Recent Economic Developments

This paper describes economic developments in the Republic of Moldova during 1992–96. The authorities embarked on a comprehensive program of financial stabilization beginning in 1993. By 1995, the fiscal deficit had been cut to 5½ percent of GDP and the National Bank had implemented a tight monetary policy. Output stabilized and exports and imports rose rapidly, with the current account deficit narrowing to 6½ percent of GDP from 13½ percent in 1993. Data for the first half of 1996 show inflation remaining low and output recovering.


This paper describes economic developments in the Republic of Moldova during 1992–96. The authorities embarked on a comprehensive program of financial stabilization beginning in 1993. By 1995, the fiscal deficit had been cut to 5½ percent of GDP and the National Bank had implemented a tight monetary policy. Output stabilized and exports and imports rose rapidly, with the current account deficit narrowing to 6½ percent of GDP from 13½ percent in 1993. Data for the first half of 1996 show inflation remaining low and output recovering.


A. Real Sector Developments

Output and demand

6. From 1991 to 1994, Moldova experienced a steep slump in real GDP of more than 50 percent. The decline was most marked in 1994 when drought severely affected agricultural output and GDP fell by more than 30 percent. Preliminary estimates suggest that GDP1 may have decreased by 3 percent in 1995, but excluding Transnistria there was probably a modest rise (Table A1, Chart 1).2


Moldova Output Indicators

Citation: IMF Staff Country Reports 1996, 117; 10.5089/9781451824919.002.A001

Sources: Moldova Department of Statistics; and IMF staff estimates.1/ Chain-linked index, includes Transnistria.2/ At constant prices of 1983, includes Transnistria.3/ At constant prices of 1992, excludes Transnistria

7. Trends in both aggregate demand and supply suggest that the decline in GDP bottomed out during 1995. On the demand side3, real final consumption appears to have risen in 1995, boosted by a strong increase in private consumption and a moderate increase in public consumption. However, gross capital formation declined sharply in real terms due to a substantial fall in measured stockbuilding. Gross fixed investment may have decreased only slightly, and its share in GDP remains below 10 percent.4 Real net exports made a small negative contribution to growth.

8. On the supply side5, industrial production fell further in 1995, reflecting the ongoing adjustment to systemic change and the disruption of former production and trade patterns. However, agricultural production rebounded from drought affected levels in 1994 and the service sector appears to have expanded.

9. From 1992 to 1995, industrial output is estimated to have declined by more than 30 percent (Table A6). However, although output fell by 2½ percent in 1995 as a whole, a recovery began from midyear and appears to have accelerated in the first half of 1996, when production was 11 percent higher than a year earlier (Chart 2).


Moldova Structure of Industrial Production 1/

Citation: IMF Staff Country Reports 1996, 117; 10.5089/9781451824919.002.A001

Sources: Deportment of Statistics; and IMF staff estimates.1/ Excluding Transnistria.2/ Seasonal adjustment by X-11 variant of the Census method II.3/ Thirteen-month Henderson moving average.

10. The various sectors of industry have coped differently with the challenges of the new environment. The food industry, constituting almost 60 percent of industrial output in 1995, declined by 25 percent from 1992 to 1995. In 1995, however, production was up by 5 percent owing to increased agricultural output. Some food processors appear to be gaining market share abroad due to improved quality, although the common ownership of land and cross-ownership arrangements between the processing industry and collective farms have held back adjustment in the sector as a whole. Heavy industry, which produced 37 percent of industrial output in 1995, has declined by 30 percent since 1992, and by 7 percent in 1995. Light industry - textiles, clothing and footwear - has been hit hardest, with output down by 70 percent since 1992. It accounted for only 5 percent of industrial production in 1995. Low product quality and insufficient quality-enhancing investment has left these industries uncompetitive in the face of increased competition in domestic and external markets.

11. Agriculture is the most important source of economic activity in Moldova, accounting for about half of GDP and employment. Since the collapse of the Soviet Union, agriculture has faced sharp rises in feed and fertilizer prices. This has especially affected animal husbandry, where productivity has suffered and meat production has fallen sharply. In addition, there have been several years of severe drought affecting both crops and animal husbandry (Tables A3). After a small rise in 1995, agricultural production was only about 75 percent of its level in 1991. For 1996, the pre-harvest outlook is for higher output of maize, grapes, sunflowers and sugar beets.

12. With excellent soil, a moderate climate, advanced agricultural research facilities, low labor costs and specialization in high value crops (viticulture and horticulture), Moldova’s agricultural sector is likely to be a major source of growth in the medium term. However, restructuring of the sector has been slow, in particular because of the prohibition on trading of agricultural land and restrictions on farm laborers ability to sell their share in collective farms. Policies promoting the efficient use of land would promote private initiative and entrepreneurship and are critically important for restructuring the sector. Clearly specified ownership and property rights will also give the sector better access to credit markets.

Labor market developments

13. Employment (when measured by the number of workers employed) has declined only slightly, despite the substantial fall in output over the last few years (Table A8). Official unemployment remains very low although it increased from 1 percent of the labor force in 1994 to around 2 percent in mid-1996.6 Enterprises have partly adjusted to declines in output by placing workers on partially paid or unpaid leave, rather than laying them off: 10-12 percent of the labor force is underemployed in this way.

14. There are several factors which explain this development. First, many enterprises are unable to make severance payments, which are three months’ salary for the average worker. In addition, pressures on managers to lay off workers and maximize profits are weak. Finally, social benefits provided by the employer, in contrast to relatively low unemployment benefits (see Section IV), provide an incentive for underemployed workers to remain formally employed, even if they are actively seeking new employment. This is reflected in relatively high labor mobility, despite low recorded unemployment: on average, 8-10 percent of the labor force change jobs each year (Table 1).

Table 1.

Labor Mobility

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Sources: Department of Statistics; and IMF staff estimates.

15. Enterprises have also compensated for their reluctance to cut employment sufficiently by running wage arrears and sharply reducing fixed investment. Real fixed investment fell significantly through the transition period. Productive capacity has declined as the capital stock aged and been made obsolete by changing terms of trade.

16. Following a sharp decline of 40 percent in 1992, and further declines in 1993 and 1994, real consumption wages increased by 1½ percent in 1995. In the first half of 1996 the rate of increase picked up, with real wages up 7 percent over the same period in 1995. The average monthly U.S. dollar wage, however, remains low at about US$40 in June 1996. The monthly minimum wage has been held at Mdl 18 lei since June 1994, and amounted to less than 10 percent of average wages in June 1996.


17. Inflation declined from 116 percent during 1994 to 24 percent during 1995, as a result of the implementation of tight financial policies (Table A9). However, rapid monetary growth in the second half of 1995 led to a temporary resurgence of inflation at the end of 1995, with inflation increasing from an annualized rate of 15 percent in the first half of 1995 to 33 percent in the second half. Very tight monetary conditions throughout the first half of 1996 brought inflation back down: during the first seven months of the year it was below 17 percent on an annualized basis and averaged less than ¾ percent a month from March to July 1996.

18. Relative price adjustments became more pronounced in 1995 and early 1996. In the year to June 1996, consumer prices increased overall by 26 percent, but whereas prices of goods increased by about 20 percent, prices of services increased by 70 percent, reflecting large increases in some administered prices (Chart 3). Following the break up of the Soviet Union, certain services continued to be heavily subsidized. Results from the European Comparison Program for 1993 indicated that prices for services - in particular rents, energy and public transport services - were low relative to the price of an overall basket. For example, the price of housing relative to the basket was less than 10 percent of the relative price in the comparator country (Austria). For communication services it was 15 percent.


Moldova Prices

Citation: IMF Staff Country Reports 1996, 117; 10.5089/9781451824919.002.A001

Source: Moldova Department of Statistics; and IMF staff estimates.

B. Fiscal Developments

19. Fiscal performance improved substantially in 1995 as the cash deficit of the general government (Box 1) fell to 5½ percent of GDP7 from 8¾ percent in 1994 (Table A12, Chart 4). The improvement reflected expenditure reductions and a small rise in the overall revenue ratio, with a more substantial rise in tax revenues offset by lower nontax revenues. Domestic financing amounted to 2½ percent of GDP and foreign financing 3 percent, down from 6¾ percent in 1994. The government was successful in reducing its dependence on credit from the central bank by securing domestic noncentral bank financing of around 1 percent of GDP, mainly through the sale of Treasury bills to commercial banks. In 1995 the Treasury bill market grew in importance and depth, though the secondary market is still in its infancy.


Moldova Fiscal Indicators

Citation: IMF Staff Country Reports 1996, 117; 10.5089/9781451824919.002.A001

Sources: National Bank of Moldova, Ministry of Finance; and IMF staff estimates.1/ Includes Social Fund operations on gross basis.

20. Total budget revenues in 1995 amounted to 24 percent of GDP, the same as in 1994. Tax revenues were 19 percent of GDP with grants and nontax revenues amounting to 4¾ percent. The main sources of revenue, by decreasing order of importance, were the value-added-tax (VAT), corporate income tax, and personal income tax. VAT receipts performed particularly well, representing around 7 percent of GDP in 1995, up from 5 percent in the previous year.

Structure of Government

The consolidated state budget of Moldova consists of the local budget - 10 cities and 44 districts-and the republican budget. Four of the cities and four of the districts are located in the Transuistria region. Since April 1991 normal fiscal relations, including reporting of fiscal data, between the republican budget and the cities and districts Transuistria have been disrupted, making it impossible to assess the fiscal situation there. Repeated data therefore do not include Transuistria. In addition to the state budget, there are several extrabudgetary funds, the most important of which, in terms of the scale of operations, is the Social Fund.

