ECONOMIC MONITOR MOLDOVA Issue 7 January 2018

Transcription

1 ECONOMIC MONITOR MOLDOVA Issue 7 January 218 Overview Economic growth at 3.5% in 217 Weaker growth of 3.% expected in 218 due to decreased consumption demand Inflation at 6.6% in average during 217; lower forecast for 218 Appreciation of the Leu reflects macroeconomic stability and positive economic situation Very good performance of external trade during 217; two-digit increase in imports and exports Budget deficit at 3.1% of GDP in 217; lower than expected due to increased revenues Topics Banking sector. Stabilisation reached after banking fraud, crediting of the private sector still decreasing Foreign direct investment. Role of FDI for the economy so far underestimated, as a study of GET Moldova has shown Economic reforms. Comprehensive reforms to be assessed positively; too early for final assessment Increasing tax revenues. Increase in tax revenues can at least partly be attributed to reforms; positive example for structural reforms

2 Basic indicators Moldova Ukraine Belarus Georgia Russia GDP, USD bn ,469.3 GDP/capita, USD 2,24* 2,459 5,585 4,123 1,248 Population, m 3.5* Source: IMF, estimation for 217; *According to the census of 214 only slightly less than 3 m inhabitants; based on this census GDP per capita amounts to ca. USD 2,65. Trade structure Export Import EU 65% Russia 11% Others 24% EU 5% Russia 11% Others 39% Metals 2% Chemicals 4% Others 22% Machinery 17% Vegetable products 25% Textiles 15% Foodstuffs 15% Source: National Bureau for Statistics; Jan-Sep 217, Note: Trade in goods Others 21% Motor vehicles 6% Plastics 6% Metals 7% Machinery 16% Chemicals 13% Minerals 16% Foodstuffs 7% Textiles 8% Source: National Bureau for Statistics; Jan-Sep 217, Note: Trade in goods 2

3 Economic growth % yoy Real GDP growth GDP 217: Growth at 3.5% slightly lower than in previous year Reason: Good harvest, but weaker growth of agriculture than in 216 Consumption robust during : Economic growth expected at 3.% * 218* -2 Source: IMF, *Forecast from Dec % yoy Investment Investment 217: Strong growth compared to 216 Reason: Significant increase of public investment, also due to international support 218: Private investment expected to increase Weaker economic performance in 217 due to lower growth in agriculture * 218* Total Private Public Source: IMF, *Forecast Dec 217 3

4 Financial services and insurance activities 6% Education 7% Real estate activities 6% Composition of GDP in 216 Others 2% Transport and ICT 13% Source: National Bureau of Statistics -1-2 % yoy Sectoral dynamics Sectoral perspective Agriculture 14% Manufacturing 14% Construction 4% Retail trade and repair services 16% Jan-Sep 217 Agriculture Manufacturing Retail trade Construction Structure Retail trade (16%), agriculture and manufacturing (both 14%) are the three most important economic sectors Dynamics Agriculture growth at 3.3% during Jan-Sep 217 due to good harvest, but not comparable to growth during 216 Significant increase (7.1%) of retail trade Manufacturing also slightly positive (2.2%) Recovery of construction sector (4.3%) reflects increasing investment Weaker overall growth due to lower growth rate in agriculture Retail trade benefits from robust consumption Source: National Bureau of Statistics 4

5 Inflation and wages 1 % yoy * Source: IMF, *Forecast Dec 217; Note: Annual average (consumer prices) 6 % yoy Inflation Real wages Inflation 217: Average inflation at 6.6% However, strong dynamics: Surprisingly strong increase to 7.9% in October vs 2.4% end 216 Reason: Increase of food prices and one-off adaption of health costs Core inflation remains stable Real wages Speeding up of real wage growth in 217 (ca. 5.3%) supported consumption Continued moderate increase of real wages expected for 218 Relatively high inflation in 217 caused especially by one-off effects Increasing real wages reflect good situation on the labour market * 218* Source: IMF, *Forecast Dec 217 5

