51967 IDA At Work Moldova: Partnership for Change M oldova's commitment to a shared vision for sustainable growth and poverty reduction has buoyed the country's economic recovery and spurred progress towards integration with the European Union (EU). Although it is still the poorest country in Europe, Moldova has greatly reduced its overall poverty rate from a high of 70 percent in 1999 to less than 30 percent today. Moldova's economy has expanded by more than 45 percent since 2000. Successfully managing debt and maintaining a prudent fiscal stance have allowed the country to improve its prospects for donor assistance, and the coordination of international aid has, in turn, played a critical role in helping the country achieve its development objectives. Country Indicators 1995 2000 2008 GNI per capita (Atlas method, current US$) 480 370 1470 GDP (current US$ billions) 1.7 1.3 6.0 Inflation, GDP deflator (annual %) 39 27 7.3 * External debt (DOD, current US$ billions) 0.7 1.7 2.7 FDI net inflows (US$ millions) 25.9 127.5 679.4 Poverty incidence (%) -- 68 25.8 (2007) Primary school completion rate (% of relevant age group) 94 90 90 (2006) Under-five child mortality (per 1,000) 30 24 20.7 (2006) Maternal mortality (per 100,000 live births) 41 27 16 (2006) Population (millions) 4.4 4.1 3.8 Source: World Development Indicators database, Household Budget Survey data (Ministry of Economy and Trade). *(end of period) Moldova joined the International Development Association (IDA), the World Bank's fund for the world's poorest countries, in 1994. IDA's contributions have included analytical and advisory services, financing for investment projects, and--starting in 2007--budget support via a Poverty Reduction Support Credit (PRSC) program. To date, IDA commitments for Moldova have totaled US$441 million, with US$317 million disbursed so far. nnn COUNTRY ACHIEVEMENTS Moldova continues to face the challenges of a young democracy. Moldova established a stable, growing economy by pursuing After the country adopted a parliamentary incremental reforms and system of government, the Party of Com- strengthening partnerships. munists of the Republic of Moldova gained control of parliament and the presidency in Development efforts reversed a decade of 2001 in internationally sanctioned democratic economic decline and rising poverty that elections. The intervening period through followed Moldova's independence in 1991. 2008 was marked by relative political stabil- ity, with steady improvement in economic As a small landlocked country, Moldova's performance, poverty reduction, and the economy was highly dependent on the rest management of public finances. However, in of the former Soviet Union for energy and 2009, the newly elected parliament failed raw materials. The country suffered from twice to elect a new president and was dis- the breakdown in trade that followed the solved in accordance with Moldova's constitu- dissolution of the Soviet Union, and these tion. New elections were held in July 2009 difficulties were exacerbated by drought and but their outcome was indecisive. civil conflict. The Russian ruble devaluation of 1998 further buffeted Moldova's economy, Prudent fiscal policy and debt and between independence and 1999, GDP rescheduling have paid off. plummeted more than 60 percent. Moldova was the last country among former An additional complication in Moldova's Soviet republics to see a return to positive transition is that limited economic opportu- growth. Important structural reforms, rising nities and rising poverty have precipitated demand from Moldova's trading partners, widespread emigration. Some 25 percent and a sizable inflow of workers' remittances of Moldova's working population now lives have supported ongoing economic recovery. abroad, and workers' remittances--payments Authorities harnessed this momentum by lim- sent back home--account for about one-third iting budget deficits and restructuring debt. of GDP. These migrants are typically young, Public debt was reduced from roughly 65 educated, and skilled. 2 percent of GDP in 2001 to around 23 percent Moldova's economy has proven in 2007. resilient. However, the global economic crisis has significantly clouded the Improved debt sustainability was an impor- country's immediate outlook. tant factor in establishing partnerships with international donors and collectively pursuing Moldova has weathered a number of economic development objectives. In 2004, Moldova shocks over the last few years. Despite sub- adopted its Economic Growth and Poverty stantially higher energy prices, export bans Reduction Strategy Paper (EGPRSP), the first on wine (the country's main export), and a full poverty reduction strategy developed devastating drought that crippled the agri- for the country in consultation with broad- cultural sector, economic growth continued based stakeholders and civil society. Moldova to average more than 6 percent per year from further strengthened its links with the EU 2000 to 2008. through the EU-Moldova Action Plan (EMAP) signed in 2005. Together, the EGPRSP and In 2009, export and remittance flows have EMAP provided a framework for increased been severely affected by the regional reces- donor harmonization. In early 2008, Moldova sion, and the recent growth in investment approved the National Development Strategy has been derailed. These developments have for 2008 to 2011 in close consultation with a direct impact on the domestic economy, development partners. and poverty will likely rise as remittances fall and the economy contracts. This crisis also Progress towards the Millennium has important implications for fiscal policy: Development Goals has been mixed. lower fiscal revenue collection and increasing demands on social safety net expenditures The MDGs were adapted "to the Moldovan are contributing to a significant fiscal gap. reality," with target indicators established to define successful progress by 2006, 2010, and IDA CONTRIBUTIONS 2015. Moldova experienced strong economic growth and poverty reduction until 2006 Much of IDA's