Moldova is a small open agricultural economy with a strong but volatile growth performance, vulnerability to climatic and global economic conditions. Moldova has recovered from the global turmoil with an average 5% of GDP growth over 2010-2013. Read More »
As a small open economy in which agriculture has a significant role, Moldova’s growth performance has been strong but volatile. The economy recovered from the 2008-09 global economic crisis with average annual GDP growth exceeding 5 percent over 2010-2013. As a result, Moldova experienced the highest cumulative GDP growth, relative to the pre-crisis year of 2007, of all regional partners. However, growth has been volatile, reflecting vulnerability to climatic and global economic conditions. In 2010–11, remittances and investment fueled domestic demand, and growth in exports was strong. Real GDP grew by 7.1 percent in 2010 and 6.4 percent in 2011. In 2012, GDP contracted by 0.7 percent, as the economy was hit by a drought-induced contraction in agriculture (-22.3 percent) and weaker external demand due to the Eurozone crisis. Finally in 2013, growth rebounded, driven by a record harvest in agriculture, with GDP increasing by 8% over the first nine months of 2013.
Despite substantial macroeconomic risks, Moldova’s economic performance over the last few years has been relatively strong, aided by improved economic management, particularly in what regards fiscal, monetary and exchange rate policy. The existing macroeconomic framework is considered adequate, even though macroeconomic risks associated with vulnerabilities to external and climatic shocks, institutional weaknesses and related slippages in the implementation of macroeconomic and structural reforms will continue to be substantial over the short and medium-term. European integration anchors the Government’s policy reform agenda, but periodic political tensions pose risks to reforms. Negotiations with the European Union (EU) on an Association Agreement and a Deep and Comprehensive Free Trade Area (DCFTA) were recently finalized and draft agreements were initialed in November 2013.
Moldova’s recent economic performance reduced poverty and promoted shared prosperity. The national poverty and extreme poverty rates fell from 30.2 percent and 4.5 percent in 2006 to 16.6 percent and 0.6 percent respectively in 2012, making Moldova one of the world’s top performers in terms of poverty reduction. Similarly, consumption growth among the bottom 40 percent of the population outpaced average consumption growth: estimates for 2006-11 suggest an annualized overall growth in consumption of 2.9 percent over the period, as compared to 5.8 percent for the bottom 40 percent. These developments were driven by economic growth and the associated growth in earnings, as well as by an increase in private transfers such as remittances. However, evidence suggests that the bottom 40 percent are particularly affected by weaknesses in the quality and efficiency of health and education services, and especially vulnerable to climate shocks. Despite a sharp decline in poverty, Moldova remains one of the poorest countries in Europe. Based on the Europe and Central Asia (ECA) standardized poverty lines of US$ 5/day and US$ 2.5/day at Purchasing Power Parity (PPP), 55 percent of the population was poor and 10 percent was extremely poor in 2011. The most vulnerable groups at risk of poverty in Moldova remain those with low education levels, households with three or more children, those in rural areas, families relying on self-employment, the elderly, and Roma. Moldova performs well in some areas of gender equality, yet disparities persist in education, health, economic opportunity, agency and violence against women. Human trafficking is an issue. Moldova is a source, and to a lesser extent a transit and destination country, for both sex trafficking and forced labor.
Moldova has made significant strides in its economic and political transition, but much remains to be done. Moldova lags far behind the rest of the region - a result of policies and history. Moldova has a small domestic market with limited competition and weak drive for innovation. Yet these challenges could be overcome by reducing the economic distance to larger regional markets and reaping the benefits of openness. Unfortunately, Moldova has high cross-border costs, and is not taking advantage of its proximity to wealthier regional markets due to its low endowment in institutional, human and natural capital. Partially, World Bank’s Country Partnership Strategy is helping to address the need for reform and supports Moldova to boost shared prosperity and reduce poverty by capturing the benefits of openness and integration with global economy. These are the development challenges that the WBG new Country Partnership Strategy is helping Moldova to address.
