Moldova Economy

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MOLDOVA
GDP (2003 est.): $1.7 billion ($ 1.6 billion in 2002; $1.5 billion in 2001; $1.3 billion in 2000).
GDP real growth rate (January-September 2003): 7.0% (7.2% in 2002; 6.1% in 2001).
Per capita GDP (2003 est.): $460 ($448 in 2002; $422 in 2001).

Budget: Income .............. $536 million
Expenditure ... $594 million

Main Crops:
Vegetables, fruits, wine, grain, sugar beets, sunflower seed, tobacco; beef, milk .

Natural Resources:
lignite, phosphorites, gypsum .

Major Industries:
Food processing, agricultural machinery, foundry equipment, refrigerators and freezers, washing machines, hosiery, sugar, vegetable oil, shoes, textiles .

NATIONAL GNP

Moldova remains the poorest country in Europe. It is landlocked, bounded by Ukraine on the east and Romania to the west. It is the second smallest of the former Soviet republics and the most densely populated. Moldova's economy resembles those of the Central Asian republics, rather than those of the other states on the western edge of the former Soviet Union. Industry accounts for only 20% of its labor force, while agriculture's share is more than one-third.

Moldova's proximity to the Black Sea gives it a mild and sunny climate. This makes the area ideal for agriculture, which accounts for about 40% of the country's GDP. The fertile soil supports wheat, corn, barley, tobacco, sugarbeets, and soybeans. Beef and dairy cattle are raised, and beekeeping is widespread. Moldova's best-known product comes from its extensive and well-developed vineyards concentrated in the central and southern regions. In addition to world-class wine, Moldova produces liqueurs and champagne. It is also known for its sunflower seeds, plums, peaches, apples, and other fruits.

Like many other former Soviet republics, Moldova has experienced economic difficulties. Since its economy was highly dependent on the rest of the former Soviet Union for energy and raw materials, the breakdown in trade following the breakup of the Soviet Union had a serious effect, exacerbated at times by drought and civil conflict. After the Russian ruble devaluation of 1998, Moldova's economy underwent a prolonged recession, from which it started to emerge in 2000.

Moldova has made progress in economic reform since independence. The government has liberalized most prices and has phased out subsidies on most basic consumer goods. A program begun in March 1993 has privatized 80% of all housing units and nearly 2,000 small, medium, and large enterprises. Other successes include the privatization of nearly all Moldova's agricultural land from state to private ownership, as a result of an American assistance program, "Pamint" ("land"), completed in 2000. A stock market opened in June 1995.

Inflation was brought down from over 105% in 1994 to 11% in 1997. Though inflation spiked again after Russia’s 1998 currency devaluation, Moldova made great strides in bringing it under control: 18.4% in 2000, 6.3% in 2001, and 4.4% in 2002. However, in 2003 inflation escalated again--due mainly to a drought-driven rise in agricultural prices--reaching 15.7%. Also in 2003, the Moldovan Leu appreciated some 4% against the U.S. dollar.

Moldova continues to make progress toward developing a viable free-market economy. The country recorded its fourth consecutive year of positive GDP growth in 2003, with year-end real GDP growth of 6%. This growth is impressive considering that, prior to 2000, Moldova had recorded only one year of positive GDP growth since independence. Equally impressive was budget execution in 2003, with a budget surplus of about Moldovan Leu 300 million, or $21.5 million.

Privatization results in 2003 were not significant: several smaller companies and two wineries were privatized in 2003, but the government was not able to privatize several larger state enterprises, notably Moldtelecom and two electricity distribution companies. Sporadic and ineffective enforcement of the law, combined with economic and political uncertainty, continues to discourage inflows of foreign direct investment.

Imports increased more rapidly than exports during the first nine months of 2003; Moldova’s terms of trade worsened, as higher-priced energy imports outpaced the value of Moldova’s main exports--agricultural and agro-processing goods.

During 2002, Moldova rescheduled an outstanding Eurobond, in the amount of $39.6 million, to avoid a potential default. Debt servicing represented 32.5% of the budget in 2003. Moldova informed its bilateral creditors in mid-2003 that it would no longer service its debts. The 2004 budget does provide funds for bilateral debt service. Despite difficult negotiations, the International Monetary Fund (IMF) and World Bank resumed lending to Moldova in July 2002, then suspended lending again in July 2003.