Studiu en Absorb

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EVALUATIONOF MOLDOVA’S ABSORPTION

CAPACITY OF EXTERNAL

ASSISTANCE

Corina Gaibu Leonid Litra Valentin Lozovanu Viorel Gîrbu





3EVALUATION OF MOLDOVA’S ABSORPTION

CAPACITY OF EXTERNAL ASSISTANCE

EVALUATION OF MOLDOVA’S

ABSORPTION CAPACITY OFEXTERNAL ASSISTANCE

Corina Gaibu

Leonid LitraValentin Lozovanu

Viorel Gîrbu

his product was inancially supported by the Hanns Seidel Foundation. Opinions expressedin this publication do not necessarily represent those o the Hanns Seidel Foundation.

Chiinău, 2011

Institute for Development and Social Initiatives (IDIS) “Viitorul”





For any inormation related to this study, please contact

the Institute or Development and Social Initiatives

„Viitorul”, Study Coordinator: Leonid Litra.

Address: MD-2005, Republic o Moldova, Chiinău, 10/1Iacob Hancu str., IDIS „Viitorul

el: 37322-22-18-44, Fax: 37322-24-57-14

e-mail: [email protected] and [email protected]

© IDIS Viitorul, 2011





SUMMARY

Introduction .............................................................................................................................. 6

1. Leonid Litra Chapter I. Analysis o external assistance (2006-2010) ................................... 7

1.1. Guiding documents: rom general planning to sector approach .................................... 8

1.2. The ODA ows and sector ragmentation ..................................................................... 10

1.3. Conclusions ............................................................................................................... 15

2. Corina Gaibu Chapter II. Macro-economic absorption capacity .......................................... 17

2.1. Current macroeconomic situation ................................................................................ 17

2.2. Debt dynamics and its burden on national economy .................................................... 19

2.3 Aid absorption – international comparisons .................................................................. 19

2.4 Monetary aggregates ................................................................................................... 21

2.5 Conclusions on macroeconomic absorption capacity .................................................... 22

3. Corina Gaibu Chapter III. Financial absorption capacity ..................................................... 23

3.1 Co-fnance requirements o the donors ........................................................................ 23

3.2 Co-fnance ability o authorities – major actor that inuences the fnancial absorption

capacity ............................................................................................................................ 23

3.3 Co-fnance eort estimation at macroeconomic level ..................................................... 25

3.4 Multiannual repayment capacity .................................................................................... 27

3.5 Co-fnance ability o the private sector that can be attracted to public private

partnership (PPP) ............................................................................................................... 28

3.6 Conclusions on Financial Aspects ................................................................................ 29

4. Valentin Lozovanu, Viorel Gîrbu Chapter IV. Administrative absorption capacity ............. 30

4.1. The institutional ramework o the oreign assistance management. .............................. 30

4.1.1 Institutional arrangements ..................................................................................... 30

4.1.2 Human resources ................................................................................................ 31

4.1.3 Procedures and instruments ................................................................................ 34

4.2 The level o preparedness o the national authorities or implementation o the oreign

assistance projects ........................................................................................................... 36

4.2.1. Preparation, elaboration and implementation o the projects ............................... 36

4.2.2. Perormance o the public service, fnancial management and public procurement 40

4.3 Institutional constraints which are diminishing the absorption capacity ........................... 42

4.2.4 Constraints generated by donor behavior .............................................................. 42

4.2.5 Administrative constraints o CPA and LPA ............................................................ 43

4.4. Good practices in oreign assistance absorption ......................................................... 46

Conclusions ............................................................................................................................. 48

Recommendations ................................................................................................................... 52

Selected Bibliography ............................................................................................................... 53





