importance to Moldova’s long-term growth prospects. The objective of the Government’s program of agrarian reforms is to give individuals an economic incentive to manage Moldova’s land resources by increasing the role of private ownership. This will, it is hoped, boost the output capacity of the agricultural sector and promote the growth of private activity in supporting sectors. The first stage of land reform in which private ownership of household plots was granted to the families who used the plots was largely completed in early 1993. 1/ Private plots are an important source of grape production, with the owners selling their output to the collective farms. The second stage of the reform program--the transfer of shares of state and collective land to farm employees and pensioners--began in 1994. By year-end, almost 60 percent of all land identified for privatization had been transfered, primarily to agricultural cooperatives and joint stock companies.

The Government recognizes that the impressive gains made toward financial stabilization can best be secured on a lasting basis through measures to promote financial discipline in all sectors of the economy. At the same time, it views a dynamic private sector as the key to restoring the prospects for real growth. In conjunction with its land reform program, therefore, it has made a start on an ambitious program to transfer the ownership of capital to the private sector. Under the 1993/94 Privatization Program, the Government had targeted the sale of roughly 1,600 firms of all sizes. 2/ However, following the successful completion of two small-scale auctions in the fall of 1993, little progress was made in the sale of medium- and large-sized enterprises through most of 1994. Logistical problems which had earlier hampered the distribution of privatization vouchers only partly account for the slow pace of privatization, as the distribution of these vouchers was largely completed in early 1994.

Delays in privatization through most of 1994 are traced mainly to two factors. The first is the reluctance of enterprise managers to assist in the privatization process. In many instances, managers viewed privatization as a threat since it might lead to their dismissal or the closure of the firm. These individuals were able to delay the privatization process by failing to comply with the registration procedure. The second factor was the protracted political proceedings to approve the 1995/96 Privatization Program. Under the 1995/96 Program, some firms are to be sold for cash in auctions open to foreign investors while others are to be privatized through the voucher auctions. Managers of enterprises that had been identified for voucher auction used the political process to lobby for a change in status to cash auction. Owing to the extended parliamentary debate on the modalities of the 1995/96 Program, this had the effect of delaying the sale of a substantial number of enterprises. With the finalization of the broad outlines of the Program late in the year, however, the pace of privatization accelerated appreciably. By year-end, almost 200 medium- and large-size enterprises had been sold to the private sector, over three-quarters in the last two months of the year. Over 200 shops and other small enterprises were sold by end-1994. 1/ Following parliamentary approval of the 1995/96 Privatization Program in the first quarter of 1995, the Government indicated that it expected the bulk of all state enterprises to be transferred to the private sector by end-1995.

III. Monetary Developments

1. Introduction

Underlying the progress made towards financial stabilization in 1994 was the reversal of the lax monetary and fiscal policies that led to the acceleration of inflation through 1993. The strategy adopted by the authorities for 1994 sought to achieve a rapid deceleration of inflation and a strengthening of the external position through a sharp decline of the rate of growth of the monetary aggregates (Chart 3). The strategy also called for broad reforms to the institutional framework of monetary policy making including the elimination of preferential credits, the establishment of market-determined interest rates, the enhancement of NBM independence, and a strengthening of the role of the central bank in the prudential supervision of the banking system.

Chart 3
Chart 3

MOLDOVA Financial and Fiscal Indicators

Citation: IMF Staff Country Reports 1995, 073; 10.5089/9781451824902.002.A001

1/ Average interest rate on a 3-month credit extended by the four largest banks.2/ Adjusted by the current monthly inflation.

This strategy was implemented with remarkable consistency despite a number of unfavorable developments. The quarterly targets established by the NBM for the growth of its net domestic assets (NDA) position were met, often with comfortable margins. The growth of the reserve money and broad monetary aggregates was higher-than-envisaged over the year, however, owing to stronger-than-expected accumulation of foreign exchange. This outcome can be attributed to uncertainties about availability of foreign financing early in the year, which led to lower-than-envisaged sales of foreign exchange by the NBM, and to higher-than-envisaged inflows of foreign exchange, including a large one-time foreign currency deposit, that added to the accumulation of reserves.

2. Monetary and credit developments in 1994

a. Domestic credit developments

The successful implementation of the authorities’ monetary strategy resulted in a significant decline in credit expansion during 1994. Net domestic assets of the NBM increased by 83 percent in 1994, compared to 350 percent in 1993, and actually declined in the last quarter of 1994 as a result of significant disbursements of foreign financing for the Government budget (Table 17). The Government relied almost entirely on NBM credit to meet its domestic borrowing requirements in 1994. Lending to Government declined as a share of NBM domestic credit, defined as the sum of net claims on Government and credit to banks, from 60 percent in 1993 to 47 percent in 1994. The relative share of NBM lending to banks, on the other hand, increased in 1994 to 53 percent of total NBM domestic credit compared with 40 percent in 1993. Lending to banks in 1994 thus replaced lending to Government as the main source of credit expansion.

Table 17.

Moldova: Monetary Authorities’ Accounts, 1991-94

(In millions of lei)

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Source: Data provided by the National Bank of Moldova.

The reversal of lax policies is reflected also in the behavior of aggregates in the banking sector (Table 18). Mirroring the slowing of growth of the balance sheet of the NBM, bank lending to the economy doubled in 1994, compared with a 645 percent increase in 1993. The distribution of bank credit between state enterprises and the private sector (comprising cooperatives, joint stock companies, and small private firms) was broadly stable with 73 percent going to state enterprises and 27 percent to the private sector, which reflected, in part, the slower-than-expected progress of privatization.

Table 18.

Moldova: Monetary Survey, 1991-94

(In millions of lei)

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Source: Data provided by the National Bank of Moldova.

b. Domestic liquidity

Reserve money and broad money grew in 1994 by 128 percent and 116 percent, respectively, compared with 320 percent and 393 percent in 1993 (Table 19). Developments in the monetary aggregates during 1994 were dominated by a significant increase in currency in circulation which grew by almost 190 percent during the year. Several factors account for this development, including the remonetization of the economy following disinflation, increased circulation of the leu in Transnistria, the emergence of private sector activities that rely largely on cash transactions, and weakness in the banking system. Velocity stabilized early in 1994, as monetary conditions tightened and the rate of inflation moderated. The steep decline in monthly inflation through the second and third quarters enhanced the credibility of the monetary program and resulted in a decline in velocity.

Table 19.

Moldova: Factors Affecting Changes in Broad Money, 1992-94

(In millions of lei)

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Source: Data provided by the National Bank of Moldova.

Tight financial conditions also resulted in a decline in the growth of bank deposits, which increased by 77 percent in 1994 compared to 212 percent in 1993. The share of foreign currency deposits (FCD) in total deposits declined to about 10 percent at the end of 1994, down from 15 percent at the end of 1993. This probably reflected an increase in confidence in the leu (supported by the stable exchange rate and the rapid decline in inflation) and the increasing reliance on FCDs to finance current transactions rather than as a store of value.

c. Interest rate developments

A key element of the monetary strategy was the shift from administrative means to market forces in the allocation of credit. Since November 1993, the NBM finance rate has been established by credit auctions (Table 20). The monthly interest rate established in the credit auctions increased significantly through late 1993 reaching a peak of 31 percent in February 1994. The auction rate dropped in March to 17 percent per month as inflation declined. It continued to decline steadily through the year reaching a monthly rate of 3.5 percent in December. Real interest rates, on the other hand, rose significantly in April and peaked in May as a result of a significant drop in inflation rate. Real rates remained positive by significant margins though they declined in the second half of the year as nominal rates continued to decline. However, an acceleration of inflation in the last quarter pushed the real rates to below 1 percent per month.

