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Unemployment and Government Spending

The level of life in Republic of Moldova is far away from any European norms and standards. It is satisfactory in the capital of the country and some other small towns because the most important economic activities are concentrated there. Chisinau, the capital of Moldova, occupies 2% of the country’s territory, having 26 % of the whole population and accounting 78% of the private sector’s revenues. The other 74 % of population live outside the capital and most of them in villages (World Bank, 2012). A considerable part of these people have no water pipes and electricity in their homes, not even mentioning the telecommunication system and modern heating devices. Only 40% of rural areas have water supply, compared to 91% of the urban ones; not even 2% of rural placements have sewage systems compared to 72% in urban ones.

If you look at it from any perspective, it would seem obvious that there is a big need for investments in electricity, water, irrigation, heating, and road infrastructures. Though, the Moldovan government chooses rather to invest money in the fiber-optic backbone. The reason is the expected significant profits from the telecommunications company, Moldtelecom, which is state-owned.

Many researchers argue whether Moldova needs an expansionary fiscal policy in the form of increased government spending. On the one hand, it will worsen the budget deficit of the country. On the other hand, it will stimulate the GDP and lower the unemployment rate. There was a significant fall of 6.5 % in the real GDP of Moldova in 2009 after the global crisis (see Appendix 5). Unemployment went from 5.5 % in the beginning of 2008 to 9.1 % in the beginning of 2010, while unemployment in the urban area hit 11 % (See Appendix 6). The rates of the employment in Moldova are very low in comparison with the other countries in the region (See Appendix 7).

There could be observed a downward movement of the employment in all sectors of the economy after the global crisis in 2009. The outputs of such sectors as mining, agriculture, construction, displayed decreases from 12 to 60 % during that year (“Moldova Overview,” 2012). Currently, these numbers are improving, but still not fast enough for a full recovery. If the government decided to rebuild water, sewage or/and road infrastructure, it would create many jobs for the unemployed people. Therefore, there will be one problem solved and at the same time the living standards of the country would be increased.

Expansionary fiscal policy in Moldova is quite tricky though, because of high level of corruption. It persists in every division of the public sector and government as well. At the moment it is relevant to speak about the reconstruction of the road infrastructure, 90 % of which is deteriorated. Moreover, there is inefficient government spending for the reparations as the same roads have to be repaired again the next year (“Poate Moldova Avea Drumuri Calitative?” 2012). During one of his interviews with the press in 2011, Boris Gherasim, the vice-minister of Infrastructure, mentioned that the Moldovan government spends only 788 million MDL on road repairs yearly, while its poor state brings losses of 7-8 milliards MDL to the national economy (Radio Europa Libera, 2011). It is simply a question of the quality of those reparations. Costs are budgeted for the best quality of the construction materials, but the quality and the amount of them in reality are far not the same as on the papers (World Bank, 2012).



Another direction of the government spending that would improve the economic situation of Moldova is agriculture and exports of Moldovan production. This country has a very fertile soil, but only 63 % of the arable territory is used for agriculture. Also, there are many abandoned factories all the way from the Soviet Union. The agricultural employment shrank by 10.6 % annually between 2000 and 2008 (National Bank of Moldova, 2012). The government could make investments to increase the exports of agricultural production, making use of the existing, at the moment inefficient capital and in the same time creating new jobs.

Lack of jobs in the country is one of the reasons why emigration of the population is so popular. On one hand it reduces the unemployment rate of the remaining population, which makes labor scarce and therefore wages of the employed people go up. It was estimated in 2008 that on average a 10 % additional emigrants leads to a 3.2 % increase in wages (World Bank, 2012). A question that might appear regarding emigration is whether Moldova is losing skilled and educated citizens or is it just the people who lack the necessary skills and knowledge to get an available job in the home country. According to the data from the 2008 LFS, only 11 % of the emigrants can be considered a part of the more skilled and educated population, while the other 89 % were unemployed or worked in agriculture, mining or construction prior to emigration (See Appendix 8) (World Bank, 2012).

Trade Deficit

The balance of trade is represented by net exports, which is defined as a difference between exports and imports. This linkage depicts the relation between two important macroeconomic parameters (Hansen, 2012). Moldova is currently suffering from a constant negative trade balance – trade deficit. The current economic situation should be poised to improvement of the net exports parameter by identifying the reasons behind it.

The trade deficit of Moldova in 2010 resulted in 1.7 billions of EUR. The trade deficit tends to increase constantly, thus the economy is suffering from the exports inability to meet imports. The relations between main trade parameters are provided in the Appendix 9.

There are number of reasons, which explain why Moldova keeps on suffering from the negative trade balance: internal trade regulations and limitations in external trade partnership.

First of all, Moldova is known for its internal trade restrictions. It is difficult for the new private companies to enter the market. Excessive regulations are creating huge administrative and financial burdens (“Calea spre un viitor mai luminos”, 2010).

The second reason of the Moldovan products poor competitiveness lies in the failure to meet market-demanded quality standards. In USSR the main export and import transactions occurred within the union. After it collapsed the member countries changed its economic directions for political reasons. A huge number of products were exported to Russia from Ukraine and Moldova. Russia was the main oil and gas supplier and after this operation was the one to dictate the trading terms. In early 2006, Russia prohibited the imports of wine from Moldova. Moldovan wines were blackmailed to contain heavy metals and pesticides. Wine exports to Russia represented some 25% of Moldovan exports (10 % of GDP), and as a result, a strong negative impact on the real sector of the economy occurred (“Russia bans Moldovan wine”, 2010).

For more detailed information, Appendix 10 represents the decrease in the exports of wine from 2004 until 2008. In 2004 the value of the wine exported to the CIS countries was around 250 million of USD. This growth has continued up until 2005 and then fell rapidly to 100 million USD in 2006 after the Russian ban incident. After that the Moldovan products were proclaimed to be low-quality and dangerous to consume.


Date: 2015-12-17; view: 688


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