Moldova: Reducing Poverty and Boosting Shared Prosperity

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Challenge | Approach | Results | Bank Group Contribution | Partners | Moving Forward | Beneficiaries

Challenges

Moldova is a small, land-locked country with a population of 3.5 million and a GDP of US$ 7.9 billion (2014). The economy is dominated by agriculture and the food industry, but remittances are also central, amounting to around one quarter of GDP during 2011–14. A series of governments over the past decade have promoted European integration, and in 2014 Moldova and the European Union (EU) signed an Association Agreement that also set up a free trade area between them.

Moldova faces persistent challenges in its political and market transition and other important concerns, such as an aging population and a warmer climate. A series of droughts and floods between 2007 and 2015 displaced many people and destroyed social infrastructure, housing, crops, and livestock.

Moldova has established the formal institutions of a market economy, and growth has led to marked reductions in poverty in the past 15 years. Since the 2009 global economic crisis, economic performance has been strong, although the deterioration in external conditions, together with a series of summer droughts and increased governance challenges, particularly in the financial sector, have resulted in slower growth in 2015. Moldova needs to improve its competitiveness and the business environment if progress is to be maintained. Additionally, Moldova’s human potential needs to be maximized by improving the quality of education and health services.

However, the biggest challenge is the need for major improvements in governance. Corruption increased markedly between 2012 and 2014 with Moldova falling from the 30^th to the 20^th percentile for Control of Corruption according to the Worldwide Governance Indicators (2015), undermining actions intended to increase competitiveness and exemplified, inter alia, by the banking sector crisis in late 2014; political instability increased during the same period, and public trust in government institutions, along with private sector confidence, has eroded. Back to top

Approach

The WBG is helping Moldova to address the challenges above and to boost shared prosperity and reduce poverty by capturing the full benefits of EU and global integration. Three strategic areas of engagement are highlighted in the 2014–17 Country Partnership Strategy (CPS): increasing competitiveness; enhancing human capital and minimizing social risks; and promoting a green, clean, and resilient Moldova. Improving governance cuts across all of these areas.

Over the past 10 years, the WBG has provided support through International Development Association (IDA) and International Bank for Reconstruction and Development (IBRD) financing, Trust Funds (TFs), and technical and policy advice. Development policy (general budget support) and investment lending (projects in specific sectors) have been maintained with flexibility, allowing the Bank to shift toward investment lending if conditions require. As of mid-2016, the CPS envisaged total lending of US$ 480 million, of which US$ 75 million is development policy lending. Back to top

Results

Competitiveness

The WBG’s collaborative effort has helped to improve competitiveness:

• Safety regulatory framework harmonized with EU regulations, facilitating food exports to the EU.
• In 2006–12, roughly 500 matching grants provided to 479 firms for international quality certification and business development. Over US$ 22 million provided as a line of business credit to 60 enterprises.

Agriculture

A range of IDA-funded operations led to a series of important achievements:

• During 2003–13, over 1,000 business start-ups launched and US$ 30 million disbursed to rural entrepreneurs and start-up businesses, helping create over 5,600 new jobs.
• Strengthened farmer preparedness for climate risks: 26 irrigation subprojects financed, 3,000 hectares of on-farm irrigated area rehabilitated, and 38,000 farmers trained on irrigation since 2011. Drought adaptation agronomics adoption rate was 30 percent.

Education

In 2010–14, IDA-funded activities were a driving force behind efficiency improvements:

• 65 rehabilitated kindergartens provided preschool to 1,100 children, resulting in enrollment increase from 77 to 82 percent.
• Preschool teachers in 950 institutions received key teaching materials, and 260 mentors and 40 inspectors were trained to support 8,400 teachers.
• Per-student financing formula introduced, increasing transparency and efficiency.

Energy

IDA’s extensive engagement in the energy sector during 2004–12 contributed to:

• Improvements in 23 schools and 12 health institutions, benefiting over 27,000 students and teachers and 1.2 million patients, staff, and visitors, with 90 percent improvement in heating efficiency.
• Reduced greenhouse gas emissions of 90,000 tons of carbon dioxide, equivalent to 19,000 vehicles off the roads for a year.
• Reduced energy demand, helping public entities save 30–40 percent in heating costs.
• Reduction in non-technical losses to zero, outage rates by 59 percent, and unserved energy to 0 percent.

Social Assistance

In 2009, the IDA-financed Ajutor Social program was introduced, providing social benefit payments to the poorest:

• Monthly number of beneficiary households reached 66,000 by 2016, including 18 percent of poorest households. Poorest group received over two-thirds of total transfers.
• Between 2010 and May 2016, 185,000 households received benefit at least once.
• More costly categorical benefits discontinued to ensure resources for expansion of targeted transfers and preserve system sustainability.