Last Updated: Feb 12, 2014
Moldova's National Development Strategy (NDS) Moldova 2020 sets seven strategic priorities. These are justice and fight against corruption; national education system aligned with labor market requirements; pensions; business environment; roads infrastructure; accessible and inexpensive finance; and energy efficiency. The NDS is intended to prioritize state interventions to deliver the overarching goal of bringing about qualitative economic development and poverty reduction. It was adopted by the Parliament as national law. The NDS and its consolidated action plan include some measures to reduce inequality and address key crosscutting themes, such as social inclusion and gender equality, environmental preservation, climate change and disaster events, and reintegration of localities from the left bank of the Nistru River (Transnistria).
Aligned with the NDS, the World Bank Group (WBG) Country Partnership Strategy (CPS) for FY14–17, discussed by the Board on September 5, 2013, will provide Moldova with US$570 million over the next four years (US$450 million on IBRD&IDA [International Bank for Reconstruction and Development & International Development Association, together known as the World Bank] terms, plus US$120 million IFC [International Finance Corporation] commitments). It will support Moldova in reducing poverty and boosting shared prosperity by capturing the full benefits of openness and integration with the European Union and the broader global economy. Three pillars are proposed, which will help Moldova diversify and expand its endowment of institutional, human, and natural capital:
Increasing Competitiveness: continued institutional reforms for a business enabling environment and governance, access to finance, transparency in the financial sector, and targeted activities to help improve companies' competitiveness are needed to reduce barriers and to translate economic openness into concrete benefits of more jobs and higher income.
Enhancing Human Capital and Minimizing Social Risks: the widening gap with EU28 in education and health outcomes needs to be progressively closed. Demographic challenges need to be addressed, and vulnerabilities can be tackled by strengthening social protection systems.
Promoting a Green, Clean and Resilient Moldova: the debilitating effects of climatic events on agriculture and rural livelihoods need to be addressed, natural resource management improved, and energy security and efficiency achieved to ensure sustainable development.
The CPS has governance and gender lenses, and a calibrated engagement in localities from Transnistria will be considered in close consultation with the authorities of the Republic of Moldova.
This CPS continues to address governance issues at the country, sectorial and operational levels across the strategy. Interventions will be pursued to improve the business enabling environment; enhance public administration reform and quality of public service delivery; and improve public financial management and procurement systems. The CPS will use a governance filter to ensure that governance is systematically tackled in all operations (analytical and advisory activities and lending); it will also support enhanced involvement of Civil Society Organizations through the Global Partnership for Social Accountability to which Moldova has opted in. At the operational level, WBG will ensure the highest fiduciary standards in projects it supports while helping the Government to strengthen country systems. This CPS is informed by a gender assessment, the outcomes of which will be discussed at the concept stage of each relevant new operation (analytical and advisory activities and lending).
The World Bank’s current portfolio includes seven investment projects. Total commitments amount to US$162.2 million. The disbursement ratio for FY14 so far is 23.7 percent (as of January 27, 2014), and was 34.1 percent at the end of FY13. The ongoing IDA portfolio is broad ranging, with the highest concentration of operations in human development and agriculture and rural development, as well as in the financial and private sectors.
Alongside IDA and IBRD resources, IFC operations in Moldova will continue to focus on investment and advisory activities that enable private sector growth and diversification. IFC plans an annual funding envelope of about US$30 million. IFC exposure as of June 30, 2013, is US$90.3 million in 18 clients across the financial, manufacturing, agriculture, telecommunications, water, and energy sectors.
With World Bank support, some of Moldova’s development results include:
Financial Sector: The World Bank is actively engaged, through technical assistance and investment/policy lending, in supporting the authorities’ efforts to deepen the level of financial intermediation in Moldova, while making the sector more resilient to possible shocks. Over the past two years, the Bank has maintained a dialogue with the Ministry of Finance, the National Bank of Moldova (NBM), and the National Commission of Financial Markets (NCFM). It has worked with NBM to develop a legal and regulatory framework and an action plan for electronic payment and remittance services, and with the NCFM to strengthen the legal and regulatory framework for the non-banking financial sector. The Bank has also supported financial market regulators in order to advance the credit reporting infrastructure in Moldova. These and other initiatives are expected to enhance financial stability in Moldova, reduce the cost of lending, increase the proportion of remittances retained in the formal financial sector as bank deposits, and broaden access to finance.