INTRODUCTION

Tis discussion paper examines the current

structure and mechanisms in the management o the Ocial Development Assistance in Moldova

together with the analysis o its eciency, eec-

tiveness and impact over the development pro-

cess in Moldova. Currently, even i inormation

is widely disseminated to the public (usually at

the stage when ODA is delivered or the projects/

programs are nished) the subject o ocial devel-

opment assistance is in general poorly understood

and debated (especially, evaluation and monitor-

ing aspects). In Moldova no evaluation was carried

our on the eciency and impact o the develop-

ment assistance over the development targets set

by the Government in its strategic planning docu-

ments – Economic Growth and Poverty Reduc-

tion Strategy (EGPRS) and the National Devel-

opment Strategy (NDS). Te subject is even more

important given the last regional developmentsand Moldova`s European integration eorts as the

amount o ODA attracted to support the Govern-

ment reorms will depend rom now on how e-

ciently the latter will be able to manage it and

whether it will have capacity to attract and absorb

more. In this respect, the paper represents an in-

vitation to discussion o how prepared Moldova is

now or the absorption o substantial amount o unds to which it has access, while at this stage, the

real challenge is the ability to build an adequate

absorption capacity or accessing European unds.

Te rst chapter makes an introduction to

the subject by a general analysis o the assistance

delivered rom 2005 till now and the way the pri-

orities in the main strategic development policies

were covered by donor s̀ assistance.Chapter 2 analyses the impact o aid fows

on macroeconomic situation o Moldova and their

potential eects on macroeconomic indicator. An

analysis o macroeconomic tolerance o aid fowsand repayments is given. Te chapter describes the

actual macroeconomic trends and nancial assis-

tance or the period o 2006-2010. Furthermore,

based on statistic trends and benchmarking tools,

it illustrates the impact o aid fows on exchange

rate and monetary aggregates as well as aid absorp-

tion levels.

Chapter 3 describes major actors that in-

fuence the absorption capacity o Moldova rom

nancial point o view. Te dierence between -

nancial capacities o central and local authorities

to co-nance projects is shown. Te dynamics o

credit and repayment indicators is analyzed. Con-

clusions on the analysis are provided.

Chapter 4 covers the existing constraints

to the administrative capacity, the analysis o the

mechanism o ODA management, legal ramework, donor behavior and good practices in ab-

sorption o external unds and the presentation o

the main conclusions and recommendations.

Te paper is an attempt to analyze and pro-

pose sustainable measures to increase the national

absorption capacity o oreign assistance. As a rst

analytical work on this matter, the paper represents

an invitation to debate over this topic and oerspoints o view and recommendations to inorm

the public on existing challenges and opportuni-

ties, rather than outline “lessons” or “solutions”.

Te authors are grateul or the support

oered by public ocials in the ministries, local

public authorities, donors and independent con-

sultants questioned, which helped us better un-

derstand the issue. We are thankul or the timespent on lling out to the questionnaires and o-

ering interviews.





CHAPTER I. ANALYSIS OF EXTERNAL ASSISTANCE

(2006-2010) Leonid Litra

Absorption capacity is an indicator,

which corresponds to the competence o a

country to spend eiciently and eectively

inancial resources allocated by development

partners. he cycle o unds utilization in-

volves several phases o inancial lows. Each

o them has its own absorption capacity. his

paper will analyze particular elements o

unds absorption systems and outline main

constraints to be targeted in order to extend

the absorption capacity o the entire system.

According to heory o Constraints, the area

with minimum absorption capacity shouldbe improved irst because any other improve-

ment will not have the projected impact on

system condition.

Absorption capacity is determined

across three main aspects:

1. Macro-economic absorption

capacity

2. Financial absorption capacity 3. Administrative absorption ca-

pacity

he Republic o Moldova (hereinater

reerred to as Moldova) has beneited rom

assistance since its independence. Although

the amounts o external assistance are con-

tinuously increasing, the analysis o inan-

cial and technical aid is poorly matching the

augmentation trends o external assistance.

he current chapter is addressing the existent

challenges that are being observed in the de-

livery and use o aid. Within this section, the

main ocus will be on the Oicial Develop-

ment Assistance1 (ODA) use with a particular

regard to the capabilities o involved stake-

holders to manage assistance and the general

constraints or absorption capacity in Mol-

dova over 2006-2010 timerame.

he year o 2006 was not chosen ac-

cidentally. In 2006 Moldova’s development

partners committed to provide USD 1.2 bln

in the ramework o Advisory Group Meeting

o donors or Moldova. At the same time, in2006 Moldova joined the 2005 Paris Declara-

tion on Aid Eiciency that was signed by 128

states and 26 donors.