General government deficit figures are quoted on a consolidated basis, including the extrabudgetary funds, However, official consolidated estimates of revenue and expenditure are not available on a timely basis, and consequently the estimates of revenues and expenditures presented here do not include the revenues and expenditures of the Social Fund.

21. Expenditure and net lending in 1995 amounted to 29½ percent of GDP, down from 32 percent in 1994, despite the fact that domestic and external debt interest payments increased from around 2¾ percent of GDP in 1994 to 3¼ percent in 1995. Net lending from the budget decreased by around 1 percent of GDP to just less than 1 percent. Since capital expenditures and expenditures on the national economy decreased only slightly as a fraction of GDP, the bulk of the savings came from outlays in the social sphere, which declined by 2½ percentage points to 14 percent of GDP in 1995.8

22. Reflecting continuing fiscal consolidation, the budget deficit in the first half of 1996 fell further to an estimated 3¼ percent of period GDP. Financing of the deficit was entirely from domestic sources - with virtually no foreign loan disbursements and modest amortization in the first half of the year, net foreign financing of the budget was slightly negative. For the first time, central bank financing represented less than half of total domestic financing, with most of the remainder (56 percent of total net domestic financing) coming from Treasury bill sales to the nonbank sector, including sales to nonresidents, reflecting growing confidence in these securities, as well as in the leu.

23. Total revenues in the first half of 1996 represented 38 percent of budgeted revenues for the year. In 1995, 41 percent of revenues were received in the first half. The major area of concern was weak excise tax revenues, apparently resulting from interruptions in the export of some excisable goods to Russia early in the year. Revenues from cash privatization were also lower than budgeted. More generally, however, the first half outturn should be seen in the light of the strong seasonality of the Moldovan economy, with tax collections and economic activity likely to pick up in the second half of the year.

24. The burden of deficit reduction in the first half of the year fell heavily on the expenditure side. All components of expenditures and net lending were squeezed in cash terms, and this was partly reflected in increases in budgetary expenditure arrears, especially arrears to energy enterprises. Expenditure restraint was however helped by large enterprise repayments to the budget of previously lent funds.

25. The Social Fund, which includes the Pension Fund, Social Insurance Fund, and the Employment Fund, had a balanced budget in 1995, with revenues and expenditures equivalent to 8 percent of GDP. By comparison, in 1994 the Social Fund had a surplus of ½ percent of GDP with revenues of 8¼ percent of GDP. Payroll taxes continued to be the main funding source: the reliance on transfers from the budget was halved to 5 percent of revenues in 1995. Payroll tax arrears continued to rise during 1995 and, with no alternative substantial revenue source, arrears on pensions and allowances - the Social Fund’s main expenditure obligation -rose to 2¾ months at end-1995. There was a further sharp rise, to five months, in the first half of 1996, partly reflecting seasonal weakness in revenues.

26. Current plans to reform the tax code and the social safety net are discussed in Sections III and IV.

C. Financial Sector Developments

27. Tight NBM credit policy led to a sharp fall in the growth rate of broad money from almost 120 percent during 1994 to 65 percent during 1995 (Tables A10-11). With increased confidence in the leu and declining inflationary expectations, real money balances increased by more than 30 percent during 1995 and velocity declined. After an episode of rapid monetary expansion in the second half of 1995, the NBM tightened its credit policy further and allowed no growth in reserve money from October 1995 to June 1996 (Chart 5). The tight monetary stance in the first half of 1996 led to a sharp slowdown in the growth of broad money to an annualized rate of only 17 percent. However, domestic credit grew more rapidly, at an annualized rate of 48 percent, with the private sector’s share in credit increasing from 28 percent at end-1995 to 30 percent at end-June 1996.


Moldova Money and Inflation

Citation: IMF Staff Country Reports 1996, 117; 10.5089/9781451824919.002.A001

Source: Moldova Department of Statistics, National Bank of Moldova; and IMF staff estimates.1/ Six month backward moving average of monthly growth.

28. The reserve money multiplier, which rose at a rate of 17 percent during 1995, continued to grow during the first half of 1996, albeit at a slower pace of 8 percent (annualized) (Chart 6). The change in reserve requirement regulations in February 1996, allowing banks to maintain obligatory reserves on an average rather than a daily minimum basis, together with improvements in the payments system, enabled banks to substantially reduce excess reserve holdings. As a percentage of deposit liabilities they fell from 37 percent at end-1994 to 15 percent at end-1995 and declined further to 9 percent at end-June 1996. However, excess reserve holdings of commercial banks remain relatively high since:


Moldova Monetary Aggregates

Citation: IMF Staff Country Reports 1996, 117; 10.5089/9781451824919.002.A001

Source: Notional Bank of Moldova, Moldova Department of Statistics; and IMF staff estimates.1/ CPI deflated.2/ Including foreign currency deposits until 1994Q3.
  • many banks are still not managing liquidity effectively;

  • the payments system is still somewhat slow and some banks continue to make paper-based submissions; and,

  • an interbank market for acquiring short-term liquid resources is virtually nonexistent.

Currency as a percentage of deposit liabilities increased from 85 percent at end-1994 to 106 percent at end-1995 and to 110 percent at end-June 1996, possibly indicating an increased demand of leu notes for circulation in Transnistria.

29. Interest rates continued to decline in 1995 and early 1996 (Chart 7).


Moldova Interest Rates

Citation: IMF Staff Country Reports 1996, 117; 10.5089/9781451824919.002.A001

Source: National Bank of Moldova; and IMF staff estimates.1/ Average interest rate on 3-month total credit outstanding by the three largest banks.2/ Commercial banks’ average Interest rate on newly extended credit with 1-3 month maturity.3/ Adjusted by current monthly inflation rate.
  • The 3-month Treasury bill rate fell substantially, from 95 percent (compounded annual rate) in March 1995 to below 40 percent in July 1996. However, despite a deepening of the market, the emergence of a secondary market, and increased participation by nonbank investors, the rate remains high compared to commercial banks’ lending rates.

  • The 3-6 month lending rate of commercial banks fell from more than 60 percent at end-1995 to about 45 percent in June. Deposit rates fell less sharply, and the margin between deposit and lending rates shrunk significantly.

  • The NBM refinancing rate also declined and remains well below other market rates.

  • Money market rates are high and exceed lending rates to enterprises, probably because of lack of trust between banks and the resulting need for a high risk premium.

  • Real interest rates were positive over most of the period.

30. The success of the NBM’s monetary policy has been instrumental in the emergence of a stable macroeconomic environment. Policy has been based on using the money supply as a nominal anchor, but the NBM has also sought to maintain a relatively stable nominal exchange rate for the leu. Large capital inflows in the third quarter of 1995, however, exposed the conflict in targets when tensions between these objectives began to mount. The NBM initially monetized the inflows, especially since uncertainty about underlying money demand made it difficult to identify their inflationary potential. Reserve money grew rapidly, by about 50 percent from end-June to end-October 1995 (Table 2). However, as soon as it became apparent that excessive money growth threatened the disinflation effort, the NBM tightened credit policy and by end-December reserve money had decreased by 6 percent from its peak in October. During 1996, the NBM has emphasized more strongly its reserve money target to achieve the inflation objective.

Table 2.

Monetary Developments, 1995-96

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Sources: National Bank of Moldova, Department of Statistics; and IMF staff calculations.

End-of-period, change in percent of initial stock of reserve money.

Average monthly percent change during period.


31. The leu depreciated by 3 percent against the U.S. dollar in the first half of 1996 but has appreciated by about 1 percent during the last two months. In real effective terms, the leu continued its appreciation, in particular against the currencies of Moldova’s non-CIS trading partners.

32. The NBM relies on indirect policy instruments to manage domestic liquidity.

  • Credit auctions are generally conducted biweekly, although during 1996 the NBM has canceled several auctions because it saw no need for expansion of domestic credit. Auction credit is now being extended against collateral and, in general, for three months.

  • Purchases and sales of foreign currencies can also be used to achieve the reserve money target.

  • In November 1995, the NBM introduced a Lombard facility. However, since the interest rate has been set at a highly punitive level, banks have rarely demanded liquidity under this facility.

  • The NBM is preparing to move to open market operations as its main instrument to manage liquidity. Insufficient holdings of Treasury bills by banks have so far prevented the use of this instrument for increasing liquidity. However, the NBM can now mop up liquidity using Treasury bills acquired this year (Mdl 95 million), following a new policy from the beginning of the year of extending credit to government only against Treasury bills.

  • The NBM can also affect monetary policy through changing reserve requirements for commercial banks. However, changes in reserve requirement regulations in 1995 and 1996 were introduced to lower the cost to the banking system of maintaining reserves rather than to influence monetary conditions (Box 2).

Reserve Requirement Regulations

Reserve requirements apply uniformly to all deposit liabilities since end-1994. The maintenance period and calculation period 15 days and contemporaneous, respectively. Since February 1996, required reserves have to be maintained on an average basis during the maintenance period. Acceptable reserve assets are correspondent account balances with the bank in domestic currency. However, for obligatory reserves on foreign currency deposits, banks can maintain foreign currency deposits at the central bank or in highly rated banks abroad. Cash in vault is not an acceptable reserve asset at this time. Since November 1995, the NBM has remunerated required reserves exceeding five percent of deposit liability, at a rate equal to the monthly inflation rate.

The required reserve ratio is 8 percent. It was last lowered from 12 percent in October 1995.

33. A modern central bank law and law on financial institutions became effective in January 1996. The new law gives the NBM wider powers and effective sanctions to enforce prudential standards. Although the banking system remains fragile, there is some evidence that the strength and stability of banks are improving (see Section II). More effective banking supervision has contributed significantly. All commercial banks have been inspected and ten banks found in violation of prudential standards (accounting for about 50 percent of banking system assets) have been put under the special supervision of the NBM’s bank resolution unit. The NBM is currently liquidating one small commercial bank which has been found insolvent.