Table 20.

Moldova: National Bank of Moldova Credit Auctions 1/

(In millions of lei)

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Source: Data provided by the National Bank of Moldova.

Commercial bank lending rates declined steadily during the year but remained extremely high in real terms. The spread between lending rates and the NBM auction rate increased in the first half of 1994, peaking in July at 20.4 percent on a monthly basis. The margin declined subsequently but stood at 5.8 percent at end-December reflecting, inter alia, the problem of nonperforming assets and the lack of competition.

d. Monetary policy instruments

As part of its strategy to enhance the role of market forces in credit allocation decisions, the NBM established the objective to have at least 80 percent of NBM credit expansion allocated through market auctions. This goal was not met, however. The NBM auctioned only about 70 percent of its credit resources owing to directed credit allocation in the last quarter of 1994 to finance reconstruction and assist the agricultural sector following a series of natural calamities. The NBM maintained its commitment not to extend credit at preferential terms and all other directed credit were extended at the NBM finance rate established at the auction.

Efforts to implement indirect monetary control were hampered by delays in the introduction of treasury bills. The NBM instead resorted to changes in the reserve requirement on bank deposits to tighten credit conditions and contain excess liquidity. On February 1, the NBM raised the reserve requirement on demand deposits by 8 percentage points (to 28 percent) and by 2 percentage points on time deposits (to 17 percent on deposits of up to one year, and to 15 percent for deposits from one to three years). By June 1994, as inflationary pressures receded, the NBM reduced the reserve requirements to their pre-February levels. On December 22, 1994 the NBM unified the reserve requirements on deposits to 12 percent of daily average deposits calculated bi-weekly.

On February 1, 1994 the NBM eliminated all remaining limits on interest rate margins applied to NBM credit on-lent to commercial banks, with the exception of loans guaranteed by the Government.

e. Banking supervision

The financial position of commercial banks weakened considerably during 1994. The tightening of credit conditions in 1994 combined with a poorly-defined and weakly-enforced regulatory regime combined to expose the weak financial position of the banking system. The earlier accumulation of bad debts resulted in a deficient capital position for most banks, with half of them actually being in negative capital position.

The authorities recognized the threat posed by a weak banking system, and initiated several steps to strengthen the commercial banks. The NBM ordered a full audit of the four largest banks (accounting for about 80 percent of total assets in the banking sector) and, in cooperation with the World Bank and the IMF, initiated a study to determine the capital position of the all commercial banks. An ambitious program to strengthen commercial banks was also adopted in late 1994. New loan classification and provisioning regulations were devised and are expected to be implemented in the first half of 1995. Banks are required to publish a monthly capital position statement starting in January 1995. At the same time, the NBM concluded a series of bilateral agreements with the most seriously undercapitalized banks. These agreements require these banks to bring their capital to positive levels by end-June 1995. To address the deficiencies in the regulatory framework, the authorities prepared, with assistance from the IMF, draft laws on central bank and financial institutions. The two new draft laws are expected to be implemented by mid 1995. Furthermore, the NBM strengthened its Banking Supervision department and made plans to establish a new Bank Resolution Unit to evaluate banks’ recapitalization and restructuring plans.

f. NBM independence

The monetary program for 1994 was implemented by the NBM with considerable autonomy despite the absence of a clear institutional mandate establishing its independence. The degree of latitude enjoyed by the NBM during 1994 was instrumental in the success of the Government financial stabilization program. In return, the success of the financial stabilization program facilitated the political acceptance of NBM’s operational autonomy. In this respect, the new Central Bank Law would, inter alia, strengthen the operational independence of the NBM and reinforce its ability to implement the monetary program with the aim of securing the benefits of price stability on a lasting basis.

IV. Fiscal Issues 1/

1. Introduction

The consolidated state budget in Moldova consists of the local budgets--with 10 cities and 44 districts--and the republican budget. Four of the cities and 4 of the districts are located in the Transnistria region. Since April 1991, normal fiscal relations, including reporting of fiscal data, between the republican budget and the cities and districts in the Transnistria have been disrupted, making it impossible to assess the fiscal situation there. In addition to the state budget, there were in 1994 seven extrabudgetary funds: the Social Security Fund (SSF), the Science Fund, the Military Conversion Fund, the Livestock Fund, the Capital Investment Fund, the Foreign Currency Fund, and the Social Assistance Fund (SAF). The SSF, the most important of the funds (in terms of the scale of operations), and the SAF operate under the auspices of the Ministry of Labor and Social Protection.

2. 1994 fiscal performance

a. Overview

The state budget relied in 1994 on four major tax revenue sources: the profits tax (raising 4.5 percent of GDP in 1994), the value-added tax (VAT) (3.6 percent), excise duties (1.9 percent), and individual income tax on wages and salaries (1.7 percent of GDP) (Tables 21-23). Smaller taxes include taxes on land, real estate, and forestry and tariffs (representing altogether about 1 percent of GDP). Nontax revenue includes profit remittances from the NBM, road fees, sales of commodity stores and equipment, and a variety of user fees, which totaled an amount equivalent to 4.8 percent of GDP. Expenditures are heavily biased toward social spending, including education, health, pensions, and cash subsidies (tied to the prices of essential commodities) for pensioners and others. Social sphere expenditures represented over half of total expenditure and net lending in the year, and totaled an amount equivalent to 12.4 percent of GDP. Other major expenditure categories were interest expense (2.1 percent of GDP), capital expenditure (1.6 percent), net lending (1.4 percent), and domestic law and order (1.4 percent).

Table 21.

Moldova: Consolidated Government Budget, 1992-94 1/

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Sources: Data provided by authorities; and staff estimates

Includes Republican and local budgets, except the Trans-Dniester region, extrabudgetary funds and the Social Fund.

Includes state tax, forestry tax, privatization tax and natural resource tax.

Includes profit remittances from NBM.

Includes unallocated expenditure.

Includes grants.

Difference between value of foreign commodity loans and grants disbursed to Moldovan enterprises and domestic counterpart funds received by government.

Table 22.

Moldova: Consolidated Government Budget, 1992-94

(In percent of GDP)

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Sources: Data provided by the Moldovan authorities; and staff estimates.
Table 23:

Moldova: Consolidated Government Budget: Decomposition of Revenue and Expenditure, 1992-94

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Sources: Data provided by the Moldovan authorities; and staff estimates.