In the period o 2006-2010 the donor

community’s involvement in Moldova dem-

onstrated an overall increase o the ODA, the

dynamics, however, were rather shaky than

stable. he main reason o these luctuationsis two sided. On the one hand, the govern-

ment has not always succeeded in its rela-

tions with donors due to dierent constraints

on implementation o the policy conditions

and on the other hand, the donors have var-

1 The ODA is divided in grants and credits or development coun-tries directed or macroeconomic purposes (IMF), and concessional

credits or Government (especially IDA) and grants - direct budget

support (EU, WB, DFID), technical assistance rom a large number o

multinational organizations and bilateral donors.Maia Sandu, The analysis o the evolution o oreign assistance oe-

red or Moldova in the period 2001-2007, ADEPT http://www.e-de-

mocracy.md/les/prioritati-guvernare-2009.pd





ied their support in response to their speciic

mandate and interests. On the other side, the

position o the Government in some cases,

like ailure to agree with the World Bank on

a project designed or rehabilitation o the

roads, was hard to understand, as the inan-cial means availalable on avorable terms were

identiied, but a common point regarding

implementation procedures could not been

reached.

Besides this, another constraint was

the predictability o unds or the Govern-

ment Medium erm Expenditures Frame-

work (MEF) (with some exceptions, suchas the WB – through its Country Assistance

Strategy), Sida (Development Cooperation`s

Agreement and Country Assistance Strategy),

EU – but mostly as budget support (Coun-

try Assistance Paper and NIP - Annual Ac-

tion Plans) measure ensured by adopting o

a common development cooperation rame-

work between the Government and donor`scommunity (Principles Partnership Imple-

mentation Plan currently in place) and en-

orced by signing individual medium to long

term development cooperation agreements,

complemented with detailed technical mem-

orandums supporting Government priorities

identiied in its main strategic development

documents.

he 2005-2009 Government had di-

erent relations with the donors, ranging rom

honeymoon to expelling o donor’s projects

rom the government building. he current

government has a more stable and partner-

ship oriented approach.

Over recent years, there have also been

changes in the composition o the donors;

some o them, like the DFID, are leaving, while others are becoming more active, like

the EU and a number o its member states,

like Sweden (Sida), Germany (GIZ), Roma-

nia, Austria, Poland, Czech Republic and

Slovakia. However, these changes and, most

importantly, the eiciency o aid are being

poorly monitored (except the OECD Mon-itoring Survey produced every 3 years) and

a limited debate with a rather random ap-

proach is taking place on the ODA dimen-

sion in Moldova.

1.1 Guiding documents: from

general planning to sector approach

In the years covered by this chapter,

Moldova consolidated its attempts to shit

rom survival assistance to sustainable devel-

opment. he main documents driving this

process are the Economic Growth and Pover-

ty Reduction Strategy (2004-2006); the EU-Moldova Action Plan (2005-2007); National

Development Strategy (2008-2011); Eco-

nomic Stabilization and Recovery Program

(2009-2011) as well as the recent (2010)

Rethink Moldova (which is not a strategic

planning document, but rather a document

with Government priorities derived rom the

latter) presented at the Donors Conerence

or Moldova which earmarked almost EUR 2

billion (with more than hal o it having been

committed to beore).