D. External Developments

Foreign trade and the balance of payments

34. Moldova is a small open economy whose exports and imports have traditionally been large in relation to GDP. Exports consist primarily of agricultural and food products, including wine, spirits, tobacco, fruits and fruit juices, vegetables and sugar. The main categories of imports are energy products and machinery. This trade structure reflects Moldova’s rich endowment in fertile agricultural land, its lack of energy resources and its efforts to upgrade its capital stock. In recent years, Moldova has conducted approximately two-thirds of its trade with the Baltic countries, Russia and other former Soviet Union countries (BRO) and one third with other countries (non-BRO).

35. In 1995, Moldova’s trade deficit amounted to US$32 million, or roughly two-thirds of the trade deficit registered in 1994, reflecting a deficit with BRO countries of US$36 million and a small surplus with non-BRO countries (Table A13, Chart 8). Exports and non-energy imports both grew briskly during the year (20 percent for exports and 27 percent for non-energy imports), continuing the recovery from the sharp drop in trade experienced immediately after the dissolution of the Soviet Union. Energy imports stabilized at their 1994 level, as energy import prices remained roughly constant for the first year since independence. The balance of services continued to be strongly negative, with a deficit of US$95 million, mainly reflecting large transport costs for energy and other imports. Together with negative net factor income of US$29 million, reflecting external debt interest payments, and positive current transfers of US$35 million, there was a current account deficit in 1995 of US$122 million or approximately 7 percent of GDP, similar to 1994.


Moldova External Indicators

Citation: IMF Staff Country Reports 1996, 117; 10.5089/9781451824919.002.A001

Sources: National Bank of Moldova; and IMF staff estimates.1/ Sum of exports and imports.2/ Baltics, Russia, and other former Soviet Union countries.

36. The current account deficit was financed principally with proceeds from foreign direct investment, disbursements from multilateral and official bilateral creditors, and arrears on energy deliveries. Foreign direct investment amounted to US$72 million, including a swap of equity in Moldovan enterprises for arrears on Russian gas deliveries of US$41 million. Official creditors disbursed US$132 million, slightly less than in 1994. Notwithstanding the debt-equity swap, the stock of arrears on energy deliveries grew by US$47 million.

37. Overall, the balance of payments registered a small deficit of US$7 million. With purchases from the Fund of SDR 42.4 million and a postponement of amortization on credits extended previously by the Russian Federation, gross official reserves grew by US$78 million to US$257 million by the end of 1995, equivalent to more than three months of imports of goods and nonfactor services.

Trade regime

38. Moldova has continued to take measures to confirm its commitment to a liberal trade regime. In 1995, import tariffs were further reduced and a new tariff schedule introduced including five tariff bands with a maximum tariff rate of 20 percent, except for a limited number of goods. Export quotas have been eliminated. Licensing affects only products subject to security, medical and cultural regulations. Exports of a number of agricultural goods, inducting cereals, raw hides and skins, cattle, sugar, tobacco, wine and spirits, are subject to registration.

39. Moldova has initiated the process of accession to membership in the WTO. Free trade agreements with Azerbaijan, Belarus, Kazakstan, Romania, Russia, Turkmenistan and Ukraine have entered into force, while free trade agreements with Armenia, the Kyrgyz Republic and Uzbekistan have been ratified by the Moldovan Parliament. In July 1994, Moldova and other CIS members signed an agreement to implement free trade within the CIS. Moldova also signed an Agreement on Partnership and Cooperation with the European Union in late 1994, which covers, among other provisions, external trade relations.

External debt

40. In 1995, the Government of Moldova pursued its efforts to strengthen control over public external debt contracts and provision of public guarantees on private external debt. These efforts came to fruition in July 1996 when Parliament passed a Law on Public Debt and Guarantees which stipulates that all external loans and guarantees have to be proposed by the Ministry of Finance and approved by Parliament. A system of reporting and monitoring of all external debt has been in operation since early 1994.

41. Moldova’s foreign debt grew by US$170 million in 1995, to US$675 million at the end of the year. Moldova’s main external creditors are the IMF, the World Bank, Russia, the European Union, the United States, Japan and Romania.

Exchange market and exchange arrangements

42. The leu, Moldova’s national currency, was introduced on November 29, 1993. Since its introduction and particularly since mid-1995, the nominal exchange rate of the leu against the U.S. dollar has remained essentially stable. As of August 23, 1996, the exchange rate was US$1 = Mdl 4.63. In real effective terms, the leu appreciated against currencies of non-BRO countries and depreciated against currencies of BRO countries. Overall, the real effective exchange rate of the leu has not shown a significant upward or downward trend.

43. The foreign currency market consists of the daily fixing sessions of the Chisinau Interbank Foreign Currency Exchange (CIFCE), the interbank market outside the fixing session, and the cash market. As banks have developed expertise in foreign exchange transactions, the volume of operations carried in the interbank market has grown and the relative importance of transactions conducted at the CIFCE has waned.

44. Moldova accepted the obligations of Article VIII, Sections 2, 3, and 4 of the Fund’s Articles of Agreements on June 30, 1995. Since that date, Moldova’s exchange system has remained free of any restrictions on current account transactions. Export proceeds are subject to a repatriation requirement. Capital account transactions require licenses from the National Bank of Moldova.


45. In market economies, a stable and efficient banking system plays a fundamental role as the main conduit to mobilize savings and transform these into investments, thereby supporting the efficient allocation of resources. During this process, banks assume, assess, and manage various risks. The close relationship with the enterprise sector, especially under universal banking, also puts banks in a unique position to play a fundamental role in corporate governance. For economies in transition, the banking system was expected to play an important role in the restructuring process of the economy. With capital markets virtually nonexistent at the outset of the transition process, banks could play a critical role in resource allocation and the development of corporate governance.

46. The banking system which emerged in Moldova from the previous command economy, however, appeared to be ill-suited to perform these roles. Under the command system, the role of banks was to work closely with line ministries to implement the credit plan, the mirror-image of the command economies’ production plan. There was no need to mobilize savings and the interest rate did not play the role of coordinating the behavior of savers and investors. Soft budget constraints for banks and enterprises provided little incentive to evaluate credit risk and to enforce payment obligations. Skills necessary for banking in a market environment did not exist.

47. The problems of the newly developing banking system were exacerbated by the proliferation of small banks in a lax supervisory environment. The structure of the banking system which emerged was the result of initially low barriers to entry and liberal licensing policies. This allowed rapid growth in the number of banks from five at end-1988 to 22 at end-1995, with almost 1,100 branch offices. However, most of the new banks remained small, with the former state banks accounting for most of the banking system assets. At end-1995, six banks had assets of more than US$20 million, five had assets between US$10 million and US$20 million, five banks had assets between US$2 and 10 million, and six banks operated with total assets of less than US$2 million. The financial system remains highly concentrated and segmented, with banks catering to a particular clientele. The four largest banks, all formerly state-owned banks, accounted for 70 percent of banking system assets at end-1995.9

48. Despite the proliferation of banks, financial intermediation has been modest thus far in the transition period. Although some increase in intermediation has taken place more recently, progress has been slow and banks are not yet playing a role similar to that of banks in industrial countries. The low level of financial intermediation is reflected in the low ratio of broad money to GDP and the high share of currency in broad money. In 1995, broad money amounted to about 10 percent of GDP. Domestic credit as a percentage of GDP has also been low, at about IS percent at end-June 1996, which compares to ratios of more than 100 percent in industrial countries. At the same time, the share of currency in broad money is high - more than 52 percent at end-June 1996 - and rising. This may be typical of a largely cash-based economy in the process of remonetization, and may partly reflect increased circulation of leu notes in Transnistria, but it also suggests low public trust in the banking system.

49. Moldovan banks have shown considerable resilience to operating in an unstable macroeconomic environment and to the declining profitability of enterprises. In general, banks are more vulnerable to shocks and failure than other enterprises in the economy, for several reasons:

  • They usually transform liquid, short-term deposits into illiquid, longer term loans. The difference in maturity and liquidity structure of assets and liabilities makes them vulnerable to liquidity difficulties.

  • While their liabilities are easy to value, the non-transparent nature of their assets and asymmetric information on asset values makes it difficult for the market to assess the quality of assets. Any erosion of confidence may then encourage depositors to rapidly withdraw deposits.

  • There are close linkages between banks, and problems in one bank may easily spill over to other banks.

  • If problems are perceived to be wide spread, loss of confidence in the system will also affect good banks as the market is unable to adequately evaluate the value of banks’ assets.

50. However, despite fundamental changes in the operating environment of Moldovan banks, Moldova appears to have maintained a relatively sound banking system as indicated by the balanced maturity structure of deposits and loans, a high liquid asset ratio, manageable nonperforming loans, high bank profitability and adequate capitalization.

51. Banks have so far provided no significant transformation of maturities between deposits and loans (Chart 9). Average maturities on deposits and lending are about the same. While the matching maturity structure minimizes the risks of adverse shocks to the banking system, the limited availability of long-term loans hampers the restructuring of the economy and slows down the replacement of the obsolete capital stock.


Moldova Structure of New Bank Loans and Deposits

Citation: IMF Staff Country Reports 1996, 117; 10.5089/9781451824919.002.A001

Sources: Notional Bank of Moldova; and IMF staff estimates.1/ Domestic currency only.2/ Average maturity of new credit divided by average maturity of new deposits.