assistance in Moldova has when external shocks slowed the economy. focused on the infrastructure and human Progress in the health sector has included development sectors. Given the country's decreases in the under-five child and mater- difficult transition and political instability in nal mortality rates which have exceeded the the 1990s, a community driven development targets. Although the incidence of HIV/AIDS approach was used to direct IDA support to remains well above the target level for 2006, mainly local interventions in areas with the the increase in new cases diagnosed reflects highest concentration of poverty. improvements in detection, with increased testing identifying previously undiagnosed This approach has allowed IDA to help Mol- infections. Education reform has advanced dova improve the quality of and access to more slowly than planned, and the quality social services and strengthen community of education in Moldova is a bigger problem infrastructure. IDA has also aided the gov- than education coverage. 3 ernment in efforts to improve public sector Faster Trade governance and to eliminate bottlenecks to growth, particularly through improvements Major improvements in customs services occurred to the business environment. after the Automated System for Customs Data (ASYCUDA World) was put into operation at all 15 Moldovan customs offices with support from IDA. Through IDA involvement, Moldova has main- tained an active dialogue with the World Bank Says Vasile Danu, the manager of a Moldovan and demonstrated its commitment to reform. export company, "I no longer have to wait for This has resulted in not only increased IDA an interminable amount of time to register assistance but also greater support from and merchandise, as clearance procedures are now involvement by other donors. completed in less than two hours." Promoting a stable macroeconomic framework and a competitive market project, the Moldovan Customs Service has environment to fuel pro-poor growth improved its performance and implemented have been key development priorities. an automated system for customs data to expedite processing. This enhanced capacity Guiding sustainable change through promotes export competitiveness and allows analysis and policy advice. IDA has strate- domestic firms to export directly and to act gically complemented financial assistance as suppliers to international firms. with analytical and advisory services. For example, the Bank's Country Economic Two notable ways that IDA has helped to Memorandum, poverty update, advisory work strengthen the private sector include simplify- on agriculture, and business environment ing business registration and licensing proce- surveys informed the development of IDA's dures and creating a sound basis for financial budget support program for Moldova. A trade reporting and auditing in the corporate sec- diagnostic study highlighted how to mitigate tor. A 2006 law has mandated a review of all inefficient and costly border procedures, and existing legislation and developed the capac- a dialogue around pension policy dialogue ity for applying regulatory impact assessment aided efforts to reform the pension system. methodology to new legislation. After IDA The Public Expenditure Review in 2007 was supported various follow-up activities to the closely linked to policy notes in health and Report on the Observance of Standards and education to ensure a comprehensive review Codes for accounting and auditing in 2005, and adequate sector input. This cross-sectoral Moldova passed new accounting and auditing approach continues to be critical for identi- laws in 2007 that are aligned to EU law and fying constraints that impede competitive- international practices. ness and refining public services and social assistance. Together, IDA-supported efforts have bolstered the investment climate. Private investment Facilitating trade and reducing the cost of rose from about 14 percent of GDP in 2003 doing business. IDA resources have been to over 22 percent of GDP in 2007. Foreign instrumental for improving the conditions direct investment increased sharply during needed to increase domestic and foreign the same period, up to 7 percent of GDP in investment. With the help of an IDA investment 2006 and 10 percent of GDP in 2007. 4 Strengthening property rights and increas- administration by supporting important ing access to finance, knowledge, and tech- analytic work--such as a public expenditure nology. The security of tenure and ownership review--and administering a multi-donor rights has increased with the establishment of Public Administration Reform Trust Fund. a unified national real estate cadastre system With the support of IDA's policy-based lend- for urban and rural land. To date, 75 percent ing, Moldova has recently adopted a Civil of rural property in private hands has been Service law to classify and grade positions fully registered. Investment projects focused and link pay with professional development on providing credit and technical assistance and performance. in rural areas have promoted a surge in new businesses and boosted the income of exist- IDA's targeted approach has reaped ing ones. benefits in various sectors. A focus on public administration Energy. Sharp increases in the prices of oil reform has increased the and natural gas have heightened Moldova's capacity of the public sector. energy vulnerability. An IDA energy project has yielded important benefits in this con- Public financial management. IDA has been text: upgraded metering and transmission of helping Moldova allocate strategic public electricity to reduce outages by 35 percent; resources efficiently through the develop- more energy efficient heating to achieve ment of a Medium-Term Expenditure Frame- significant savings; and increased access to work (MTEF) budgeting process. The MTEF heating and hot water. Meanwhile, policy now covers all the national public budget lending supported Moldova in developing and resources, including state and local budgets, adopting a new Energy Strategy in 2007 to the