Important improvements were made in 1994 in establishing a Treasury system, tax administration, the development of laws on budget process and debt management, especially the establishment of a Treasury-Bill market. All of these improvements were made with the aid of outside technical assistance. Cash management by the Treasury has been enhanced through a system of transfer through the commercial banks and expenditure control has been improved through Treasury approval of almost all expenditures. Further progress is hampered, however, by a shortage of computer and telecommunications equipment, a condition that should be alleviated in 1995. The tax administration underwent a reorganization, and the legal basis for efficient tax audit, collection and enforcement is being strengthened through amendments to a number of laws.

b. 1994 budget execution

Fiscal performance improved somewhat in 1994, as the fiscal deficit fell from the equivalent of 8.9 percent of GDP in 1993, to the equivalent of 8.1 percent of GDP in 1994. The improvement was achieved through constraint on expenditure, as the revenue ratio was roughly constant, while net lending rose to the equivalent of 1.4 percent of GDP, from 0.5 percent the previous year.

Despite the greater-than-envisaged decline in real output and inflation, total revenues, at 17.4 percent of GDP, were higher than anticipated, and up marginally as a share of GDP from the 1993 outcome. This was mainly on account of nontax revenue, in particular revenue from the sale of government assets, profit remittances from the NBM, and the full-year effect of the newly introduced road fees. As a result of these measures, the nontax revenue outcome, at 4.8 percent of GDP, was 3 percentage points higher than the previous year.

Tax revenue totalled 12.6 percent of GDP in 1994, down from 15.3 percent in 1993. While personal income tax and enterprise profit tax revenue remained essentially constant, at about 1.7 and 4.5 percent of GDP respectively, most other taxes fell as a share of GDP, led by the fall in the domestic indirect taxes, VAT (down to 3.6 percent of GDP from 4.4 percent in 1993) and excise taxes (from 3.0 percent in 1993 to 1.9 percent in 1994). A variety of factors contributed to this outcome. First, compliance declined as evidenced by a sharp increase in the level of tax arrears in 1994. The level of arrears rose by Mdl 252 million, equivalent to 3.2 percent of GDP, and net new arrears constituted 25.7 percent of realized tax collections. 1/ These arose mainly in the area of VAT, excises and the enterprise profit tax, and the major tax debtors were located in the agricultural and energy sectors. The growth of arrears in the agricultural sector was exacerbated by a series of natural disasters that struck the economy in the second and third quarters of the year, including a drought in the south and the east, severe storms in the center, and widespread flooding.

Second, while tax administration improved in 1994, the persistence of barter trade (both domestic and cross-border) and the predominance of cash transactions impeded tax collection. Tax administration was further complicated by weaknesses in the supporting legal structure that limited the ability of the tax inspectorate to obtain taxpayer information and constrained somewhat its ability to enforce collection.

Third, excise tax revenue was adversely affected in 1994 by a series of Government decrees that suspended taxes on a number of domestically-produced commodities and reduced tax rates on others. The excise tax on gasoline that was introduced at the beginning of 1994 generated only limited revenue in the year because of the growth of arrears. In addition, the government suspended land tax and real estate tax payments for agriculture in the second half of the year on account of the natural disasters.

Fourth, several revenue measures that were introduced in 1993 had only a minor impact on revenue in 1994. These included the planned extension of the VAT to non-CIS imports, and the imposition of import tariffs on non-CIS imports. Shortcomings in tax administration prevented the full implementation of these taxes. On the other hand, a reduction in top personal income tax rates, and the adjustment in the tax brackets that occurred in the third quarter improved the efficiency of the tax without seriously comprising income tax revenue.

Expenditure and net lending totaled Mdl 1,984 million in 1994, equivalent to 25.5 percent of GDP, down slightly from 25.9 percent realized in 1993. While expenditure on health and on education were broadly maintained in real terms, social sphere expenditures fell by the equivalent of 2 percent of GDP, to 12.4 percent, mainly on account of the fall in subsidy payments. Although delayed for several months, subsidies on bread, dairy products, salt and other foodstuffs were finally removed completely in June (Table 26). These general subsidies were replaced by a system of targeted cash compensation, which had been introduced in 1993, and which were increased with the elimination of subsidies. At the same time that the subsidies on foodstuffs were eliminated, there was an increase of about one third in salaries paid to workers in budget-covered organizations, in line with an increase in the minimum wage to lei 18 per month, from lei 13.5 that took effect from end-May. This wage increase placed pressure on other expenditure categories. Additional pressure originated from a large increase in interest expense, and from the natural calamities, that besides damaging crops, damaged the housing stock and infrastructure. A strict cash management system was put in place that identified priority expenditures and ensured that expenditure did not exceed the available financing. This sequestration mechanism limited was applied mainly to capital expenditures and ordinary maintenance of infrastructure.

Table 24.

Moldova: List of Goods Subject to Excise Taxes and their Rates as of January 1, 1995

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Sources: Data provided by the Moldovan authorities.
Table 25.

Moldova: Quarterly pattern of Revenue, 1992-94

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Sources: Data provided by Moldovan authorities; and staff estimates.
Table 26.

Moldova: Subsidy Expenditures

(In thousands of lei)

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Source: Data provided by the Moldovan authorities.

The level of budgetary lending was much higher than planned. It totaled Mdl 111 million, equivalent to 1.4 percent of GDP, up from 0.5 percent in 1993. This lending included large loans for grain procurement on account of the drought, the assumption by the Government of the debt of Cereale, the state grain distribution enterprise, loans extended in the third quarter mostly to the agriculture and processing industries affected by the natural calamities, and defaults on government guaranteed loans.

The deficit totaled Mdl 630 million in 1994: about two thirds of the deficit was financed from foreign sources, with foreign borrowing totalling Mdl 403 million, equivalent to 5 percent of GDP. Amortization payments to Russia due in 1994 were rescheduled to after 1996. The majority of the foreign financing was delayed until the fourth quarter, and this, along with the expenditure pressures arising on account of the natural calamities, placed severe pressure on domestic financing sources throughout the second and third quarters of the year. However, net banking system credit to the Government totaled Mdl 107 million at year end, equivalent to slightly more than 1.4 percent of GDP. Some success was realized during 1994 in selling treasury bills to the private sector, with about Mdl 9 million placed, much of it in the last part of the year. The difficult budgetary situation resulted in an increase in the level of expenditure arrears during the year. These arrears emerged on payments of wages, and also for utilities and in capital expenditures, as well as in payments to the Social Fund to finance the cash compensation program.

The problem of collecting the domestic counterpart of foreign commodity aid persisted in 1994. A large portion of foreign financing available to Moldova continues to be in the form of commodity loans. The Government passed on the commodities, largely fuel, agricultural goods, and pharmaceuticals, to state enterprises, who were slow in repaying. To the extent that such funds were not repaid, these operations amounted to off-budget net-lending operations, or outright subsidization, by the Republican government. The amount involved was equivalent to 4.8 percent of GDP in 1994.

c. Social Security Fund performance

The SSF generated a surplus in 1994 of Mdl 21.2 million, equivalent to 0.3 percent of GDP, compared to a surplus equivalent to 1.4 percent and 1.6 percent of GDP in 1993 and 1992, respectively (Table 27). Total revenue was Mdl 473.6 million, equivalent to 6 percent of GDP, compared to 5.8 percent in 1993 and 7.0 percent in 1992. Payroll taxes furnished almost 90 percent of revenue in 1994, down from 99 percent in 1993. About Mdl 47 million, or about 10 percent of revenue, was provided through transfers from the government budget in 1994, compared to less than one percent in the previous year. Payroll tax arrears stood at Mdl 264.4 million at the end of 1994, an increase of Mdl 205 million, equivalent to over half of actual collections in the year. 1/ In addition the SSF was owed Mdl 24.7 million by the Republican government, on account of compensation payments for targeted subsidy programs administered by the SSF, and Mdl 23.7 million by local governments. The level of expenditure arrears stood at Mdl 105 million at year-end, arising mostly from unpaid pensions. 2/

Table 27.

