Moldova

Moldova is approaching middle-income status, and based on its growth rate of 6.4 percent in 2011, the economy has made a full recovery from the 2008-2009 global financial crisis.

Growth has been led by higher export values from increased access to EU markets and higher prices for agricultural commodities such as vegetables, wine and tobacco. An unprecedented drought in 2007 and a 2006 ban on Moldovan wine imports to Russia were a severe blow to Moldova’s economy, but have pushed the country to diversify its export markets. With these bans lifted and restrictive regulations on wine, wheat, oil seed, and new manufactured exports eased, the private sector has responded well.

The massive inflow of remittances plays an important role in Moldova’s economy due to a large share of the work force overseas. However, remittances are expected to decline and a second engine of growth based on exports and investment is needed to ensure that Moldova’s economy continues to grow at a fast pace. To support private investment and export-led growth the ruling Alliance for European Integration (AEI) has pursued an ambitious program of structural reform, but political uncertainty has complicated its implementation.

Real household consumption increased by 7.1 percent—just short of the pre-crisis level, and gross fixed capital formation increased by 17.2 percent in 2010.

Moldova’s unemployment rate rose from 4 percent in 2008 to 7.4 percent in 2010, and with more than one-quarter of its residents living below the national poverty line —the rate topping 36 percent in urban areas— Moldova is Europe’s poorest country.

Improving the quality, relevance, and efficiency of the education system is a main priority for the country. Moldova’s environmental concerns include soil degradation, surface water pollution from the run off of agrochemicals, and a lack of sustainable water management in rural communities.

Over the last decade, Moldova has made improvements in the health sector, including significant reductions in maternal and child mortality rates and the creation of an independent mandatory health insurance company. Preventative healthcare services need to be massively scaled up in order to see a decline in mortality rates caused by non-communicable diseases such as cancer and circulatory and digestive diseases.

Providing access to piped water and sewage infrastructure remains a challenge for Moldova - only half of rural communities have piped water systems and approximately 40 percent of rural communities have sewage infrastructure. Urban areas fare better with 80 percent connected to a water supply and 63 percent to sewage. Few existing wastewater treatment facilities meet international standards and many are abandoned due to operative costs and lack of maintenance.

Key challenges for structural reform include improving the investment climate, channeling remittances into productive investments, developing the financial sector, and creating fiscal space by improving the efficiency and quality of public services including education. Authorities are also seeking private investment in strategic sectors, including IFC participation for denationalizing the large companies Moldtelecom, Air Moldova, and Banca de Economii.

The World Bank began working in Moldova in 1993, and in the span of nearly 20 years three quarters of its lending has been to two main areas: general budget support against economic policy reforms (46 percent) and industry infrastructure (20 percent). The remaining lending has been towards the rural development sector (14 percent), human development (11 percent), and the financial and private sector (8 percent).

The World Bank's Country Partnership Strategy (CPS) for Moldova for 2009-2012 focuses on three strategic priorities:

• Improving economic competitiveness to support sustainable economic growth;
  
• Minimizing social and environmental risks, building human capital, promoting social inclusion;
  
• Improving public sector governance.

A mid-term progress report in June 2011 found the strategy to be on track and extended it to 2013, but suggests adapting the program to reflect the current economic state of affairs including:

• Impact of the global economic and financial crisis;
  
• The opportunity created by the reform mandate given to the Government by the Moldovan people;
  
• Moldova’s European integration agenda.

The strategy also recommends considering two or three new International Development Association (IDA) lending operations per year bringing annual commitments to approximately US $50 million.

The Bank‘s current portfolio includes 13 investment projects totaling US $304.0 million of net commitments. The IDA portfolio covers almost every sector but has a higher concentration of operations in infrastructure, human development, and rural development. The World Bank also administers a substantial US $71 million trust fund portfolio, the largest in the Europe and Central Asia region.

Through the Analytical and Advisory Program (AAA,) the Bank helped the Ministry of Finance become fully transparent on its public finances, disclosing its budget in the Government’s portal in May 2011. Other technical assistance provided by the Bank will be instrumental in moving forward Moldova’s structural reforms and developing a much-needed second growth engine based not only on remittances but also on exports and investments.

With World Bank support, Moldova has made great strides in areas as diverse as rural business development, energy efficiency, and investment in community initiatives.

Some of Moldova’s development results include:

Water Supply: The World Bank is supporting Moldova as it increases connectivity and improves the quality of water. In World Bank-supported pilot programs, water supply is now available 18-24 hours per day, water losses due to leaks and decaying infrastructure have been reduced, and water consumption per capita has almost doubled.

Education: With Bank assistance, Moldova is developing comprehensive nationwide reforms program to create a leaner and better equipped education system, with adequately trained and paid staff, and more, and improved, teaching and learning materials to provide quality education that meets the demands of a modern economy.

Environment: Moldova has had great success in protecting the environment. To introduce and promote the recycling of agricultural waste, 11 biomass boilers were installed in demonstration sites under the Renewable Energy from Agricultural Waste Project. Soil conservation projects will lead to a reduction of CO2 emissions of 4.3 million tons over the next 10 years. Another important success has been in management of dangerous pesticides: 1,272 tons of Persistent Organic Pollutants (chemicals used as pesticides or for industrial purposes) and 17,300 capacitators with PCBs (polychlorinated byphenyls—now banned due to their harm to humans and the environment,) have been managed or disposed of entirely.

Business Reforms: To help Moldova improve its investment climate, the Bank‘s efforts include making it easier to do business and encouraging private investment. As part of Moldova’s Competitiveness Enhancement Project (CEP), co-financed by the World Bank and the Government of Japan, producers get assistance in obtaining internationally recognized quality certificates, and developing national standards compatible with the EU norms. The objective is to boost the ability of Moldovan products to compete internationally, especially in the EU market. Companies benefitting from the project have exports as diverse as wine, dried fruits, software, canned goods, carpets, and meat and dairy products. The project also aims to reduce regulatory barriers to business start up and development, so that would-be entrepreneurs can more easily see their ideas flourish. By making it easier for businesses to grow and export, the CEP project is helping to create jobs and ultimately reduce poverty.

Partnering with local government officials, the World Bank is hoping to spark life into business parks with the Rural Investment and Services Project (RISP). The project provides funds to develop business plans for eager Moldovan entrepreneurs – and it is getting results. In the town of Glodeni's, northwest of the capital city of Chisinau, a sewing business has provided a glimmer of hope in a once abandoned business park.

Social Investment: The Bank’s Social Investment Fund (SIF) has reached Moldovans at all levels, including schoolchildren from the small village of Calfa who have a new roof on their school, a new gas boiler providing heat, and a resurfaced road leading to school.

Energy: Through the Energy II Project, the Moldovan Government, supported by the World Bank, is working to improve heating and lighting systems in public buildings across the country. Among other results, so far the project has improved heating in 23 schools and 12 medical institutions, benefiting 8,399 students and about 1 million patients, staff, and visitors.
One such example is the regional hospital in the town of Orhei. Prior to the project newborns were kept warm with plastic water bottles filled from the only hot-water tap in the hospital, and nurses huddled around single lamps to save money on electricity. Now, the lights are on due to increased energy efficiency and a new boiler room keeps patients of all sizes warm.