state social insurance budget, national establish a reform path for legal, regulatory, health insurance budget, and donor-funded and technical harmonization of the Moldova investment projects. Analytical work, invest- energy sector with the EU internal energy ment lending, and budget support from IDA market and the Energy Community Treaty. have guided and enabled Moldova to increase transparency and accountability in managing Health. With IDA's support, Moldova's projects public finances. are building on the experience of health sector reforms and successful HIV prevention strate- A government internal financial control and gies throughout the World Bank's Europe and audit system based on EU standards has been Central Asia (ECA) region. Health investment developed and is being implemented. Other projects have defined a minimum package of important developments include the estab- health services offered by the government lishment of a single treasury account system, at no charge, provided basic medical equip- an integrated financial management system, ment to 84 percent of rural health centers, and a strategic plan for the institutional provided portable medical kits to all general development of the Court of Accounts. practitioners, and renovated 22 percent of all health centers. Training has been provided Civil service reform. IDA has facilitated for 750 doctors, 1,500 nurses, and 300 health ongoing improvements to Moldova's public care managers to date. 5 of schools. A completed investment project Heat for Health provided 186 new curricula and more than As many as 170 public buildings--with over 1.2 100 different textbooks. More than 3,500 million visits per year--are benefiting from the training courses were held for teachers to heating component of the Energy II project. Most of improve the quality of education services. the sites (schools, kindergartens, district hospitals) A current project aims to increase access to are in small towns. quality education for children in poor fami- Ms. Lydia Hangan, Head Physician of the District lies, particularly in rural areas. These efforts Hospital in Ialoveni, reported, "We have been have included components to strengthen the operating in comfortable conditions for two years government's capacity for education plan- now, which has resulted in a two-fold drop in the ning and monitoring, and they are coupled rate of morbidity owing to respiratory conditions with a broader program for education reform among health workers." supported through policy-based lending. This reform will promote a more efficient use of An AIDS Control project has supported public resources--decreasing the share of Moldova's implementation of the National non-teaching staff, lowering overhead costs, Program for Prevention and Control of HIV/ and bring pupil-teacher ratios closer to inter- AIDS and Sexually Transmitted Infections. national norms. Among other benefits, full coverage has been established for screening pregnant women for Water and sanitation. IDA is helping Moldova HIV and providing prophylactic treatment and improve water supply and wastewater treat- free milk formula for those who are infected. ment systems, which have seriously deterio- Transmission of HIV from mother to child has rated after almost two decades of deferred fallen from 13.3 percent in 2002 to 0 percent maintenance. A pilot project has benefited in 2006. five Moldovan towns with a total population of about 250,000--providing a steady supply In combination, IDA-supported initiatives of water free of pathogens, improving energy have helped Moldova improve rural access efficiency, and increasing the financial viabil- to health care and slow the spread of AIDS. ity of utilities. A new national water supply Between 2000 and 2006, maternal mortality and sanitation project is expected to increase decreased more than 40 percent and under- the coverage, quality, efficiency, and sustain- five child mortality decreased more than 20 ability of these services more broadly. percent.. In collaboration with IDA and other international donors, Moldova has developed Innovative approaches have focused a new Health Sector Development Strategy on improving and measuring results. 2007­2017 to continue the health reform process. Strengthening government ownership. Education. IDA has focused steadily on IDA has fostered a dialogue around results improvements to Moldova's education measurement, strengthening the capacity system. of the government to manage programs for results going forward. One initiative that Social Investment Fund resources have sup- aimed to promote and improve results-based ported the construction and rehabilitation management was a three-part learning series 6 in monitoring and evaluation conducted Combining resources for jointly for Bank staff, government person- sustainable solutions. nel, and members of project implementation units in 2007 and 2008. In addition, the Bank's Nearly all of IDA's lending operations and ana- regional results team has developed tools to lytical work in Moldova involve partnerships support managing for results; for example, with other donors. In 2006, a Development IDA's portfolio in Moldova is monitored and Partnership Framework was agreed upon by evaluated using an innovative scorecard that Moldova, IDA, the Netherlands, the United combines program and portfolio self-assess- Kingdom, Sweden, the UN, the IMF and the ments, an examination of the deliveries and EU to harmonize development efforts. As budgets of lending and analytical work, and resources for Moldova from other donors and quality assessments from the Bank's Quality agencies have increased, IDA is no longer Assurance Group and Independent Evaluation the largest provider of external financial Group. support. But the World Bank's country team in Chisinau continues to serve an important PARTNERSHIPS function in convening donors, facilitating the development dialogue with the government, IDA has played a pivotal role and lending its expertise and systems for the in catalyzing and coordinating efficient and transparent