Moldova: Social Fund Budget

(In thousands of lei)

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Source: Data provided by the Moldovan authorities.

Includes heating subsidies and also workmen’s compensation, maternity benefits, vacation allowances, and other expenditures.

Expenditure of the SSF totalled Mdl 452.4 million, equivalent to 5.8 percent of GDP, compared to 4.4 percent and 5.4 percent in 1993 and 1992 respectively. Regarding the composition of SSF expenditures, old-age pensions, at Mdl 312.3 million, accounted for 70 percent of expenditure, down from 81 percent in 1993. Expenditures on family support increased significantly in 1994, to 98.6 million, or 21.8 percent of expenditure, compared to about 10 percent of expenditure in 1993. This increase is explained mainly by the introduction in May 1994 of targeted heating and other subsidies. Expenditure on unemployment benefits increased slightly over 1993 as a percent of total expenditure (from 0.3 percent to 0.4 percent of total expenditure). Only about one quarter of those registered as unemployed receive unemployment benefit. Spending on training and social jobs expanded significantly in 1994, but from a very low base. As a result, the Employment Fund still spends less than the 1 percent of the wage bill which is notionally allocated to it.

Several changes were made in 1994 to the parameters affecting the SSF budget. Changes in early 1994 in the minimum-wage based formula for calculating pensions raised the total cost of pension provision. Pensions were increased in June, 1994, when the minimum wage was raised to lei 18 per month. This was the only increase during the year. In 1994 the Government decided to de-link pensions and other benefits from the minimum wage and introduce a system of targeted compensation, administered by the Social Fund. This program was designed to offer better protection to those most in need, with payments linked to increases in heating costs, and payments made only to nonworking pensioners. Other structural changes are being contemplated with a view to improving the sustainability of SSF operations. Draft legislation was introduced specifying a staged increase in the pension age. In addition, a decision taken by Government in December, 1994, provides for the payment of severance pay through the Social Fund in cases where bankrupt enterprises do not have sufficient funds to pay laid off employees.

V. External Sector Developments

1. Introduction

Moldova is an outward-oriented economy, with both exports and imports (including inter-republican trade) historically exceeding half of GDP. Exports consist primarily of agricultural and food products including wines, processed food and tobacco products. Other exports include electrical appliances, textiles and leather products, and precision tools. The composition of imports reflects Moldova’s dependence on imported energy and the input requirements of its agro-industries. Moldova imports virtually all of its energy, primarily from the Russian Federation and the Ukraine, and, more recently, from Romania. The share of energy in imports has increased substantially, from about 16 percent of imports in 1991 to almost 40 percent of imports in 1994. Moldova has made significant progress in reorienting its trade toward non-FSU markets, with the share of non-FSU exports increasing from about 4 percent in 1991 to almost 34 percent of total exports in 1994.

2. Recent developments

Since 1992, Moldova’s external position has deteriorated sharply, primarily due to the terms-of-trade impact of increased energy import prices 1/ in 1992 and 1994, and droughts that increased cereal imports and reduced agricultural exports (Table 28). Exports were constrained, inter alia, by a contraction of economic activity both domestically and among Moldova’s primary trade partners. Capital flows, primarily from Western Europe and Russia, have financed the current account deficit, which increased from US$39 million in 1992 to approximately US$183 million in 1994. 2/

Table 28.

Moldova: Balance of Payments, 1992-94

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Sources: Data provided by the Moldovan authorities; and staff estimates.

For 1994, includes substantial once--off exports.

Includes CIF-FOB adjustments and reclassification of energy transportation.

An interest payment due to Russia in Q4 1993 was delayed to Q1 1994. An interest payment due to Russia in Q3 1994 was delayed to Q4 1994. Moldovan claims against other FSU states are nonperforming.

Includes commodity loans.

A “technical credit” from Russia was transformed in to a government loan valued at US$71.34m (US$88.9m including Transnistria).

As of end 1994, the outstanding stock of arrears, primarily for energy imports, was estimated to be about US$140m including valuation adjustments.

Includes government foreign currency holdings.

Non-interest-accruing cross-claims among FSU central banks.

Official reserves in convertible currencies at current exchange rates.

In 1994, trade with non-FSU countries registered a deficit of approximately US$31 million, including cereal imports and some convertible area energy imports. Trade with the non-convertible area registered a large deficit, almost US$98 million, reflecting the increased cost of energy imports. The value of energy imported in 1994 increased by over 17 percent from the compressed levels of 1993 owing primarily to price increases as well as to increased coal imports. An important source of finance for some energy imports, particularly natural gas, is payments arrears: Moldgas, the Moldovan natural gas importing company, had accumulated arrears to its Russian supplier of about US$120 million by end-1994, excluding accrued penalties.

The balance of services deteriorated sharply in 1994 primarily because of increased transport costs, including fuel, as well as increasing import volumes from more distant Western markets, including grain imports from the United States. Moldova received transfers of about US$22 million in 1994, including over US$8 million from the Netherlands.

3. Foreign direct investment

According to official statistics, as of end-1994 there were 412 registered joint ventures in Moldova, of which 146 were considered to be operational. Of the latter, the largest number of investors were from Romania (33), the USA (19), Bulgaria (13), and Germany (12). It is difficult to quantify corresponding capital flows, however, since not all transactions are reported. Official statistics indicated in 1994 that joint ventures in Moldova exported over US$13 million in goods and services, had domestic sales of over US$40 million, and paid wages of almost US$3 million. Moldova has taken a broad range of steps to create an environment conducive to foreign investment, including the establishment of a relatively stable macroeconomic environment. For the most part, foreign investment seems to focus on Moldova’s traditional exports including agricultural processing. Regulations permit a broad range of capital transfers including those which are already allowed under the Law of the Republic of Moldova on Foreign Investments.

4. Capital account

Moldova had disbursements of over US$170 million in medium and long-term capital in 1994, including: the World Bank (almost US$67 million); the European Union (US$32 million); the Japan EXIM Bank (US$ 30 million); the United States (US$20 million); the Russian Federation (about US$10 million); and Romania (about US$10 million).

5. National Bank reserves

At the end of 1992 the gross official reserves of the NBM in convertible currencies were US$2.45 million. On the basis of purchases from the Fund of SDR 63 million in 1993 and SDR 49.45 million in 1994, as well as the foreign disbursements outlined above, the NBM increased gross official reserves to US$179 million by the end of 1994. This was roughly equal to about three months of import cover.

6. Exchange arrangements

a. Exchange market developments

Until the currency conversion in Russia of July 24, 1993, Moldova was a member of the ruble zone. On November 29, 1993, Moldova introduced the leu at an exchange rate equivalent to US$1 = Mdl 3.8. 1/ Since the introduction of the leu the nominal exchange rate against the US dollar has remained relatively stable (see Chart 4), with the real exchange rate appreciating by 82 percent vis-à-vis the U.S. dollar over 1994. As of end-April, 1995 the exchange rate was US$1 = Mdl 4.5. Against the Russian ruble, the leu gradually appreciated to Mdl 1 = RRub 880 as of end-April, 1995, compared with Mdl 1 = 2500 Rrub as of November 29, 1993.