52. Banks have also maintained a highly liquid asset structure. While this reflects a cautious lending policy - credit to the economy accounts on average for less than 50 percent of assets - it also reflects inefficiencies in liquidity management. Lending in the interbank market is small and rates exceed those for loans to enterprises, which may indicate that banks have limited confidence in each other. However, excess reserve holdings have been progressively reduced with improvements in the payments system, falling from 37 percent of deposit liabilities at end-1994 to 9 percent at end-June 1996.

53. Banks also appear to have weathered the deterioration of enterprises’ profitability when relative price changes rendered many enterprises uncompetitive. While nonperforming loans of banks have increased, they never seem to have posed a systemic problem. Loans overdue for more than 90 days stood at 10 percent of total loan portfolio at end-1995. Since then, with improvements in industrial output, nonperforming loans as a share of total loans have decreased to 8½ percent.10 However, this classification probably underestimates the magnitude of the bad-loan problem as is does not take into account the financial and economic conditions of borrowers.

54. Profitability of the banking system was high in 1995. Profits (before taxes) accounted for almost 40 percent of capital, or 5 percent of assets, and income was mainly generated through interest and fees. Banks may have used wide spreads between lending and deposit rates to recapitalize themselves.11 With a declining nonperforming loans’ problem, the spread between lending and deposit rates has begun to fall - by June 1996, the average spread over all maturities had decreased to 9 percentage points from 17 percentage points in August 1995.

55. Moldova’s banking system appears to be well capitalized, although only improved accounting standards and the implementation of International Accounting Standards in 1997 will provide an adequate basis for the full evaluation of banks’ balance sheets. At end-June 1996, the average capital adequacy ratio (regulatory capital to risk-weighted assets) was 24 percent and the five largest banks had on average a ratio of 22 percent.12 Although capital adequacy ratios decline significantly when applying the stricter regulations on the full provisioning for problem loans, which will become effective on January 1, 1997, adjusted capital would still account for about 10 percent of total assets.

56. Implementation of modern prudential regulations and strengthened banking supervision by the NBM has contributed to the improvement in the stability of the banking system. In September 1995, the new central bank law and in January 1996 the law on financial institutions became effective. The new laws give the NBM increased enforcement powers and sanctions. At the same time, minimum capital requirements have been increased to Mdl 4 million and these will gradually be raised further over time. Also, during 1996, new prudential regulations on capital adequacy, risk-concentration, and loan loss provisions have been implemented. The loan loss provisions now require the establishment of a risk fund and improved classification of loans for loss provisioning purposes. In the past, loans have been classified depending on whether they were serviced on time. No consideration was given to the economic situation of the borrower. The new classification divides loans into five categories (standard, under supervision, substandard, doubtful, loss) and should provide a more reliable picture of nonperforming loans in the banking system.13

57. The banking supervision department has inspected all banks and ten found in violation of prudential standards have been put under special supervision. A special banking resolution unit has been created within the banking supervision department to monitor these problem banks. Specially supervised banks have shown slower growth in assets and their nonperforming loans have declined. The NBM also revoked the license of one small bank early in 1996. The bank had been insolvent and is now being liquidated. However, initially the NBM’s decision was challenged, and the ensuing process identified weaknesses in the legal system.

58. Despite encouraging developments overall, the banking system remains weak, fragile, and susceptible to problems. While better accounting standards, stricter prudential requirements, and improved accounting standards on the one hand, and an improving macroeconomic environment on the other will all contribute to a strengthening of the banking system, weaknesses in the legal system may slow down the NBM’s efforts to restructure the banking system.


Reform strategy

59. The tax system can play an important role in shaping the process of transition to a market-driven economy. The current system in Moldova, designed during the first stage of transition from a centrally planned economy, needs to be adapted to the needs of a market economy, since in many areas it lacks the desirable principles of efficiency, equity, and simplicity. The authorities have therefore begun the process of comprehensively reforming the system, in line with the aims set out in the authorities’ medium-term economic program.

60. The reforms will aim to reduce the distortions, inequities and complexities of the current system, and will be guided by the following broad objectives:

  • to ensure that the tax system will generate sufficient funds to support public programs and the supply of public goods;

  • to improve the fairness of the tax system by ensuring that individuals and firms are taxed according to their ‘ability to pay’ and will not evade the system;

  • to make Moldova more attractive as a location for investment by domestic and foreign enterprises, in order to ensure a fast growing economy and job creation;

  • to simplify the system, making it easy for taxpayers to understand and comply with regulations, and for the state tax services to administer;

  • to make tax administration more modern and effective by consolidating the current structure, computerizing tax processing, and enhancing compliance and collection techniques.

61. To fulfill these objectives, the Government is formulating proposals, to be submitted to Parliament, to reform the tax system in six steps.

  • Reform of corporate and personal income tax provisions, and consolidation of these provisions and of all associated administrative provisions, into a unified tax code. This has already been submitted to Parliament.

  • Reform of the 1992 Value Added Tax system by removing its major flaws (notably, too many exemptions, a VAT liability that differs according to the country of import and export, and calculation of liability without using a unique invoice/credit system).

  • Modernization of the real estate and land tax system. The current valuation system does not accurately reflect market prices. Hence, the critical step to be taken, before the government considers a change in the valuation process of land and real estate for tax purposes, is to develop a legal and geographic cadastre.

  • Modernization of the tax administration (e.g., specialization of tax functions, training of tax officers, improving audits, and processing of tax declarations, new design of tax forms, etc.).

  • Examination of other sources of tax revenue (including social security contributions) with a view to reducing or eliminating distortions and inefficiencies.

  • Improvement of the revenue sharing arrangements between central and local governments.

Proposed changes

62. In the current tax system, VAT and excises are the most important sources of revenue followed by corporate income taxes. Personal income tax contributes only a small share (around 2 percent of GDP in 1995) and land and real estate tax revenue are minimal.

63. Work is progressing satisfactorily on the tax code reform. Proposals dealing with changes to corporate and personal income tax - the first area listed above - have been submitted to and discussed in Parliament, where they were approved at the first reading. They are likely to be ready for implementation by the beginning of 1997. The focus will then turn to other areas of the tax code, with reform of VAT the next priority, expected to be implemented during 1997.

64. Planned changes to corporate taxation would raise the profit tax rate, while cutting the payroll tax rate, broaden the tax base, and eliminate double taxation of dividends.

  • The corporate profit tax rate would be raised from 32 to 35 percent, but a new operating loss carryover provision would also be introduced as a relief. At the same time, the employers’ social security payroll tax - currently 35 percent, paid directly to the Social Fund to finance pensions and other benefits - would be cut to 30 percent. A budgetary transfer to the Social Fund, to make up for this loss of revenue, would be financed from revenue raising elements in the reform package.

  • The reform also encompasses taxation of previously tax-free income from bank interest and Treasury bills at a 35 percent rate, and the phasing out of tax holidays by allowing currently existing special agreements to expire. According to the state tax inspectorate, in 1995 there were about 80 joint ventures which benefited from tax holidays and special agreement.

  • Farm income, which is currently exempt from profit tax, would in time be brought into the tax base (except for small farms), though this would be implemented gradually.

  • Dividends would be taxed at 35 percent, and the existing double taxation of dividends would be eliminated.

65. Currently, the personal income tax is applied progressively with three marginal tax rates, rising from 10 percent for income between Mdl 648 and Mdl 4,320 per year, to a 40 percent rate for incomes exceeding Mdl 21,600 per year (the middle income bracket is taxed at 30 percent). Under the new proposals there would be a large increase in the personal deduction, from Mdl 648 to Mdl 1,800, and only two marginal income rates - a 20 percent rate from Mdl 1,800 to Mdl 10,800 and a 35 percent rate for annual income above Mdl 10,800. The change in the personal deduction would cost around Mdl 125 million in 1997, but it would be largely offset by a gain of Mdl 110 million arising from the change in the rate structure. The reform would relieve a substantial number of very poor people from tax obligations all together. Several specific reliefs are also being contemplated, including: the establishment of a spouse allowance of Mdl 1,800 per year; a standard deduction for dependents (based on the number of children, at Mdl 120 per child); and a deduction for charitable contributions and investment expenses.

66. On the taxation of other personal income, measures that are being considered include: a tax on capital gains (on homes and shares) at 50 percent of standard personal tax rates; taxes on bank interest income (at 20 percent, withheld at banks), rental income and fringe benefits.

67. Plans in other areas are less well developed at this stage, although the authorities expect to present VAT reform proposals to Parliament during 1997. The current VAT tax rate is 20 percent and in principle encompasses most business activities. Over the years, however, various exemptions have been introduced which have significantly eroded the tax base. VAT is levied on an origin basis for trade with the Baltics, Russia and others countries of the former Soviet Union, and on a destination basis with the rest of the world. Proposals are being drafted to streamline the VAT system, eliminate exemptions and move to the destination principle for all trade, removing the distortions and incentives for evasion inherent in the current system.


Overview of the current system

68. The Social Fund with its three constituent parts - the Pension Fund, the Employment Fund, and the Social Insurance Fund - is responsible for pensions, unemployment benefits, family allowances, sickness and maternity benefits and certain price compensations. The Social Fund’s main source of finance is the payroll tax, set at 35 percent of payroll in addition to a 1 percent employee contribution levied on the same base.

  • The Pension Fund pays old-age pensions, related to previous earnings, to women over 55 and men over 60, as well as military, disability and other pensions. Pensions absorb the bulk of the Social Fund expenditure, and they are managed and delivered via the local offices of the Ministry of Labor and Social Protection (MLSP).

  • The Social Insurance Fund pays maternity and sickness benefits and is administered by the trade unions.