he Economic Growth and Poverty

Reduction Strategy (EGPRS) was drated

in 2000 ollowing the pressure by the de-

veloping states, when the World Bank de-

cided that the priorities or aid should be

derived rom the recipient state’s nationaldevelopment documents. he EGPRS was a





relatively good document as a irst attempt

or such kind o approach towards deliver-

ing assistance, however, it had considerable

shortcomings. he deiciencies were mostly

related to quite large number o priorities,

which were diusing the eorts, as wel l asthe lack o an action plan with speciic dead-

lines and perormance criteria. he EU-

Moldova Action Plan, as in the case o the

EGPRS, had a high degree o ragmentation

across the ministers that caused ownership

deiciencies2. For a better coordination and

monitoring o implementation o the EU-

Moldova Action Plan, the Government o Moldova established our Inter-ministerial

Commissions (IC) as ollows: IC or Law and

Security; IC or Socio-Economic problems;

IC or Inrastructure problems and IC or

Cultural-humanitarian problems3. Despite

this, the European Commission Progress Re-

ports showed clearly that the issues related

to law enorcement, reorm o judiciary andhuman rights were overlooked by the govern-

ment during implementation4. Unlike the

previous strategies, the National Develop-

ment Strategy is more ocused and limited

in objectives, with a speciic action plan and

monitoring mechanism. Still, the biggest

problem o the NDS was the lack o the as-

sessment o costs or the actions included in

the strategy, which makes it diicult to assess

the needed resources. Currently, a new Na-

tional Development Strategy is being drated

or the next years, covering 2012-2020. he

good news about the drated strategy is that,

given the European integration process, it is

2 Country Chapter Moldova, 2006 Survey on Monitoring o the

Paris Declaration, OECD, 2006.

3 Liliana Popescu, Optimizarea practicilor si politicilor Republicii

Moldova de utilizare constructiva a oertei asistentiale a UE, ADEPTand Expert-Grup, 2006.

4 European Commission, Progress Reports (2007, 2008, 2009)

going to be harmonized with the EU strate-

gies5, but at the same time, due to the quite

big period to cover, it will be diicult to es-

timate the costs and make the actions more

concrete with perormance indicators and

proper monitoring and an evaluation plan.In this regard, the new strategy will be most

likely ocused on 7 priorities that are im-

peding economic growth. Moldova does not

have any experience in elaborating long term

strategic planning documents nor resources

to ensure that the activities will actually be

implemented, while the changing political

context and inancial coverage scarceness ismaking the Government even more vulner-

able and dependent on urther donor`s be-

havior. However, one o the main academic

interests o this paper is to assess to what ex-

tent the aid is directed to the priorities set

in the documents and not necessarily a thor-

ough assessment o the national strategies.

In addition to the national strategiesand plans, there are a number o commit-

ments on both sides that are implemented

through dierent action plans agreed on.

For example the Justice and Home Aairs

dimension is almost ully covered by the EU

Visa Liberalization Action Plan or Moldova

that encompasses our thematic blocs with

speciic tasks, which are accompanied by the

National Implementation Plan o the Visa

Liberalization Action Plan, which on its turn

is divided in more detailed sector plans6.

hereore, one can mention that the gen-

eral trend is that the assistance is becoming

5 Secretarul General al Guvernului, Victor BODIU a prezidat astăzi

şedinţa Comitetului de coordonare a elaborării proiectului docu-mentului naţional de planicare strategică pentru anii 2012-2020,

http://cancelaria.gov.md/libview.php?l=ro&idc=277&id=983

6 Guvernul Republicii Moldova a negociat si a contractat pina

acum proiecte in valoare de 1,2 mlrd euro, http://www.interlic.md/2011-06-21/guvernul-republicii-moldova-a-negociat-shi-a-con-

tractat-pina-acum-proiecte-in-valoare-de-12-mlrd-eur-21543.html





more sector oriented and less general. he

increased use o sector approach is generated

by the integration in the EU, even i Moldo-

va is not oicially engaged in a EU integra-

tion process (ater the EU-Moldova Action

Plan has expired, the EU-Moldova Partner-ship and Cooperation Agreement is obsolete

and there is no other major political docu-

ment in place to guide the EU and Moldova

relations, while the Association Agreement is

still being negotiated with the EU).