Chart 4
Chart 4

MOLDOVA External Sector Indicators

Citation: IMF Staff Country Reports 1995, 073; 10.5089/9781451824902.002.A001

The average nominal exchange rate against the U.S. dollar fell from leu 3.82 per U.S. dollar in the first quarter of 1994 to leu 4.07 per U.S. dollar in the second quarter, to leu 4.14 per U.S. dollar in the third quarter, and further to leu 4.25 per U.S. dollar in the fourth quarter. The foreign currency market consists of the fixing sessions of the Chisinau Interbank Foreign Currency Exchange (CIFCE), the interbank market outside of the fixing sessions, and the cash market. The total volume of transactions on the CIFCE averaged about US$14 million per quarter in 1994, with volumes on the cash market thought to be somewhat higher.

Weekly interbank fixing sessions were introduced in October 1993; their frequency was increased to three times a week in the second half of December 1993, and the NBM expanded the foreign exchange auctions to include the Russian ruble, and, occasionally, the Romanian leu, and the German mark. From February 1995 there were daily fixing sessions.

b. Administration of control 2/

A detailed description of Moldova’s exchange system is given in Appendix II. A new legal framework for regulating foreign exchange transactions was adopted on January 17, 1994. The framework provides for a liberal exchange system in which most payments and transfers for current international transactions and some capital transfers are freely permitted. The surrender requirement was eliminated on November 15, 1994 and replaced by a repatriation requirement. The interbank market has broadened substantially over the past year, and a large volume of transactions now take place between commercial banks outside of the daily foreign exchange auctions of the Chisinau Interbank Foreign Currency Exchange.

The authorities have stated their intention to eliminate all remaining exchange measures subject to Fund jurisdiction and to accept the obligations of Article VIII, Sections 2, 3, and 4 of the Fund’s Articles. As of end-May 1994, the authorities maintain the following exchange measures under the transitional arrangements of Article XIV, Section 2: 1) an exchange restriction arising from the limitation on the right of resident legal entities to make advance payments to countries outside of the former Soviet Union for the import of goods and services; 2) exchange restrictions arising from limitations on the right of resident individuals to make payments for a variety of current international transactions to countries outside of the former Soviet Union; and 3) exchange restrictions arising from the National Bank’s system of correspondent accounts with FSU central banks other than the Central Bank of Russia.

c. Financial relations with other FSU Republics

Moldova maintains outstanding balances on inoperative correspondent accounts with a number of FSU central banks. Turkmenistan owes Moldova Soviet ruble 8.377 billion, and the repayment terms in US dollars had, at one point, been agreed. However, repayment remains under negotiation. Moldova’s claims on Ukraine as of July 1, 1993 were Soviet ruble 6.2 billion, which both parties agreed to transform into a debt of US$28.4 million. Repayment remains under negotiation.

7. External debt

An external borrowing council was established in November 1993 to enforce the government’s strategy of external borrowing with a view to ensuring that the level of borrowing and the maturity structure are consistent with external viability; a system of reporting and monitoring has been in operation since January 1994. In early 1995, the Government expressed its intention to strengthen the monitoring of external borrowing by giving the Ministry of Finance the sole authority to borrow abroad under government guarantee or give repayment guarantees on enterprise sector borrowing.

8. Trade system

Moldova has established a liberal trade regime. A major step toward trade liberalization occurred on April 5, 1993 when generalized export licensing requirements were abolished and licensing was limited to 155 export categories. Liberalization progressed throughout 1993 and 1994, and as of end-1994 export quotas had been eliminated for all goods except grain and grain products. Licensing affects only products subject to national security, medical and cultural regulations. A new import tariff schedule has been introduced, which reduced the average rate in the first quarter of 1995 to about 15 percent; the maximum rate applied to most commodities was lowered to 30 percent as of end-March 1995. Moldova has initiated the process of accession to the GATT/WTO.

Table 29.

Moldova: Energy Imports

(In thousands of lei)

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Sources: Data provided by the Moldovan authorities; and staff estimates.
Table 30.

Stock of External Debt by Creditor 1/

(Disbursement Basis)

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Source: Moldovan authorities and staff estimates.

Includes use of Fund Resources.

APPENDIX I Moldova: Fiscal Issues

1. Coverage of the State Budget

The budget system in Moldova operates at the local and the republican levels, with the state budget consolidating the two. Tax and non-tax revenues collected in a given category of revenue are allocated on an annual basis between the local and republican budgets. The local budget is further divided into 10 cities and 44 districts with each category of revenue allocated differently between the cities and districts. For example, 30 percent of profits taxes are allocated to cities and districts and the balance goes to the republican budget; 30 percent of VAT revenues go to cities and districts; 100 percent of individual income taxes are retained by cities and districts. All the excises and foreign trade taxes go to the republican budget.

The republican budget is responsible for, among other things, defense, internal security, science, foreign affairs, some of the subsidies, investment financed from the budget, and support for enterprises. Local budgets, on the other hand, are responsible for financing local expenditures, including health, education, and also some subsidies.

With an estimated 17 percent of total state budget revenues in 1991, the Transnistria is an important economic region of Moldova. Given the disruption of fiscal relations between it and the rest of Moldova, republican and local budgets are presented by the authorities including Transnistria but actual budget performance data exclude the region.

2. The budget process

a. Planning and preparation

Budget preparation for the coming year normally starts the preceding May with submission to ministries of a budget circular prepared by the Ministry of Finance. The Ministry draws up a budget on the basis of submissions from line ministries, and revises individual ministries’ initial spending proposals to ensure that they conform with limitations on total spending.

In making their submissions, ministries request funding for capital investment as well as current expenditures. Requests for capital projects receive detailed consideration in the Ministry of Finance which decides on priorities and, where possible, applies profitability criteria in selecting projects. It appears that some portion of funding for capital projects by spending ministries is, however, arranged directly with banks, and is not included in the budget. As a result, it is possible that some government expenditure financed by borrowing (i.e., arranged directly with banks) may not be reflected in the budget.

At present, the Ministry of Finance lacks adequate independent capability to make macroeconomic projections, design a macroeconomic framework, or formulate contingency plans. Forecasts of macroeconomic magnitudes, such as prices, economic growth, and unemployment, are carried out in several different ministries, including the Ministry of Economy.

Given the macroeconomic instability that has characterized the Moldovan economy since 1991, budget projections are updated frequently and substantially. This tends to limit the usefulness of the budget as a planning device. The 1993 budget, for example, was based on the macroeconomic framework conceived in November 1992 and was only approved in February 1993 by which time the macroeconomic situation had already changed. Another version of the budget, however, was not passed by Parliament until August 1993.

b. Budget implementation

Prior to 1993, a line of credit was opened for each spending ministry within the limit of its budget appropriation. The Central Accounting Office of the Ministry of Finance made quarterly authorizations of credit to different ministries in amounts equal to the total quarterly appropriation in the budget for that ministry. Credit authorizations were made in total without specifying particular expenditures that an individual ministry planed for the quarter. Cash balances on hand were taken into account in determining quarterly allocations of credit and on rare occasions the Ministry of Finance transferred cash balances from one account to another. After the authorization of credit was made, the Ministry played no subsequent role in the expenditure process of line ministries for the quarter in question. The Ministry of Finance did not receive formal monthly reports from ministries on expenditure commitments, unpaid bills, or new obligations, and it exerted little control over these transactions.