Business Environment: Regulatory reforms implemented in 2001–2012, as Moldova was strengthening its market economy, brought slow but steady progress. On the Doing Business “Distance to the Frontier” indicator, which measures how far a country is from global best practice, Moldova has risen from 55.9 (in 2006, earliest available) to 63.5 (in 2013). Reforms have reduced the time spent by management on meeting regulatory requirements from 17 percent in 2005 to 10 percent in 2012, as reported by the domestic Cost of Doing Business survey. These reforms covered business registration, business regulation, licenses, authorizations, and other areas. The World Bank has been working closely with the Government of Moldova to help improve the investment climate. To make it easier to do business, as part of the Competitiveness Enhancement Project (CEP), in 2008 the Government introduced the Regulatory Impact Assessment methodology as a mandatory process for the development of all new laws and regulatory acts affecting business operations. In addition, business owners are now able to voice their views through a committee set up to address new legislation. In 2013, CEP funded the development of the Regulatory Reform Strategy and Action Plan, and thye World Bank report on “Policy Priorities for Private Sector Development” strongly informed the 2013–14 Roadmap developed by the Government. Additional Financing under the CEP provided US$22.5 million in loans to export-oriented enterprises, and the Government has established a revolving fund from repayments of the original credit line, from which an additional US$7 million in loans has been made available. A matching grants scheme helped Moldovan businesses obtain international quality certifications (such as International Organization for Standardization [ISO], Hazard Analysis Critical Control Point [HACCP]) and acquire relevant business development services. Moreover, the Rural Investment and Services Project has overseen the creation of 194 new businesses in rural areas and the provision of 149 loans to rural beneficiaries between 2006 and 2007.
Education: The Bank-financed Quality Education in Rural Areas of Moldova (QERM) Project has made a significant contribution to the education sector by supporting early reforms; contributing to revisions of the lyceum curricula and the development of associated guides; providing teaching/learning materials; equipping 1,190 schools with equity school grants and 304 schools with quality grants, benefiting students in poor rural schools; and supporting participation in international assessments. Furthermore, the project supported the initiation of per student financing in the sector, initially in two pilot rayons (districts), and nationwide since January 2013, thereby promoting efficiency in the use of resources, education planning, and monitoring. At the same time, Moldova has built on the successful experience gained under the Education for All – Fast Track Initiative (EFA FTI) grants implemented during 2006–2010 in the preschool education area, and obtained a follow-up Global Partnership for Education (GPE) grant. Achievements under the previous EFA FTI grants include 9,000 children benefiting from preschool services in renovated institutions, 37 percent of preschool institutions endowed with books and other teaching materials, and 34 percent of preschool teachers covered under professional development programs. The new GPE grant is administered by the World Bank and is aimed at continuing the support for expanding early childhood education coverage, addressing equity issues, and enhancing the quality of preschool services. To date, renovations have been completed in 21 locations and about 1,000 children are benefiting from the grant interventions. Rehabilitations using the grant resources will continue in about 15 additional localities, thereby increasing the number of beneficiaries and exceeding the initial target of 1,200. At the same time, important efforts are currently being made with GPE grant support to promote national policies and legislation, a system-wide professional development/mentoring program for preschool teachers associated with the provision of modern teaching and learning materials, and a school readiness assessment instrument. These innovative initiatives are placing Moldova at the forefront of GPE countries currently advancing the early childhood development (ECD) agenda not only through increasing access to preschool services, but also promoting modern education quality programs. Based on strong policy work conducted by the World Bank, the Government has developed and embarked on a set of ambitious initiatives reflected in the “Action Plan for Education Structural Reform Implementation,” with three objectives: (i) equal access for all children to quality education; (ii) increased flexibility in labor relations in education; and (iii) efficient use of financial allocations. To support the Government’s priorities, QERM Project was followed up in 2013 by an International Development Association - financed Moldova Education Reform Program. It will support improvements in the quality of general education against a backdrop of ongoing education efficiency reforms implemented in the country.