  • The Employment Fund provides unemployment allowances paid for up to nine months and is managed by the Employment Department, within the MLSP (Box 3). The Employment Fund notionally receives the equivalent of 1 percent of payroll, but in practice its financing is integrated with that of the Pension Fund.

  • The Social Fund also pays family allowances and certain targeted payments that have been introduced to compensate for the removal of some price subsidies, notably for gas.

  • Social assistance functions are also performed by local authorities, including meals and other services to the elderly living alone and others in need of care.

69. The current structure of pensions, allowances, and benefits is presented in Table 3. Old-age pensions, representing more than two thirds of expenditure, constitute the bulk of Social Fund outlays. Unemployment benefit has a very small impact on the Social Fund budget.

Table 3.

Structure of Social Fund Expenditure

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Source: Moldovan authorities.

Costs for the first half of 1996 are annualized.

70. Another component of the social safety net, largely off-budget, is the system of privileges. These are subsidies provided to certain needy groups and state employees, in the form of concessions on transport, housing and some utilities, including electricity and heating. The cost of these privileges is effectively borne by the service providers.

Unemployment Benefits

Every individual without employment can obtain unemployment status by registering at the local labor office. Eligibility criteria for obtaining benefits are broad. In principle, everybody who has been laid off or whose fixed-term contract has expired is eligible to receive benefits. In addition, graduates of educational institutions, women after maternity leave, and member of the defense forces after active military duty are eligible.

Cash benefits are paid for nine months in general, and for six months for persons entering the labor market for the first time. Monthly benefits average about Mdl 60. On average in 1995 only about a third of the registered unemployed received benefits, implying that a substantial proportion of the unemployed had been out of work for more than nine months.

Registered unemployed can also receive training. However, although training is offered in 90 professions, Only 7,500 positions have been appropriated for 1996. Participants receive regular cash benefits during training. Those unemployed whose benefits have expired, those not participating in training, and individuals in the pre-retirement age can participate in public works. Benefits are comparable to unemployment benefits. Currently, 2,500 position exist.

Problems of the current system

71. The problems affecting the social safety net in Moldova are not sui generis, since the system shares the same challenges and peculiarities of other countries undergoing transition from a command to a market economy.14 The formal sector is restructuring and has been shrinking. Underemployment and open unemployment are on the rise. The increase in underemployment and the contraction of incomes have boosted the number of households in need. At the same time, the expansion of the informal sector has reduced the number of taxpayers and made it more difficult to identify the poor. Informal sector activities and private transfers are now important in supporting household expenditures.

72. The social safety net is coming under increasing financial pressure. High statutory tax rates, the narrowing of the tax base, and weak administration have resulted in weak tax collections, reflecting pervasive tax evasion and a buildup of tax arrears (Table 4). Effective tax rates are thus only a fraction of the statutory rates. Also, the increase in underemployment and the growth in informal sector activities have reduced the number of working-age individuals who contribute payroll taxes. This has compounded the effect of a low retirement age and resulted in a high dependency ratio.

Table 4.

Social Fund Budget

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Sources: Moldovan authorities; and IMF staff estimates.

End period.

73. Cash shortages, due to rapidly increasing expenditure obligations not matched by increasing cash revenues, have led to increasing delays in the payment of benefits. The situation was compounded by a decision to raise pensions by 20 percent from February 1996. Although this increase was in theory affordable, provided the Social Fund achieved a near 100 percent collection rate, in practice it has contributed to a marked further increase in arrears in the first half of 1996. At end-June, arrears were equivalent to five months of pensions, allowances and benefits.

74. Growth in payroll tax arrears has only partly reflected increases in wage arrears - in other words, firms are paying wages without paying payroll taxes. Most of the delinquent contributors are in the agriculture and the food processing sectors, but at end-June 1996 budgetary institutions and local authorities accounted for 30 percent of arrears. While the Social Fund is owed more than it owes, it seems likely that some arrears by enterprises will eventually not be recoverable.

75. The authorities have recently taken steps to try to tackle the pension arrears problem. These include schemes to pay pensions in kind, and a resolution demanding that every Central Government ministry stay current and clear all the arrears to the Social Fund. The state tax inspectorate is also using its enhanced powers to collect arrears from delinquent taxpayers. Pension arrears are in any case expected to decline in the second half of the year, as the seasonal rise in agricultural sector incomes allows enterprises to reduce arrears to the Social Fund. To tackle this seasonality in revenue, the Social Fund would like to be able to borrow in the first half of the year and repay in the second, but so far this has not been permitted. However, more fundamental reforms will be needed to resolve the underlying problems of the social safety net.

Plans for reform

76. The Moldovan economy is characterized by a high level of informal economic activity and the channeling of resources in ways which are not typical of a market economy. A key issue, therefore, is how to ensure that benefits are targeted effectively to those genuinely in need. A system of means testing based on formal incomes is likely to provide unnecessary support to families with considerable informal income and, given overall resource constraints, too little to the genuinely poor. However, devising a system that targets benefits effectively poses considerable measurement difficulties, given the strong incentives to conceal informal incomes.

77. A new law affecting the operation of the social support funds has been drafted by the Ministry of Economy. The draft ‘Law on Minimum’ sets out the methodology and guidelines for establishing a minimum level of income which closely resembles the current methodology for determining the Minimum Consumption Basket. However, the necessary household survey on the incidence and severity of poverty in Moldova to help identify the needy has not yet been done.

78. Although a comprehensive reform of the social safety net which tackles these issues still seems some way off, work is underway on measures to improve the system in three areas: pensions; privileges and cash compensations; and unemployment benefit and severance pay.


79. The Social Fund Budget Law for 1996, passed by Parliament at the end of 1995, contains an instruction to the Government to develop proposals for improving the way in which pensions are determined. The main objectives are to: alleviate poverty; deal with the existing arrears situation and be affordable in the future; resolve the conflicting claims on resources arising from the need to provide a social minimum for eligible beneficiaries and the commitment to pay the earnings related components of the pension; lay the foundations for the development of a modern social security system; and encourage efficient resource allocation and growth.

80. The approach under consideration comprises four components:

  • a new minimum pension, consolidating compensations for price increases and the removal of subsidies;

  • a contribution-related pension, which would be based on the earnings history and years of employment of the pensioner;

  • an individual funded pension which could be a means for individuals to top-up their pension entitlement;

  • a phased increase in the pension age.

81. Pensions are currently linked to the minimum wage, using complex individual formulae related to years of employment and including price compensations and subsidies. The MLSP has produced a draft law proposing to replace this with a simple system based on a flat-rate minimum pension and an earnings-related pension based on the contributions record. The proposal would establish a minimum pension of Mdl 65 - about 10 percent above the current minimum - which would be updated based on the evolution of average wages. However, because of concerns about the financing of these proposals, which would raise expenses by around Mdl 150 million in a full year, they remain under discussion and measures are unlikely to be submitted to Parliament until mid-1997. Table 5 presents the current old-age pension system, before and after the February 1996 increase.

Table 5.

Current Pension System

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Source: Moldovan authorities.

82. Proposals to raise the pension age to 60 for women and 65 for men over a period of 20 years, with increases of three months per year, have been submitted to Parliament. They remain under discussion. The Government’s aim is to have the legislation approved in time to implement the first increase from the beginning of 1997.

Privileges and cask compensations

83. Privileges to segments of the population are provided under a large number of resolutions and decisions of the Government, some of which are longstanding. Privileges refer to benefits in kind - for example, discounts on heating and electricity bills - rather than in cash, and they are confined to specified groups of the population - for example, the elderly, war veterans, and some state employees. In a draft Law on State Social Privileges the Government proposes the cancellation of these privileges and their replacement by increased benefits for some of the affected groups, although a narrowing of the scope of these compensations is also envisaged.

84. This draft law is unlikely to be considered by Parliament until early 1997. Before the winter, the Government plans to introduce targeted benefits to assist the poorest families with higher heating bills.

Unemployment benefits and severance pay

85. The MLSP has drafted a proposal to reform the system of severance pay and unemployment benefits, which is currently under discussion by trade unions, employers, and several ministries. The new draft proposes:

  • an increase in the unemployment benefit;

  • a sharp reduction in the statutory requirement for severance pay (currently three months’ salary);

  • the introduction of one month’s paid sick leave;

  • increases in maternity allowances;


86. As the process of transition from a planned to a market economy has been unfolding in Moldova and its neighbors, the main characteristics of its external trade - its volume, its composition and its geographical distribution - have been changing, at times progressively and at times abruptly. These changes, their relations to the evolution of production and demand in Moldova and in its trading partners, and the inferences that can be drawn from them regarding future trade developments constitute the topic of Part A of this section.

87. At the same time as trade has evolved, Moldova, like other countries in transition, has seen rapid changes in competitiveness indicators. Part B of this section reviews the evolution of a variety of competitiveness indicators and, while noting the difficulties of interpretation of such indicators in economies in transition, concludes with an assessment of Moldova’s external competitiveness.

A. The Evolution of External Trade: 1992 to 1995

88. Before describing the main features of Moldova’s external trade, a few words of caution about the data are necessary. Following independence in August 1991, the Moldovan authorities inherited the Soviet statistical system. As this relied extensively on information provided by producers, the Moldovan authorities started to compile trade data in 1992 on the basis of a survey covering the largest five hundred producers and a large but not comprehensive set of goods. They continued to do so in 1993, but from 1994, as part of the adaptation of the statistical apparatus to a market economy, trade data became based on customs declarations. Thus, 1992 and 1993 data are not strictly comparable with subsequent data. However, their degree of comparability is thought to be sufficient for broad comparisons.