The difficult financial situation that began in 1992 required the replacement of the quarterly expenditure authorization process with a monthly system of cash management. Line ministries make monthly requests for funds to the Ministry of Finance, which conveys its authorization of credit for payment to the Central Accounting Office after an ad hoc process that considers available revenues and expenditure priorities. This office then authorizes credit to the bank of the ministry concerned. Although the Ministry of Finance specifies expenditures that the monthly allocation of credit is supposed to finance, the allocation itself is made in block form, and, in any event, it affects the payment stage rather than the commitment phase. This also represents the end of the Ministry of Finance’s involvement with the line ministries’ expenditure process.

Thus, even under the revised system, in which expenditure authorizations are made on a monthly basis, Ministry of Finance personnel must rely on expenditure reports from line ministries, which are not always timely, to ascertain the type of expenditures made and even the overall amounts. As a consequence, the only practical way to monitor the overall deficit on a timely basis is from financing data.

3. The revenue system

The state budget in Moldova relies on four major revenue sources. The enterprise profit tax is the most important source of revenues as it yielded some 26 percent of total revenues in 1994. The second most important source of revenues is the Value Added Tax (VAT), which yielded some 21 percent of total revenues in 1994. The two other important revenue sources are excise taxes (11 percent of total revenue in 1994) and the personal income tax (10 percent of total revenues in 1994). In addition, there are several other sources of revenue, such as import tariffs and the road tax, which generated only a small portion of revenues in 1994.

The Moldovan authorities began a major tax reform in 1992 with the introduction of the VAT and excise taxes and a restructuring of the individual income tax. The reform was continued in 1993, largely through the introduction of several new taxes, such as the road tax and import tariffs, and through extension of the base of the VAT and excise taxes. As the number of taxes has increased, tax administration has become more difficult owing in part to the continuation of high inflation.

a. Enterprise profit tax

The tax on enterprise profits was modified in January 1991 when rates and concessions granted to certain enterprises were changed. However, the structure of the tax has not undergone substantial changes. Profits for the purpose of the tax are calculated under statutory accounting rules which differ in a number of respects from those in industrialized countries.

Certain expenses, including wages and salaries in excess of specified norms, fines, all interest expenses other than interest on short-term bank credits, annual bonuses, and payment for water usage by industrial enterprises in excess of norms are not deductible. In addition, no provision is made for carryover of losses. Full exemption is granted to certain consumer cooperatives, social organizations, cooperatives employing 70 percent or more elderly workers, certain civilian production of the defense industry; partial or full exemption for up to two years, is also granted to certain producer cooperatives and enterprises.

Profits of enterprises are taxed at 25-32 percent for the most part. However, a wide variety of tax rates apply to different enterprises and activities such as banks and insurance companies, joint ventures with foreign capital, sports and cultural activities, entertainment activities, etc. The rate applicable to farming enterprises is only 1.5 percent. In addition, an excess profit tax of 70 percent is applicable when the profit rate exceeds, by a factor of two or more, the norms for the sector established by the Government. The tax provides for a withholding of taxes on interest, dividends and share participation received by Moldovan residents. The tax treatment of capital gains, interest and dividends is not clearly specified.

b. VAT

The VAT was introduced in Moldova, as well as in other CIS states, in January 1992 at a rate of 28 percent. The rate was subsequently lowered to 20 percent in early 1993. Initially the coverage of the VAT was broad and included domestic sale of most goods, including food and medicine. However, on January 10, 1992, the rate was reduced to 14 percent on potatoes, children’s food, and sour cream. Additional concessions for butter, some cheese and meat were made and the rate was reduced to 15 percent on March 10, 1992. Municipal transport services, rents, financial services, sale of postage stamps and services provided by specified education, cultural and religious services are exempted from the tax. With effect from July 1, 1992, a number of children’s goods were exempted from the VAT, including non-food products, school products (notebooks, pencils, etc.), textbooks and toys. The VAT was extended to include non-CIS imports in November 1993, although administrative difficulties precluded implementation at that time.

c. Excise taxes

Excises were first introduced in August 1991 for a small number of commodities (vodka, beer, electronic goods, and jewelry). 1/ In 1992, the coverage was widened considerably to include wine, raw materials for making champagne, champagne, tobacco, carpets, essential oils and perfume, clothing, and natural leathers. In February 1993 an excise tax was imposed on natural gas. In December, the list of goods subject to excise taxes was increased to include non-CIS imports at current domestic rates. In the 1994 budget, which was passed in December 1993, an excise tax on gasoline was imposed. The success in collecting these new excises during 1994 was mixed, however, in part on account of the natural calamities and the severe liquidity constraints of many enterprises, and the list of exciseable commodities and the effective rates of tax were reduced significantly for 1995, in the context of the 1995 budget (please see Table 24).

d. Individual income tax

The individual income tax distinguishes between income from full-time work, and income from other work. The tax for full-time work applies at progressive rates that rise from 10 percent to 70 percent. An exemption of one minimum wage is available for primary wage incomes. Higher exemptions are available for certain categories of taxpayers such as families with several children, veterans, or invalids. A different set of rates applies to wages from second jobs, or to individual incomes from other sources. These incomes are taxable at progressive rates ranging from 2 percent to 70 percent. At about 10 percent of GDP in 1994, the expected burden of taxation on individuals in Moldova is low compared with that in many European countries.

e. Other taxes

Several taxes were introduced in 1993. A land tax was passed in February 1993 that stipulated various flat rates per hectare depending on the location of the land. The rates were adjusted twice during the year in an effort to maintain tax revenues in the face of high inflation. A road use bill was passed in June 1993 that contains various taxes on the purchase of motor vehicles and also road use fees. Import taxes were imposed in November 1993 with rates ranging from 5 percent to 70 percent. 1/ Finally, in late 1993 several other taxes were imposed such as a tax on the physical assets of enterprises, and profit taxes on banks and insurance activities.

4. Expenditure Issues

a. Structure
(1) Social sphere

The structure of expenditures in Moldova is heavily oriented toward social sectors. Expenditures in the social sphere in 1994 were some 12.5 percent of GDP, or about 49 percent of total expenditures and net lending. Social expenditures in the state budget together with social security expenditures represented about 18 percent of GDP. The largest components of social spending are for education and health programs.

(2) Subsidies

Budgetary subsidies are the next most significant element of social expenditures. While the amount of budgetary subsidies is large, it represents only part of the total extent of subsidies in the Moldovan economy. Other subsidies take the form of cross subsidization and tax preferences and exemptions (particularly from the enterprise profit tax and the VAT), which are heavily biased in favor of the agriculture sector. The most significant budgeted subsidies were for bread and milk products, which accounted for some 76 percent of all budgeted subsidies expenditures in 1993 (Table 26). Non-agricultural subsidies, such as gas, coal, and public transportation, accounted for 20 percent of budgeted subsidy expenditures in 1993. Subsidies on foodstuffs were eliminated in the first half of 1994.