Social Protection: Moldova is on track to achieve a more cost-efficient spending mix of its social assistance programs, and Bank support is instrumental to sustaining these efforts. The Government continues policy reforms and invests in improving benefits administration and management information systems. The reforms aim at integrating the overall social safety net around the platform provided by the expanded targeted Ajutor Social program. The Bank is supporting these efforts via the Strengthening the Effectiveness of the Social Safety Net Project. Pursuing a results-based financing (RBF) approach, the US$37 million IDA credit co-finances the interim transitional costs of expanding the Ajutor Social program, while other benefits are being consolidated. The project is also investing in improving the administrative efficiency of the social safety net system, as well as strengthening institutional roles and capacities, operating procedures and systems, and communications activities to reduce resistance and generate support for reforms. Another ongoing Bank operation, the Health Services and Social Assistance Project, supports the creation of a modern management information system to improve the administration of social assistance benefits. The two projects complement each other and closely coordinate activities to achieve tangible results. The public pension system in Moldova faces several challenges. The Bank maintains a pension reform dialogue through a Programmatic Human Development Technical Assistance that is designed to take a comprehensive review of key issues and to make policy recommendations.
Health: The World Bank supports health care modernization through the implementation of the Health Services and Social Assistance Project (2007–2013), which promotes capacity building in policy development, implementation, financing, and the management and upgrading of health services. An additional US$10.2 million was approved under this project in December 2011 to strengthen primary healthcare quality and availability across the country. In 2013, the Bank embarked on the preparation of a new program for results to support health transformation implementation for 2014-17. The new operation will support a reduction in risks of non-communicable diseases and enhancements to healthcare efficiency.
Agriculture: The World Bank’s current support to the sector is comprised of four projects. The Moldova Agriculture Competitiveness Project (2012–2017, total financing US$25.4 million) addresses the critical competitiveness agenda by promoting market access for farmers and supporting their integration into complex supply chains. The Moldova Emergency Agriculture Support Project (ongoing 2013–2014, US$10 million) aims to mitigate the negative effects of the 2012 drought by helping to restore corn and wheat production and prevent livestock destocking in the country’s most affected rayons. Farmers will receive cash incentives (compensations) for having planted wheat and corn in the 2012–13 agricultural season. The Moldova Soil Conservation Project (ongoing 2006–2015, US$5.44 million) has the objective of restoring degraded agricultural land to productive use for rural communities and building capacity for community-based management of these lands. The project’s forestation activities also support the global objectives of carbon sequestration and the reduction of atmospheric greenhouse gas concentrations (estimated emission reductions of 1.9 million tons of CO2 by 2015). The Moldova Community Forestry Project (ongoing 2009–2014, US$13.6 million) has the objective to restore degraded lands through forestation to increase economic and environmental use for the benefit of rural communities. The project is also providing technical assistance to participating communities for improving forest and pasture management.
Energy: Support to the sector includes the Energy II Project (US$31.4 million IDA credit, 2003–2012), which closed in April 2012, aimed at improving the security and reliability of the electricity transmission system and the wholesale electricity supply, hence facilitating the unimpeded commercial operation of the power system and improving heating supply efficiency in selected public buildings. The World Bank also completed the Chisinau Heat and Electricity Supply Institutional and Financial Restructuring Study in October 2011, which focused specifically on policy options for the corporate and financial restructuring of Termocom and the CHPs. The study led to a Cabinet decision issued in November 2011 to adopt a corporate restructuring plan for Termocom and CHP 1 and to prepare a debt restructuring plan with Moldovagaz. A World Bank District Heating Efficiency Improvement Project to support the above sector reform is being currently prepared.
Environment: Moldova has made important progress in protecting the environment. It has successfully implemented projects aimed at stopping and reversing soil degradation, while also providing global benefits such as a planned reduction of CO2 emissions by 4.3 million tons over the next 10 years. It has also made excellent progress on reducing the existing quantities of obsolete pesticides contaminated with persistent organic pollutants by liquidating 1,272 tons of such substances. Furthermore, close to 100 percent of the country’s stock of polychlorinated biphenyls (PCBs) have been accounted for through a national inventory, and some 17,300 contaminated capacitors were disposed of.