89. Data on the volume, geographical distribution and composition of trade are set out in Tables 6, 7, and 8 and in Chart 10. In 1992, the first full year of Moldova’s independence, external trade (measured as the average of imports and exports) amounted to nearly 90 percent of GDP, a very high percentage. It was nearly entirely conducted with countries of the former Soviet Union and Romania. Exports were roughly divided between agricultural goods (40 percent) and semi-finished and manufactured goods (55 percent), while imports were broadly divided between cereals (9 percent), energy products (42 percent) and semi-finished and manufactured goods (49 percent).

Table 6.

Volume of Trade, 1992-95

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Source: National Bank of Moldova.
Table 7.

Direction of Trade, 1992-95

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Sources: National Bank of Moldova; and Department of Statistics.
Table 8.

Composition of Trade, 1992-95

(In percent of total)

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Sources: National Bank of Moldova; and Department of Statistics.

Moldova Composition of Trade

Citation: IMF Staff Country Reports 1996, 117; 10.5089/9781451824919.002.A001

Sources: National Bank of Moldova.

90. Moldova’s external trade in 1992 can be decomposed in two elements. The first is trade induced by differences in endowments and technology between Moldova and its foreign trade partners: given that Moldova was rich in fertile agricultural land, knowledgeable in the production of quality wine and spirits, and poor in energy resources, it ended up exporting agricultural goods and importing energy products. The second is intra-industry trade, that is to say trade in both directions (exports and imports) of products with similar characteristics.15 The high degree of specialization of industrial production under the planning system and its integration with that of other republics of the former Soviet Union and to a significant extent that of Romania led to significant exports and imports of semi-finished and manufactured goods, a kind of intra-industry trade even though not one based on market principles. In addition, given the relatively small size of Moldova, it is not surprising to find a very high ratio of trade to GDP with these patterns of production and consumption. Similar ratios can be observed, for example, in other small European industrial countries like Belgium and the Netherlands.

91. The transition from a planned to a market economy has profoundly affected production, consumption, and consequently trade. From Tables 6-8, the main elements of the evolution of Moldova’s external trade can be summarized as follows:

  • trade collapsed in 1993; and this collapse was entirely accounted for by the dramatic fall of trade with Russia and other countries that emerged from the Soviet Union;

  • since the low point of 1993, imports and exports have been increasing at a robust pace, with both BRO and non-BRO countries;

  • while the initial decline of trade with BRO countries in 1993 was accompanied by a relative shift of trade away from these countries and towards Eastern and Western European countries, the distribution of trade between BRO and non-BRO countries has remained roughly constant since 1993;

  • trade relations with BRO countries have become increasingly dominated by trade with Russia and Ukraine;

  • trade relations with non-BRO countries have become steadily less concentrated;

  • the composition of exports shows a dramatic shift toward agricultural goods and food products and away from semi-finished and finished manufactured goods;

  • energy products have maintained a very large weight in imports;

  • the share of textiles and textile products in both exports and imports was roughly halved between 1992 and 1995;

  • in both absolute and relative terms, imports of machinery have steadily increased since the trough of 1993.

92. These disparate elements can be brought together into a coherent story of the evolution of production and trade during the first four years of the transition process.

93. First, the planning system collapsed. This is reflected in the sharp drop of trade in 1993 as well as in the evolution of the composition of trade. Given that the specialization of industrial production in republics of the former Soviet Union was not based on market principles, this pattern of specialization rapidly evaporated after the abandonment of the planning system, and with it disappeared much of the trade in industrial goods to which it gave rise. In Moldova, the machinery sector appears to have been particularly hard hit by this development. Thus, much of the intra-industry trade disappeared. This phenomenon can also be documented at the sectoral level. The textile sector, for which data on exports and imports with BRO countries are presented in Table 9, provides an example. In 1992, Moldova imported raw textile fibers (wool, cotton), imported and exported intermediate textile products (fabrics), and exported finished textile goods. In 1995, it basically only imported raw materials and exported finished products. The two-way trade in intermediate products had nearly disappeared.

Table 9.

Trade in Textiles and Textile Products with BRO Countries

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Source: Department of Statistics.

94. Second, the elements listed above show that, with the collapse of nonmarket based intra-industy trade, only trade based on differences in factor endowments and in production technology remained. Furthermore, with the beginning of market reforms, this type of trade started to grow very substantially, as Moldova became better able to take advantage of its comparative advantage in the production of agricultural goods and foodstuff. At the same time, with the move to world market prices, its imports of energy products became more expensive. Another factor which made itself more strongly felt is geography. Among countries that were part of the Soviet Union, trade became more concentrated on the two closest.

95. Third, these elements reveal some of the restructuring efforts under way in Moldova. On the export side, the progressive diversification of exports to non-BRO countries, which appears in Table 7 as the growth of the “other” category, indicates that Moldovan exporters have made some headway in conquering new markets. On the import side, the rapid increase in imports of machinery indicates attempts by Moldovan producers to upgrade their production facilities. This impression is confirmed by observation of the composition of machinery imports by category and country of origin, which shows them coming predominantly from industrial countries, for use mainly in the agricultural and agro-processing sectors.

96. It is worth adding that the relatively constant share of trade that goes to and originates from BRO countries over the past three years is not a sign of the absence of restructuring of Moldova’s economy. Rather, the near-constancy of this share appears related to a number of other factors, such as the reputation of Moldovan agricultural products in the BRO, the evolution of demand for this type of goods in these countries, and the relative evolution of the real effective exchange rate of the leu against the currencies of BRO and non-BRO countries (see Part B).

97. In short, after four years of transition, only one of the two previous components of external trade - the endowment-based trade - remains, but that component appears to be sound and ready to grow in step with the implementation of market reforms and restructuring efforts by Moldovan producers.

98. How will trade evolve from now on? First, as the process of transition is far from complete, in particular in the agricultural sector, there is substantial room for further exploitation of Moldova’s comparative advantage in the agricultural and agro-processing sectors, possibly with the help of foreign direct investment. Provided structural reforms are pursued with determination, further sustained growth of both exports of agricultural goods and food products and imports of capital equipment seem likely. At the same time, among Moldova’s factor endowments is a well-educated labor force. The combination of the quality of the labor force, low labor costs and a stable macroeconomic environment points to profitable investment opportunities in the manufacturing sector and, in time, to a resurgence of trade in manufactured goods. Thus, external trade may well revert to a combination of intra-industy trade (this time based on market principles) and endowment-based trade. This is another reason to expect rapid growth of trade in the coming years.

B. External Competitiveness

99. A substantial amount of economic literature has been written on the assessment of competitiveness and specifically on the value and proper use of various competitiveness indicators.16 Most of this work concludes with cautionary tales about the inferences that can be drawn from indicators of competitiveness. Statements such as “none of the indicators tested fully captures all of the theoretical aspects of competitiveness and none of the indicators works well uniformly across a countries” and “the most important point that can be made is to stress the theoretical and empirical limitations of such indicators” are quite typical.

100. Difficulties in assessing competitiveness on the basis of standard indicators are compounded in countries in transition for at least three reasons.

  • The state of development of the statistical system is such that the series necessary to compute competitiveness indicators are often either of limited quality or lacking altogether. It is, for instance, usually difficult to obtain data for a specific sector of production, such as unit labor cost in manufacturing, or data for a specific type of product, such as a price index for traded goods. This obviously reduces the scope for basing an assessment of competitiveness on a wide array of indicators.

  • Since the start of the transition process, there is no period for which the economic situation of these countries can be said to have been in equilibrium. Thus, there is no logical base period against which to compare the present levels of competitiveness indicators.

  • Changes in production technology, which are prevalent during the transition process, render interpretation of common competitiveness indicators problematic.

101. Faced with this situation, assessment of competitiveness in countries in transition has tended to be based on a pragmatic approach, which relies on observation of a number of indicators of different types (exchange rate indicators, labor cost measures, trade statistics) and attempts not to place excessive emphasis on any one of them. This is the approach followed here. Charts 11 and 12 provide information on a CPI-based real exchange rate indicator, average wages, unit labor costs, relative unit labor costs and relative labor share. Table 6 provides information on the evolution of external trade.


Moldova Competitiveness Indicators I

Citation: IMF Staff Country Reports 1996, 117; 10.5089/9781451824919.002.A001

Source: OBCD, country statistical authorities; and IMF staff estimates.1/ Relative to trade weighted unit labor costs of trading partner countries. 1992 Q1=1.2/ Relative to trade weighted labor shares of trading partner countries. 1992 Q1=1.3/ Based on trade weighted CPI.4/ Increase indicates appreciation, 1993 = 100.

Moldova Competitiveness Indicators II

Citation: IMF Staff Country Reports 1996, 117; 10.5089/9781451824919.002.A001

Sources: National Bank of Moldova, Moldova Department of Statistics, IMF IFS; and IMF staff estimates.1/ Trade weighted (fixed 1994 weights, excluding energy imports) and CPl deflated.2/ Increase indicates appreciation.

102. Chart 11 shows that both average wages and unit labor costs, expressed in U.S. dollars, have steadily increased since 1992. Nevertheless, the average wage in Moldova remains low both in absolute terms and in comparison with levels prevailing in neighboring countries, as shown in Chart 12. In fact, from early 1993, these countries with the exception of Romania experienced a faster wage increase than Moldova, while Romania continuously had a higher wage level. Labor costs would thus not appear to be a serious source of concern for competitiveness.

103. This impression is not challenged by the information provided in the upper right panel of Chart 11. Relative unit labor costs and relative labor share in GDP, which can both be taken as comparative indicators of business profitability (and therefore as indicators of relative incentives to invest and expand production), do not seem to exhibit any marked trend. Hence, these indicators do not provide any signs that the evolution of labor costs in Moldova is out-of-line with developments in its major trading partners.