(3) Capital

At about 6 percent of total expenditures in 1994, capital expenditures appear low in relation to current expenditures. The fall in capital investment from 9 percent in 1993 is the result of postponing many investment projects. These capital expenditure figures, however, could understate the full extent of investment by the Government because, as already noted, they might exclude expenditures financed by bank credit arranged by line ministries independently of the Ministry of Finance. The Ministry of Finance, which is responsible for selecting capital projects funded from the budget, applies profitability criteria in selecting projects in the productive sector, giving priorities for capital projects in the social sector, which receives 60 percent of the total capital expenditure resources from the budget.

(4) Other expenditures

Other important outlays include expenditures on defense, internal affairs, and national security. Interest payments on foreign debt became more significant in 1994, rising to 2.1 percent of GDP in 1994, from 1.1 percent in 1993.

b. Institutional

The system of expenditure control in the Government suffers from important weaknesses. Line ministries appear to have the authority to enter into expenditure commitments, to accumulate cash balances and arrears and to contract loans, without the approval, and sometimes without the knowledge of the Ministry of Finance. In addition, the system of accounting and reporting of the line ministries is not sufficiently detailed or prompt to provide a timely and comprehensive overview of the extent of new expenditure commitments, credit extended and arrears accumulated to the Ministry of Finance.

5. Extrabudgetary funds

There are currently seven extrabudgetary funds in Moldova. They are the Social Security Fund (SSF), the Science Fund, the Livestock Fund, the Military Conversion Fund, the Capital Investment Fund, the Foreign Currency Fund and the Social Assistance Fund (SAF). The SSF, the most important of the extrabudgetary funds, administers pensions, family indemnities, and unemployment benefits and is funded by a payroll tax, which as of January 1, 1994 was 38 percent for the majority of enterprises. The Military Conversion Fund is to be funded by expenditure savings from the reduction of the military; its expenditures are to be utilized to assist the re-entry of erstwhile soldiers into society. The fund has not functioned yet. The Capital Investment Fund is to be funded by proceeds from privatization and expenditures would be used to fund investment projects that have been delayed by budgetary cuts. The fund has not yet functioned as the privatization program has only just started.

Tax Summary as of April 1995

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Source: Data provided by the Moldovan authorities.

APPENDIX II Moldova: Exchange System

1. The exchange system

Moldova has notified the IMF of exchange arrangements it intends to apply in fulfillment of its obligations under Article IV, Section 1 of the Articles of Agreement. The exchange rate of the Moldovan leu is determined on the Chisinau Interbank Foreign Currency Exchange (CIFCE), which operates five times weekly, normally trading U.S. dollars and Russian rubles and occasionally deutsche mark and Romanian lei.

a. Exchange arrangements and unification of the exchange rate

Up to July 25, 1993, the Russian ruble was legal tender in Moldova and was supplemented by NBM-issued coupons introduced on June 10, 1992. By end- June 1993, coupons accounted for 80 percent of cash in circulation. The official exchange rate against the U.S. dollar was fixed at the value of the Russian ruble against the U.S. dollar as determined by the CBR on the basis of the Moscow Interbank Foreign Currency Exchange Rate.

On July 25, 1993, following the currency conversion by Russia, pre-1993 Russian rubles were withdrawn from circulation and, starting August 1, 1993, 1993-Russian ruble bank notes were bought and sold at exchange bureaus. On August 9, 1993, a distinction was officially introduced between Moldovan rubles and rubles from other countries in the ruble area. The NBM started to quote an official rate of the Moldovan ruble against the Russian ruble, adjusting it periodically to follow developments in the exchange market.

On November 29, 1993, the national currency, the leu (plural lei) was introduced as the sole legal tender of the Republic of Moldova.

The CIFCE, 1/ which had started operations at the beginning of the year and was closed shortly thereafter due to a lack of foreign exchange, recommenced operations on October 14, 1993. It was held on a weekly basis until December 1993, when the frequency increased to two and then three times weekly; in February 1995, daily auctions commenced. In the fixing sessions, authorized banks are freely permitted to purchase or sell foreign currency as principal or as agent for any resident or nonresident. A foreign exchange cash market within authorized banks and foreign exchange bureaus has also remained active.

The foreign currency market consists of the fixing sessions of the CIFCE, the interbank market outside of the fixing sessions, and the cash market. All purchases and sales of foreign currency in the fixing sessions take place at the fixing rate.

Immediately after each fixing session, the NBM establishes official buying and selling rates for foreign currencies. For each currency traded in the fixing session, the official buying and selling rates are established by adding and subtracting 1 percent to and from the fixing rate for that currency. For other major convertible currencies, the official buying and selling rates are set by adding and subtracting 1 percent to and from the midpoint exchange rate for the currency against the leu calculated on the basis of the most recent exchange rate for that currency against the U.S. dollar and the dollar/leu rate established in the fixing session.

The official rates are used for exchange transactions between the National Bank and the Government and for customs and valuation purposes. Outside of the fixing sessions, authorized banks engage in spot exchange transactions at freely-negotiated rates; moreover, banks and exchange bureaux may freely purchase and sell foreign currency cash and travelers checks outside of the fixing sessions although their buying and selling rates for such transactions may not exceed a 10 percent margin.

Since the introduction of the leu the cash market exchange rate has closely followed the official market, albeit with infrequent periods of divergence. The spread between the CIFCE exchange rate and the average cash market rate 1/ has, on occasion, been greater than 2 percent.

b. Surrender requirement

Until January 17, 1993, all exporters were required to surrender 35 percent of export earnings to the NBM at the official exchange rate. On November 15, 1994, the surrender requirement was abolished and replaced by a repatriation requirement.

c. Laws and regulations of foreign currency transactions

The legal framework for foreign exchange control in Moldova is set out in Presidential Edict No. 6 of January 13, 1994, and in the Regulation on Currency Control in the Republic of Moldova, approved by the Administrative Council of the National Bank on January 13, 1994. The framework allows residents to purchase foreign exchange for the purpose of making payments for most current international transactions and also seeks to ensure that nonresidents may repatriate earnings.

Nevertheless, Moldova continues to avail itself of the transitional arrangements of Article XIV, Section 2 of the Fund’s Articles. Moldova maintains the following exchange measures under Article XIV, Section 2: 1) an exchange restriction arising from the limitation on the right of resident legal entities to make advance payments to countries outside of the former Soviet Union for the import of goods and services; 2) exchange restrictions arising from limitations on the right of resident individuals to make payments for a variety of current international transactions to countries outside of the former Soviet Union; and 3) exchange restrictions arising from the National Bank’s system of correspondent accounts with FSU central banks other than the Central Bank of Russia. Payments and transfers for current international transactions vis-à-vis other countries of the former Soviet Union may be freely made in Moldovan lei or in the currency of the other FSU country and are generally effected between foreign and domestic commercial banks, without resort to the correspondent accounts between the central banks of the other states.

While the Parliament has ultimate authority in the area of foreign exchange arrangements, the NBM is responsible for managing the national foreign exchange reserves, regulating the currency market, and granting licenses to commercial banks to engage in foreign currency transactions.