6 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Exchange rate and remittances USD bn Exchange rate and currency reserves MDL/USD Exchange rate and currency reserves Exchange rate without major fluctuations in 216 Since beginning of 217: Appreciation of ca. 15% vs US dollar Appreciation pressure positive for currency reserves, significant increase 5 months import coverage at the end of 217 International currency reserves (left scale) Official exchange rate (right scale) Source: National Bank of Moldova 8 % yoy Remittances (in US dollar) Others Total Russia Remittances Return to strong growth since 217 Remittances from Russia continue to decrease Appreciation reflects stability and positive economic situation Increasing remittances support domestic demand Source: National Bank of Moldova 6

7 External trade % yoy 25 2 Export Import Jan-Sep 217 Source: National Bureau of Statistics; Note: Trade in goods CIS (excl. Russia) 9% Russia 11% Others 15% External trade Exports by countries EU-28 65% Import Jan-Sep 217: Increase in imports (19%) Reasons additional to increased demand: Export Tax reform: New standards of goods valuation, less smuggling Energy imports from Ukraine; previously energy purchases from Transnistria Jan-Sep 217: Strong increase of 15% More exports of vegetable products and cable harnesses Strong relation between investment from the EU and export of cable harnesses Outlook Exports are to increase further in 218, but with lower speed (8%) Also lower growth of imports expected (6%) Source: National Bureau of Statistics, Jan-Sep 217 7

8 Public finances and government debt -1 % of GDP Budget deficit Budget deficit 217: At 3.1% lower than expected Reason: Higher revenues, partly due to reforms in tax administration and customs (see also slide 13) -2-3 Also lower expenditures due to delay in road construction projects and reorganisation of the government * 218* Source: IMF, *Forecast Dec 217 % of GDP 45 4 Government debt Outlook Deficit to amount to 3.3% of GDP in 218, this is in accordance with the IMF programme These numbers include much needed infrastructure reforms, e.g. road construction, and higher social expenditures However, risk of higher expenditures, as parliamentary elections are to be held in November * 218* Source: IMF, *Forecast Dec 217 8

9 Bilateral trade between Germany and Moldova Euro bn Agrifood 8% Machinery 15% German trade with Moldova * German exports German imports Balance Source: German Federal Statistics Office, *Forecast based on data for Jan-Sep 217 German exports to Moldova Electrotechnology 4% Textiles 7% Others 25% Bilateral trade volume 217: EUR 551 m Significant increase (23%) vs 216 Strong dynamics after weak performance in the last years German exports to Moldova Exports increased by 29% in 217 vs 216 Investment goods profit from investments in Moldova German imports from Moldova 217: Also strong increase (14%) After the standstill in 216, significantly higher trade turnover in 217, whereas especially exports of German investment goods increased Chemicals 2% Source: German Federal Statistics Office; Jan-Sep 217 Motor vehicles and parts 21% 9

10 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Developments in the Moldovan banking sector Comertbank 1.7% BCR Chisinau 2.1% Energbank 3.6% FinComBank 3.6% Bank segments and market shares ProCredit Bank 4.5% EuroCredit Bank.9% Eximbank 6.3% Moldova - Agroindbank 27.4% Moldindconbank 19.5% Victoriabank 17.8% Mobiasanca 12.4% Source: National Bank of Moldova, Data for July MDL bn MDL deposits Bank deposits FX deposits Large banks Western-owned banks Smaller, mainly domestic-owned banks USD bn Changes in the sector after the fraud scandal Three of 14 banks liquidated Banking assets decreased from 84% of GDP in 214 to 54% in 216 Concentration increased, three largest banks have now a share of 65% of total assets after 5% in 213 Currently: Confidence returns Flight to foreign currencies is over, dollarisation with 45% at the same level as prior to the fraud scandal Capital adequacy ratio higher than before the crisis after liquidation of three insolvent banks Increase in non-performing loans only due to stricter regulation Shares in problematic ownership blocked and partly sold Stabilisation achieved, but challenges remain, especially implementation of Basel III and crediting of the economy Source: National Bank of Moldova 1