104. The real effective exchange rate has also remained relatively constant over the period 1992 to 1995 (Chart 12). However, this conceals more marked trends in the real effective exchange rate vis-à-vis CIS countries and vis-à-vis non-CIS countries. The real effective exchange rate vis-à-vis non-CIS countries approximately doubled from its 1993 average to the end of 1995, while the real effective exchange rate vis-à-vis CIS countries fell early in the transition process to around half its average 1993 level and since then has remained fairly constant. Still, this different evolution of the real effective exchange rates vis-à-vis these two sets of countries was not reflected in different patterns of growth of trade with CIS and non-CIS countries. On the contrary, Table 6 shows that trade grew with both sets of countries from 1993 onwards. It shows, in particular, that exports to non-CIS countries grew at a brisk pace between 1993 and 1995 notwithstanding the real appreciation of the exchange rate. Again, this evidence on the evolution of the real effective exchange rate does not create concerns about competitiveness.

105. In addition to the data presented here, one can also attempt to make use of the experience of other countries in transition, particularly countries which have moved further along the transition process than Moldova. All of these countries have experienced both a sustained appreciation of the real exchange rate and a large increase in the volume of external trade. Generally, the conclusion is that, in these countries, the exchange rate was significantly undervalued at the start of the transition process and remained so for a long period of time. By analogy, one could conclude that the appreciation of the Moldovan leu against currencies of non-CIS countries does not presently represent a threat.

106. Taken altogether, these elements point to no evidence of difficulties with external competitiveness in Moldova at this time.


107. In Moldova’s transition from a command to a market economy, the restructuring and reorganization of the enterprise sector is at the heart of the process. In order that the state should cease its all-encompassing role in managing the enterprise sector, it is essential to transfer ownership from the public to the private sector, so as to demonopolize industries and create competitive markets. Although in general there are several alternatives for sequencing enterprise reform, extensive reorganization of enterprises before privatization was not an option Moldova could have chosen. Neither have budgetary resources nor expertise been available to affect this task. Moldova therefore embarked on a program to demonopolize industries and provide some limited restructuring of enterprises during the privatization process. It was left to the new owners to implement reforms which would make enterprises viable.

108. Part A describes the methods of privatization chosen and progress under the government’s program. Part B discusses the implications for corporate governance and additional measures implemented to improve governance during privatization. Part C describes recent developments on interenterprise arrears, revealing that incentives for enterprises’ managements to maintain financial discipline still remain inadequate.

A. Privatization

109. Impressive progress has been made in the privatization of state assets since Moldova embarked on an ambitious privatization program in 1994. The goal set was to privatize around two-thirds of all state assets. Half of these were to be privatized free-of-charge (mass privatization stage). For this purpose, 1,500 enterprises and 240 thousands dwellings were selected. The other half was to be privatized against payment (cash privatization stage). Cash privatization was to be open to nonresident investors as well as residents.

110. To affect mass privatization, national patrimonial bonds (vouchers) were distributed to more than 3.5 million eligible citizens. Entitlement was based on length of employment. The vouchers distributed had a fixed nominal value which was related to the book value of enterprises slated for privatization. They were registered, nontradable securities and could either be used to acquire shares in enterprises or for privatizing dwellings. Privatization through vouchers offered some advantages as state assets would be distributed to a broad group of citizens in a fair way and ownership transfer could be affected quickly, without the need for protracted negotiations. However, it also required an elaborate institutional setup. This included establishing 115 centers for the collection of bids and dissemination of information through seminars and publications. It was also decided to encourage the creation of privatization investment funds and trust companies to alleviate some of the problems of corporate governance under the new highly dispersed ownership structure that would emerge (Box 4).

Mass Privatization and Investment Funds

Fifty-three privatization Investment funds and trust companies (funds) were created for sole purpose of placing the population’s vouchers during the mass-privatization auctions. Entry was free and all funds are owned privately. For share subscription auctions, voucher holders had the Option of either entering bids directly or through funds and have chosen to invest approximately two-thirds through funds. Funds were prohibited to (i) acquire more than 25 percent of one share issue, (ii) invest more than 7 percent of own assets in one company, (iii) raise debt in excess of 5 percent of assets, and (vi) acquire more than 7 percent of vouchers issued. After completion of the share auctions, funds will now issue shares to their investors which can be traded. It appears that the major funds hold a broadly diversified portfolio, white smaller funds have targeted specific enterprises.

Funds are supervised by the State Securities Commission. 20 funds have been inspected accounting for more than 80 percent of assets. Sanctions were imposed for funds found in violation of prudential requirements, including the annulment or suspension of license.

111. More than 2,200 enterprises have been privatized under Moldova’s mass privatization program since July 1994 and 3.1 million citizens acquired ownership in the newly privatized enterprises (Chart 13).17 Fifteen share subscription auctions for the privatization of more than 1,100 large and medium sized enterprises, 94 open-outcry auctions, and 11 public tenders were held. Seventy-two percent of vouchers were used in the privatization of enterprises in share auctions, 14 percent for open-outcry auctions, and 3 percent for the privatization of dwellings.


Moldova Privatization

Citation: IMF Staff Country Reports 1996, 117; 10.5089/9781451824919.002.A001

Sources: Ministry of Privatization and State Property Administration.1/ With the completion of voucher privatization in July 1996, over 70 percent of industrial enterprises have been privatized.

112. More than 196 thousand dwellings had been privatized by end-June 1996. Fifty-five percent were acquired free-of-charge based on length of habitation, 41 percent against vouchers, and 4 percent against cash. Parliament has also eased regulations for the establishment of condominium associations. However, common areas in buildings and land still need to be privatized though. A market for real estate is developing.

113. As part of the cash privatization stage of the program, 190 enterprises were scheduled to be privatized through cash auctions. Compared to voucher privatization, cash privatization was to attract new capital for ailing state enterprises. However, only 59 have been sold so far. Several factors have contributed to this disappointing outcome: (i) minimum prices had been set unrealistically high, (ii) insolvent enterprises had been included, and (iii) unfinished construction projects which had deteriorated beyond repair had been involved. Parliament has recognized that minimum prices based on book value and the format chosen for privatization did not allow enough flexibility. Therefore, the set of instruments available for sale has now been expanded. Several auction formats, including those which allow a reduction in price during the auction, direct negotiated sales, and transaction through the stock exchange can now be used for privatization.

114. Forty-one large enterprises are scheduled for sale to strategic investors, including foreign investors, during the remainder of 1996. Strategic investors can acquire a block of up to 60 percent of the shares in these enterprises. The remaining shares have already been privatized in closed-end subscriptions to worker collectives or in the voucher privatization program. The project has developed much more slowly than expected: (i) enterprises included are large and their preparation for auction privatization has been time consuming, (ii) shareholder registries failed to be created within the set time limit, and (iii) finding strategic investors required more effort and time than envisaged.

115. Another block of 59 special enterprises is also in the process of being privatized. These include the sale of the tobacco production association Tutun, which is almost completed, Tirex-Petrol, the main importer of coal and fuel oil, and Moldtelecom, the state telephone company. In addition, the state’s minority share holdings in commercial banks will be sold during the remainder of 1996.

116. Privatization of land has been slow. The grounds of privatized enterprises have not been made available yet, due to a lack of legislation. On agricultural land, there is still a moratorium until 2001 which prohibits its sale, although draft legislation is scheduled to be submitted soon to Parliament to eliminate this stricture. And, although certificates which establish ownership rights on the land of collective farms have been distributed to workers, they have effectively been prevented from leaving existing farms by restrictions on dividing existing land plots. The privatization of garden plots has also stalled. Less than 10 percent have been sold because prices were set unrealistically high and municipalities, which receive only 50 percent of the sale receipts, have refused to cooperate.

B. Corporate Governance

117. Inadequate corporate governance of state enterprises was a problem which was recognized by the Government early in the transition process. To avoid a further weakening of governance (i) enterprises selected for privatization were put under the supervision of the Ministry of Privatization and State Property Management, (ii) the Agency for Enterprises Restructuring Assistance (ARIA) was established to provide technical assistance in restructuring and reorganization, and (iii) the State Creditors’ Committee was formed to grant moratoria on debt amortization and interest payments for enterprises included in the ARIA project.

118. The enterprise restructuring program managed by ARIA has been very successful in improving the performance of the participating enterprises (Box 5). During the three-month period March to May 1996, the eleven enterprises participating in the pilot program had increased their turnover by 48 percent compared to the first quarter of 1995, while at the same time reducing the number of employed by 34 percent. Payments made to the budget increased from 50 percent to 110 percent of current payments due. Over the same three months in 1996, payments to the Social Fund amounted to 79 percent of payments due, to commercial banks 111 percent, and to energy suppliers 102 percent.

119. At end-June 1996, 60 enterprises were participating in the program, of which 31 were industrial enterprises, 19 agro-processors, and eight agricultural enterprises. The total amount of debt rescheduled by the State Creditors Committee reached Mdl 453 million. Sixty percent of all payables rescheduled were to the general government, 25 percent to energy companies, and 15 percent to commercial banks.

Restructuring of Enterprises

The Agency for Enterprise Restructuring Assistance was established in 1995 to support file restructuring of enterprises by providing technical assistance find rescheduling payments on formal or informal debt, through the State Creditors Committee. The agency analyzes the economic and financial situation of applying enterprises and the State Creditors Committee--after a positive evaluation--approves this restructuring plan. The program includes the freezing of interest and amortization payments of these enterprises to participating creditors for a nine-month period, reducing the interest rate for servicing debt, rescheduling debts, and may allow for a partial conversion of debt to equity. However, no new working capital has been provided. Under the restructuring program enterprises were required to reduce employment through layoffs, partially liquidate and possibly establish Spinoff enterprises. The downsizing of production was also required until a positive cash flow could be achieved.