Private citizens, businesses, and organizations may open foreign currency accounts and hold certificates of deposit at authorized banks, which they can use at their own discretion. The source of foreign exchange is not subject to investigation. Nonresident entities holding foreign currency deposits at authorized banks can freely transfer them abroad or sell them to an authorized bank if the funds were transferred from abroad or if they were received in Moldova in payment for a current international transaction within six months from the date of the transfer. 1/ Workers’ remittances are not subject to mandatory repatriation, as long as the workers are still living abroad. All other foreign exchange earnings from services rendered abroad must be repatriated within 30 days of completion of the service.

Foreign currency transactions must be conducted by authorized banks or foreign exchange bureaus. The latter were approved in late September 1992 by the Administrative Board of the NBM. A foreign exchange bureau is a legal entity authorized by the NBM to purchase and sell foreign exchange in cash and traveler’s checks. It can purchase, without limit, bank notes and traveler’s checks from resident and nonresident persons in any currency recognized by the NBM.

Payments for current international transactions do not require a license or authorization from the NBM, with the exception of payments to countries outside of the former Soviet Union for the import of goods or services whose value exceeds $20,000, for which an advance payment of at least 30 percent is required. Citizens can freely purchase $1,000 for each trip abroad, with no limit on the amount taken abroad per calendar year.

All capital account transactions require licenses from the NBM. Foreign currency earnings of residents must be deposited in the residents’ accounts at authorized banks.

Table A1:

Direction of Trade, 1992-93

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Source: Moldovan authorities.
Table A2:

Total Exports to Countries of the Former Soviet Union

(In thousands of lei)

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Source: Moldovan authorities.
Table A3:

Total Imports from Countries of the Former Soviet Union 1/

(In thousands of lei)

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Source: Moldovan authorities.

Excluding Transnistria.
1/

This report covers developments through end-1994. For developments in previous years, see SM/94/130.

2/

The output figures cited here are estimates prepared by the State Department of Statistics. The methodology for the compilation of national income accounts is under review and the figures should be considered as preliminary estimates.

1/

The agriculture sector accounts for a slightly lower share (43 percent) of total net material product (Table 4).

1/

Transnistria accounted for 14 percent of the total population in the 1990 census.

2/

Discussions concerning the possible economic reintegration of the Transnistria region intensified in late 1994 with the appointment of a committee of senior Moldovan and Transnistrian officials to discuss the modalities of reintegration. The work of this group is supplemented by periodic meetings of the respective political leaders.

1/

Flooding and hurricane-force winds resulted in some loss of life and substantial property damage. The expenditures incurred to rebuild economic infrastructures added additional fiscal pressures in the third and fourth quarters of the year. See the discussion below, Section IV.

1/

Prices for urban transportation, communal services and some rents remain subject to control.

1/

Although employment in industry has declined somewhat over the past several years, there is little labor market evidence of restructuring. See Tables 14 and 15.

1/

There were concerns that the introduction of the leu scheduled for end-November would include confiscatory elements. As a result, individuals may have sought to insulate themselves from such measures by converting cash balances into goods and foreign exchange. The conversion rate of 1 leu to 1,000 Moldovan coupons and a subsequent shortage of small denomination coins may have resulted in a one-time-upward rounding of prices. See also Appendix I, SM/94/130, May 27, 1994.

1/

Legislation sanctioning private property, foreign investment, leasing, and private enterprises, as well as the legal basis for the privatization of state enterprises, bankruptcy proceedings, agrarian reform, the formation of joint-stock companies was implemented by Parliament in 1991-92. Legislation on the pledging of assets and the use of collateral and the legal framework for trusts and holding companies was promulgated in 1993 and early 1994.

2/

In early 1995, the Government started liquidation proceedings against five state-owned enterprises. Faced with the threat of closure, two firms found the resources to meet their current obligations. The assets of the remaining firms were sold in public auctions. An additional 15 enterprises are to be identified and liquidated by end-June 1995.

1/

Although ownership of land prior to independence was concentrated in the Government, limited private ownership was permitted. All citizens were allowed to own land, with the size of the plot varying according to class and plot location: collective farmers in rural areas had the largest plots, of up to 0.2 hectares, state farm employees were allocated less, and workers and employees in urban areas were granted as little as 0.04 hectares. The size of private plots owned by farmers was increased significantly on January 1, 1992 under the reform program to 0.5 hectares per family, with an additional 0.1 hectare per fourth and subsequent family members up to a maximum of 1 hectare per family.

2/

This figure was subsequently reduced to about 1,400 enterprises by the merger and change of ownership statutes of a number of enterprises and by the exclusion of enterprises in Transnistria.

1/

The combined outcomes of the small-scale and the medium- and large-size auctions represent roughly one-third of the total number of enterprises identified for sale in the 93/94 program.

1/

To facilitate comparisons with previous years, fiscal developments are described in terms of the staff’s estimate of GDP for 1994 and for previous years.

1/

The growth of arrears occurred despite an increase in penalties for late payment, and a five-fold increase in the interest rate on overdue taxes, to 1 percent per day, exceeding the NBM finance rate for most of the year.

1/

However, it should be noted that end-year arrears may have been overstated somewhat because of the accounting treatment of payroll tax due on end-of-year salary bonuses.

2/

Pension arrears can coexist with the cash surplus realized for the year on account of lags in transferring funds from surplus to deficit regions of the country.

1/

Energy import prices reached world market levels in 1994.

2/

Substantial progress has been made in the compilation of balance of payments statistics, and the Fund is providing technical assistance in this area. Nevertheless, deficiencies in the balance of payments statistics remain; in particular, trade flows via Transnistria are not fully captured by customs reporting, and barter trade, which was an important component of trade, is subject to valuation difficulties.

1/

The Fund staff provided extensive technical assistance in this area, including a special MAE mission which visited Chisinau immediately prior to the introduction of the leu. The local authorities prevented the introduction of the leu in the Transnistria region.

2/

A broader discussion of exchange arrangements and exchange restrictions in Moldova can be found in the annual IMF publication Exchange Arrangements and Exchange Restrictions.

1/

Excises on brandy were subsequently added in November 1991.

1/

Import taxes existed before this date but were levied at the exchange rate of Rub 1.8 to US$1, which made them ineffective in generating revenue. These tariffs were abolished with the imposition of the customs law in November 1993.

1/

On May 15, 1995, the CIFCE auction rate was MDL 4.531 per US$1, and MDL 0.91 per Rub 1000; there was no significant difference between the CIFCE rate and the rate on the cash foreign exchange market.

1/

Average between buying and selling rates.

1/

Nonresidents from countries within the former Soviet Union may not use the proceeds on such accounts to purchase “hard” currency in Moldova.

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Cover IMF Staff Country Reports
Moldova: Recent Economic Developments
Author:
International Monetary Fund
Volume/Issue:
Volume 1995: Issue 073
Publisher:
International Monetary Fund
ISBN:
9781451824902
ISSN:
1934-7685
Pages:
87
DOI:
https://doi.org/10.5089/9781451824902.002
Chart 1.

MOLDOVA Production, Inflation, and Energy Consumption
Chart 2

MOLDOVA Labor Market and Privatization
Chart 3

MOLDOVA Financial and Fiscal Indicators
Chart 4

MOLDOVA External Sector Indicators