11 FDI stock EU-28 61% Italy 5% Other EU countries 6% Great Britain 3% Germany 5% Romania 6% France 8% USA 2% Spain 8% Source: National Bank of Moldova, data for 215 Importance of FDI companies for the economy Economic importance of FDI Others 9% Cyprus 8% Russia 28% Netherlands 12% Share of companies with foreign capital in macroeconomic variables Number 7% Employment 15% Value added 23% Corporate income tax 34% Background Due to the lack of data so far no systematic analysis of the economic importance of FDI Database developed by GET Moldova in cooperation with the National Bureau of Statistics Results Companies with FDI account for 15% of employment and 23% of value added They are 71% more productive than domestic companies and pay higher wages FDI companies pay 34% of corporate income tax and 21% of social security contributions FDI play an important and so far underestimated role Efforts for FDI attraction should be intensified and conditions for existing FDI companies should be improved Social security contributions 21% Source: Own calculations 11

12 Economic reforms Comprehensive reforms have been launched in many fields and have partly already been implemented Investment climate: Reduction of the bureaucratic burden and limitation of unannounced inspections, digitalisation of all inspections to improve transparency Public administration: Reduction of the number of ministries from 16 to 9, reduction of ministerial employees by almost one half, wage increase of 4-6% planned Pension: Increase of the pension age to 63 years, improved relation between contribution payments and pension amount, simplification of the system and elimination of privileges Public procurement: Introduction of electronic procurement, independent office for complaints, decentralisation, ex-post controls State administration and customs: Centralisation of tax administration, elimination of the independent juridical status of local tax offices, introduction of risk-based controls, reduction of the number of regional customs units, increase in wages Our assessment Reforms are very comprehensive and the persons in charge seem to have a genuine interest in their successful implementation Positive development of tax revenues indicates first positive results Too early for a final assessment, long-term success remains to be seen 12

13 4% 35% 3% 25% 2% 15% 1% 5% Revenues as share of GDP % of GDP Reasons for revenue increase Source: Own analysis Increasing tax revenues the role of reforms 38.% 36.7% 37.9% 35.6% 34.2% 39.% 1.2% 2.7% 3.4% 1.5% 1.4% 2.3% 2.2% 1.3% 1.1% 1.1% 2.2% 2.2% 2.2% 2.4% 2.% 2.2% 2.3% 2.5% 3.3% 3.5% 3.1% 3.1% 3.4% 1.1% 9.7% 9.6% 9.9% 9.9% 4.% 4.% 3.9% 3.9% 4.% 4.3% 11.4% 4.4% 1.1% 1.1% 9.7% 8.9% 8.7% 9.5% % Jan-Jun 217 Source: Own calculations based on MinFin and NBS data Effective tax rate increase H1 215 vs. H1 217 Personal income tax (PIT) Social security contributions Corporate income tax (CIT) Progression Mainly due to Economic tax base growth Effective tax rate Taxes on international trade Personal income tax Corporate income tax Excises Social contributions Domestic VAT Import VAT Reforms Tax base growth +.3 pp +.2 pp +1.9 pp Domestic VAT +.8 pp Import VAT +.3 pp Background Increase in revenues in 217 stronger than expected At the same time, tax administration and customs were subject to major reforms Question: Have the reforms contributed to increased revenues? Our results Reform effect found for four out of five analysed tax types For import VAT reform effect cannot be excluded, but undetectable with our methodology Reforms have contributed to higher revenues Reforms have to be continued, e.g. still high bureaucratic burden for companies paying payroll taxes 13

14 German Economic Team Moldova The German Economic Team Moldova ( GET Moldova ) supports the Moldovan Government in stabilising the economic development and designing the necessary reform processes since 21. In a continuous dialogue with high-ranking decision makers we identify current economic problems and present concrete recommendations for action based on our independent analysis. Furthermore, GET Moldova supports the German government, German companies and other German organisations by providing know-how and detailed information on the economic situation in Moldova. GET Moldova is financed by the German Federal Ministry of Economy and Energy and implemented by Berlin Economics. Contact German Economic Team Moldova Tel: +49 3/ c/o Berlin Economics info@get-moldova.de Schillerstraße Berlin 14