administration of donor support. development aid. Excerpt from Results Scorecard: Summary Assessment of Outcomes MOLDOVA CAS RESULTS SCORECARD FY2008 (1 = deterioration) (2 = steady state) (3 = some improvement) (4 = significant improvement) Country Outcomes Outcomes Bank expects to influence--CAS FY 05­08 Progress Score Pillar II. Minimize Social and Environmental Risks, Build Human Capital, and Promote Social Inclusion Better targeting of social assistance Percentage of social assistance targeted to the poor In progress 2 increased Higher quality education and improved NER in rural areas increased/Gap in performance between In progress 2 access rural and urban reduced Better allocation of efficiency in health Reduction in IMR & CMR, TB/HIV incidence and mortality/ On track 4 and improved indicators Increased % of population covered by essential health interventions Improved access to and quality of 16 hours water supply in pilot areas/Improved collection On track 4 WSS and Reduce environmental rates/O&M costs covered/Water quality improved/Obsolete degradation and hazards POPs reduced/Afforestation increased 7 In promoting sustainable outcomes, IDA lever- stability and steady growth. But there remains aged support from other donors and stream- much to be done to build on this substantial lined the implementation of multi-donor progress. initiatives to minimize the administrative burden for the government. One example is The economy is still vulnerable, as demon- in the transport sector, where IDA has been strated by responses to rising energy prices, engaged with government counterparts and the wine embargo, the devastating drought, other development partners in designing a and the regional recession. Remittances from Land Transport Infrastructure Strategy. Moldovans working abroad still account for too large a share of the GDP and relying on Responding to immediate such inflows will not be sustainable in the long development needs. run. Too many Moldovans, especially the rural poor, still struggle for access to food, clean IDA's collaborative relationship with Mol- water, basic health care, heat, and educa- dovan authorities and with other donors tion. Furthermore, the country faces a time allows for a flexible and informed approach of political uncertainty, with the outcome of to addressing urgent needs as they arise. recent parliamentary elections undecided. To minimize the threat of the avian flu, IDA combined resources with Moldova, Japan, the Moldova's successful transition European Commission (EC), and the United to a competitive market economy States Agency for International Development will require continued support with (USAID) to boost the country's preparedness a comprehensive strategy that and capacity to respond. In 2006, IDA's lead- includes and helps the rural poor. ership in convening donors was exemplified by the Consultative Group meeting in Brus- Enhancing competitiveness is necessary sels. This meeting, hosted jointly by IDA and to achieve sustainable growth. the EC, brought together the government of Moldova and international partners to confirm Moldova has not yet achieved its vision of commitment to the country's reform program private sector-led growth, and the country's and to identify more than US$1.2 billion standing in the global Doing Business rankings additional external financing in response to remains low relative to its neighbors. Further recent external shocks. Similarly, in 2009, IDA attention is needed to address remaining bar- is actively working in collaboration with the riers related to trade across borders, licensing, donor community to identify urgent short- access to credit, and tax payments. Enhanc- term policy actions needed to counter recent ing the economy's global competitiveness is economic developments associated with the essential for achieving long-term growth in a regional recession. small, open economy like Moldova. CHALLENGES AHEAD This will require the continuation of structural reforms, improvement of public institutions, With IDA assistance, Moldova has been suc- promotion of a market-friendly business cessfully implementing an ambitious set of environment, a more sophisticated financial reforms and experiencing increased economic system, and better infrastructure. 8 Persistent rural poverty signals a need for Achieving development outcomes further reforms in the agricultural sector. is contingent on providing the right level of support to build Agriculture continues to be one of the largest capacity and complete reforms. real sectors of the economy, but the sector has underperformed overall economic growth. With more than a decade of experience in Moldovan farmers are generally receiving Moldova, IDA has established an effective, less for their harvests and paying more for collaborative relationship with government their inputs than they should, and this trend authorities. In the end, all attempts to improve appears to explain in part why poverty reduc- the business environment, spur domestic pro- tion has stalled in rural areas. ductivity, and reduce poverty will count on the presence of an effective, efficient, and Public spending and agricultural policy still transparent public sector. Strong national disproportionately support large corporate agencies are needed to sustain desirable farms even though 40 percent of Moldovan land development outcomes over the longer term. is cultivated by individual farmers. Develop- Moldova has made great strides in pursuing ing the agricultural sector will require further a reform agenda, engaging the donor com- deregulation of input and output markets, munity in an ongoing development dialogue, improved access to finance, implementation and launching its new National Development of standards and food safety regulations Strategy (2008-2011). aligned to international practice, and better access to new technologies. In addition, as August 2009. demonstrated by the severe drought in 2007, http://www.worldbank.org/ida Moldova needs better measures for reducing farmers' vulnerability to natural hazards. 9