Turnaround in Moldova's separatist Transnistria region as it boasts 15% GDP growth in Q1

Turnaround in Moldova's separatist Transnistria region as it boasts 15% GDP growth in Q1
By bne IntelliNews June 15, 2018

GDP in the Moldova separatist republic of Transnistria soared by 15.1% y/y in comparable prices in Q1, after a deep plunge of around 30% in the past couple of years, the state news service novostipmr.com reported quoting the ministry of economy of the self-proclaimed republic. 

A sharp rise in the industrial sector has driven the growth, the authorities said. The economic stabilisation in 2017 and the recovery seen in 2018 was broadly driven by the region's access to European Union markets under Moldova's free trade agreement with the bloc.

In absolute terms, the GDP hit 2.2bn Transnistrian rubles, which means some €116mn at the exchange rate set by the local central bank — a small share of the year’s GDP estimated at roughly €1bn.

The increase in industrial output has driven the expansion of the value added generated by the sector by 57.7%. As a result, the share of the industrial sector in total value added grew by 5.3pp to 23.8%. Local companies being more active in foreign markets was a key factor in the growth of the newly created added value in the industry.

In related news, Transnistria’s government has unveiled a fiscal strategy aimed at securing an 8% annual GDP growth rate in the medium term, by cutting taxes and encouraging businesses. Starting from January 1, 2018 corporate taxes for various industries were cut. The government’s strategy assumes that the tax burden on the economy will not exceed 28% of GDP, whereas in previous years it exceeded 30%.

The target is to cut government spending to 41.3% of GDP, including 32% of GDP for public sector wages and pensions. The reduction will be achieved by increasing GDP, and not by cutting wages and pensions, the government stressed. It envisages 7%-8% annual growth in the coming years.

At the same time, the government plans to increase the volume of capital expenditures from 0.1% of GDP currently to 1.5%.

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