Health

IDA has supported a number of important achievements in the health sector:

• National health insurance scheme now covers 85 percent of the population, versus 76.7 percent in 2007.
• Better health services available through rehabilitation of 22 primary health care facilities and construction of 57 primary care centers during 2007–14.
• Average stay in hospitals reduced from 9.5 days (2011) to 8 days (2015).
• Coordination between WBG, EU, and Council of Europe Development Bank in building the new surgical block allowed new and complex surgeries.

Communities

A series of IDA-financed community-focused and emergency response interventions since 2000 have had a significant impact:

• Over 850 community infrastructure facilities upgraded: 404 schools, 278 kindergartens, and 191 water management projects, benefiting an estimated 1.2 million people.
• School attendance increased by 5 percent during winter due to central heating installation.
• 100,000 person/days of employment generated in poor rural areas affected by global economic crisis.

Public Services

The IDA-financed governance e-transformation project implemented in 2011–16 has brought innovation:  

• 50 percent of public institutions migrated information systems to Government’s Cloud Computing Infrastructure, with US$ 1.8 million in savings generated.
• Open Government Data and General Government Services Portal launched, facilitating interaction between over 495,000 people (51.8 percent women) and government.
• 28 sectoral and cross-sectoral platform-shared enabling services launched, reducing administrative burden and corruption.
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Bank Group Contribution

The International Finance Corporation’s (IFC) committed portfolio in Moldova stands at US$ 56.8 million, consisting of 82 percent loans and 16 percent equity and quasi-equity in a total of 12 projects. IFC technical assistance is supporting agri-business, in particular, improving food safety standards to bring them in line with EU practices, and helping the Government to improve and streamline the regulatory framework for businesses.

The net exposure of the Multilateral Investment Guarantee Agency (MIGA) in Moldova amounts to US$ 17.1 million in projects that support foreign bank subsidiaries in the country, including microfinance organizations and leasing operations. Back to top

Partners          

Donor partnerships have been effective in leveraging co-financing and speaking as one on key reforms. The WBG convened the multi-donor Briefing Book, the basic document for donor policy dialogue with governments during 2015–16. The Bank leads the transport donor group, is organizing a similar arrangement for the energy sector, informally coordinates health donors, and participates actively in government sector councils. Collaboration with the EU Delegation, Commission, and member states has been essential, particularly in the energy sector and on governance reforms.

WBG operations have also attracted support from other development partners, including the Global Environment Facility, the Governments of the Netherlands, Sweden, Switzerland, and Japan, the United Nations Children’s Fund, and the U.S. Agency for International Development, which co-financed IDA operations, financed carbon operations, and provided other forms of support, including for Advisory Services and Analytics. Four new technical assistance activities to be implemented under the cross-cutting governance theme will be financed from the United Kingdom’s “Good Governance and Investment Climate” TF.

The Bank has provided technical leadership in sectors where it has leveraged resources from other partners. It provided technical assistance on the Land Transport Infrastructure Strategy and a US$16 million IDA credit, after which the European Bank for Reconstruction and Development and the European Investment Bank provided parallel financing of US$ 450 million to the State Roads Administration to improve national roads and manage the road network. Back to top

Moving Forward                                                

The WBG has a long-term relationship with Moldova, and although the country continues to face various economic and political uncertainties, the Bank will continue to support reforms when opportunities arise. There is likely to be less emphasis on policy-based lending and more on investment programs with tangible results for the population, and the future program will be anchored in Systematic Country Diagnostic (SCD) priorities, namely, improving economic and service governance and skills.

IFC will continue its support to enhancing competitiveness, particularly in the agriculture sector, including further efforts to ensure food safety and quality, addressing competition issues in selected agri-food markets, and improving trade logistics. Back to top

Beneficiaries

Reducing weather risks

“We learned our lesson in 2012 when a severe drought ruined the harvest," says Ion Baban, a farmer. "In 2013, though we had more rainy days, our own irrigation system financed by the grant allowed us to see a 40 percent increase in our yield. And it improved both the quantity and already high quality of our grapes. And better quality means better prices.” 

Targeting social assistance

“It’s important help for us. The money we receive helps us pay for food and school supplies and buy clothes,” says Sergiu Robu, head of a rural family of 11 children. “My children are growing up; we need more money to buy food, clothes, and to finish the construction of our house.”

Empowering local communities

In Transnistria, 98 percent of Parcani residents voted to put a much-needed roof on the local school. Until two years ago, there was no roof at all. “We couldn't use the third floor or the second floor, really,” says 9th-grader Carolina Gaidari. “It was impossible to concentrate because of the damp and the mold in the classrooms.” Her classmate Dmitrii Nicolaev agrees. “We like it very much now. There is no leaking water and we don't have to work with buckets everywhere.”

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