Participations the program required (i) enterprises to have debt to public creditors exceeding Mdl 3 million, (ii) enterprises to show a business plan which pointed to a probability of debt recovery (as indicated by marketable products and raw materials in stock), (iii) managers and owners to be willing to participate, (iv) an assessment by the agency that there was a potential for downsizing and for establishing spinoffs, (v) an evaluation that the operational capacity was sound, and (vi) that the enterprise was able and willing to pay for technical assistance rendered. To remain eligible for participating in the program, enterprises were required to remain current on payments, including wages.

120. With the completion of mass privatization, significant changes in corporate governance will take place. It is far too early to tell if investment funds will be the solution to effective corporate governance under dispersed ownership. However, funds have already actively participated in shareholder meetings and have dismissed some management teams. Apart from governance of enterprises, another critical question is whether market forces are sufficient to ensure the accountability of funds and set the right incentives for their management. Early experience has been discouraging, as insufficient shareholders have participated in the founding meetings of funds for establishing their statutes.

121. The stock exchange, which became fully operational in June 1995, does not play a significant role in the financial sector yet. By mid-1996, the cumulative volume traded on the floor was about Mdl 6 million, while about Mdl 10 million were traded outside the regular sessions.

C. Enterprise Arrears

122. Arrears remain a serious problem in Moldova, although interenterprise arrears and wage arrears have been stabilizing as a percentage of GDP. The emergence of arrears is a common feature of the transition to a market-based system. Enterprise managers are often slow to adjust production levels to lower demand conditions, resulting in inventory accumulation and arrears on payments for inputs. High inflation and inefficient financial intermediation (with high spreads between deposit and loan rates) give enterprises a strong incentive to delay payments, thereby obtaining cheap credit as interenterprise indebtedness. Laws and institutions do not generally allow effective enforcement of contracts. Most enterprises are also in arrears on taxes, and on loan repayments to Government and commercial banks.

123. Interenterprise arrears have continued to increase in nominal terms from Mdl 1.6 billion in the first quarter of 1995 to Mdl 2.2 billion in the first quarter of 1996. However, they remained stable when measured as a percentage of GDP. Concerning the sectoral distribution of arrears, 32 percent originate in the agricultural sector and, in particular, almost 50 percent of payables by collective farms are in arrears (Table 10).

Table 10.

Interenterprise Arrears, 1996 Q1

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Source: Department of Statistics

Payments overdue for 3 months or more.

Data may not include certain arrears of the energy sector which are under negotiations.

124. Wage arrears may also be stabilizing. Although wage arrears increased from Mdl 140 million at end-1996 to Mdl 230 million at mid-1996, they declined in real terms in the first five months of 1996 over the same period in 1995 (Chart 14). The agricultural sector, in particular its collective farms, showed the least discipline in paying wages, and the sector accounted for almost 60 percent of economy wide wage arrears.


Moldova Wage Arrears

Citation: IMF Staff Country Reports 1996, 117; 10.5089/9781451824919.002.A001

Sources: Moldova authorities; and IMF staff estimates.1/ Economy wide wage arrears deflated by centered 5-month moving average CPI.

125. Several policies to address the arrears problem have been implemented. First, the restructuring agency has targeted the elimination of newly emerging arrears (see above). Enterprises must remain current on all payments including taxes. In return, all arrears to energy companies, banks, government, and the Social Fund are rescheduled (see also Box 5). Although the number of enterprises participating is relatively small, they accounted for a substantial share of arrears. Second, the Government has encouraged enterprises to issue tradeable bills of exchange for settling arrears. Third, limited netting schemes mainly targeting the agro-industrial sector have been implemented. However, they remain generally undesirable since they create moral hazard problems. An essential requirement to reduce the arrears problem is the enforcement of hard budget constraints, through effective implementation of creditor friendly bankruptcy and procedural laws.

126. While credit between enterprises has been an important source of financing, the extent of interstate credit, i.e., indebtedness between domestic and foreign enterprises, appears to be limited (Table 11). Ninety-five percent of enterprises’ receivables are from enterprises registered in Moldova. Seventy-five percent of enterprises’ payables are to Moldovan enterprises, the remainder is mostly payable from the energy sector to RAO Gazprom, the Russian gas supplier.

Table 11.

Enterprise Interstate Credit, 1996 Q1

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Source: Department of Statistics.

Includes energy debt of Transnistria.


127. Moldova is nearly completely dependent on imported energy, primarily natural gas and petroleum products from Russia. Under the command system, cheap and abundant energy was inefficiently used, both by households and producers in the agriculture and agro-processing industries that account for the bulk of economic activity in Moldova. With the breakup of the Soviet Union, Moldova now faces world market prices for energy and the urgent need for the economy to adjust to this. While the process has begun, much more remains to be done, as indicated by the steady rise in energy arrears to RAO Gazprom (which increased to US$160 million by mid-1996), the still inefficient (though declining) use of energy, and the inadequate resources available to maintain and improve the capital stock in the sector.

Structure of the energy sector

128. Chart 15 gives an overview of the energy supply structure. Most natural gas is imported by Moldovagas from the Russian supplier Gazprom. It is then distributed to final consumers, and used by Moldenergo to generate electricity and heat. Moldenergo also supplies inputs to the large generating plant, Moldoveneasca (Moldovskaya) Power Plant, which is located in Transnistria, and from which it imports electricity.18 Moldenergo is also supplied with fuel oil and coal by Tirex-Petrol, the main importer of those commodities. Moldenergo generates electricity and heat, which is sold to Termocom and Termocomenergo. The latter distribute heat for final consumption in different parts of Moldova.



Citation: IMF Staff Country Reports 1996, 117; 10.5089/9781451824919.002.A001

Source: Information supplied by the Moldovan authorities.1/ Russia.2/ Transnistria.

Tariff structure

129. Establishing an economically viable structure of energy tariffs is vital to staunch arrears, provide financial resources to maintain and develop the capital structure of the sector, and encourage economical energy use. A further goal is to eliminate cross-subsidization.

130. Electricity and heating tariffs were raised on May 1, 1996 (Table 12) by a quarter on average, including a rise of SO percent in residential electricity and heating tariffs (79 percent for electricity to rural households) and a 13½ percent increase in industrial electricity tariffs. These increases raised average electricity tariffs to near basic cost recovery levels,19 though heating tariffs for households (which account for about three-quarters of consumption) remain well below the basic cost recovery level of roughly Mdl 80/gcal. A full cost-recovery tariff, including reasonable allowances for depreciation and profit, as well as provision for a sinking fund, would clearly be significantly higher. Heating tariffs for industry and budget institutions, however, are well above cost recovery levels, and revenues from them are used to help reduce the losses incurred by providing cheap household heating. The cost of heating to industry and budgetary institutions is so high, however, that many of them prefer to disconnect heat, or severely curtail its use, in the winter. This both distorts the structure of demand and has the perverse effect of limiting the amount of cross-subsidization that can be obtained from the high heating tariffs charged to these enterprises. The government is considering further tariff measures and the elimination of cross subsidization to address these problems.

Table 12.

Electricity and Heating Tariffs

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Source: Moldovan authorities.

There is also an “above life-line” (higher) rate, accounting for about 10 percent of use.

131. Gas tariffs have been set at levels which fully reflect the cost of importing gas from Russia. However, at US$60 per 1,000 cubic meters, this is about US$20 below the world price, reflecting a discount in the contract price with Russia to reflect pipeline fees for Russian gas in transit to Eastern Europe.

Other tariff distortions

132. In addition to the distortions caused by a nonmarket tariff structure at the consumer level, some tariff anomalies exist between energy suppliers and distributors. Moldenergo is obliged by decree to charge a non-cost-recovery transfer price to Termocom and Termocomenergo for the heat it supplies. The district heating companies’ tariffs could therefore be set at low levels without affecting their financial viability.

Collection rates

133. Another problem leading to the buildup of energy arrears is the low collection rate by the energy suppliers (Chart 16). In particular, the collection rate for Moldovagas in 1995 was only 64 percent. There is also evidence of an increase in energy theft, particularly of electricity. In the first half of 1996, however, the authorities have implemented stricter collection procedures, entailing in particular cutting-off of nonpaying customers with a few exceptions related to public health and safety. These measures appear to have improved collection rates in recent months.


Moldova Energy Collection Rates

(Collections in percent of current deliveries)

Citation: IMF Staff Country Reports 1996, 117; 10.5089/9781451824919.002.A001

Source: Moldovan authorities.1/ For December 1995, the collection ratio was 209 percent.

Moldovagas and Moldenergo: payables and receivables

134. Chart 17 shows the evolution of the consolidated payables and payables net of receivables of Moldovagas and Moldenergo in 1995 and the first half of 1996. As a result of the problems of the tariff structure and collection rates discussed above, payables to Gazprom and others have been rising steadily. Payables less receivables have also been rising. These ‘uncovered’ payables reflect the extent to which tariffs of Moldenergo - both its charges to final consumers and its transfer price to Termocom and Termocomenergo - have been insufficient to cover input costs.



(End of period)

Citation: IMF Staff Country Reports 1996, 117; 10.5089/9781451824919.002.A001

Source: Moldovan authorities.1/ Payables to RAO Gazprom, including Left Bank (Tronsnistria), and small amount of other payables.


Table A1.

Moldova: Gross Domestic Product by Expenditure

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Source: Data provided by the Moldovan authorities.
Table A2.

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

(In thousands of lei)

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Source: Data provided by the Moldovan authorities.
Table A3.

Moldova: Agricultural Production in Constant Prices

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Source: Data provided by the Moldovan authorities

Includes values of crops discarded.