1.2. The ODA flows and sector fragmentation

Since the signing o the Paris Decla-

ration, Moldova is undertaking every two

years the Paris Declaration Survey that al-

lows us, along with other existent inorma-

tion, to assess the relevance and the ei-

ciency o the aid. In recent years the ODA oered to Moldova underwent a stagnation

period and then a rapid growth, as shown

in the able 1. he cause o stagnation ol-

lowed by a rapid growth is explained, irst

o all, by political changes and the eects

o the crisis which hit not only Moldova,

but also most developed economies (as

Fareed Zakharia points out, many donor

states restrain their capacities to sustain

at the same level o commitments towards

developing countries.7) In general terms,

the 2001-2009 cooperation o the Govern-

ments with donors, varied rom a tempo-rom a tempo-

rary suspension o the relations with the

IMF and o the budgetary support o the

WB to relatively good cooperat ion during

the period o 2007-2009, and worsening atthe end o the 2009 when the IMF and the

7 Fareed Zakharia, The Postamerican World, May 2009.

EU suspended the signing o a new Memo-

randum, while EU postponed the budget-

ary support. he government Filat-1 took

oice and signed the agreement with the

IMF, signed the MCC agreement and re-

launched the multilateral cooperation withthe EU.

Figure 1: Dynamic of ODA inflows 2004-

2010

0

50

100

150

200

250

300

350

400

450

500

2004 2005 2006 2007 2008 2009 2010

IDIS calculation based on OECD and Country

Chapter Survey 2010

ODA received by Moldova per year in mln.

USD

2004 2005 2006 2007 2008 2009 2010

118 169 228 265 298 245 448

Source: OECD

he assistance broken down across

NDS sector priorities is also showing the

discrepancies. As shown in the Figure 2, thehighest share o aid is oered to ensure mac-

Suma mln dolari

Anul





roeconomic stability, which represents most

o the IMF allocations directed at overcom-

ing the global economic crisis eects. Also,

sectors receiving high shares o ODA are the

social sector, justice and home aairs (JHA)

and regional development. As pointed in“Foreign Assistance and Moldova’s Economic

Development”8 most o the ODA (48% in

2008 and 40% in 2009) is directed to social

sector, JHA and good governance that leads

to conclusion that the real sector o economy

receives limited ODA (8-10%) and, conse-

quently, is greatly overlooked. he conclu-

sion o the above-mentioned paper is very pertinent in highlighting the dependence o

Moldova created on survival unds rom do-

nors and lack o an adequate support or sus-

tainable development o real economy, which

is underinanced. However, overlooking some

sectors and “inlating” other sectors will dei-

nitely not solve the problem o dependency

o the Government on oreign inancial sup-port. here is a wide debate regarding the

eectiveness o the donor support and what

should be the primary areas o intervention in

this respect (or example, more emphasis on

the real economy), as the assistance is tradi-

tionally oered to address social issues, treat-

ing rather the eects and not the cause o the

problems..

At the same time, the good governance

and human rights should not be overlooked,

as it is also mentioned in the European Con-

sensus on Development9, the democracy

related issues are crucial or development.

here is a need or a multi-speed approach

by donors because the investment in the real

8 Valentin Lozovanu/Viorel Girbu, Foreign Assistance and

Moldova's Economic Development, IDIS Viitorul, September 2010.9 Dovydas Vitkauskas, Stanislav Pavlovshci, Eric Svanidze; Asses-

sment o Rule o Law and Administration o Justice or sector-wide

programming (apropos, noi nu avem inca SWAP-uri sa inteleg ca e o

evaluare de pregatire?), Moldova Government, April 2011.

sector o economy needs to be complemented

with measures or ighting corruption. Fur-

ther, reorm o the justice sector, improving

the transparency o the decision making pro-

cess should be priority reorms alongside the

above-mentioned. So ar, the Government’sapproach towards the assistance, as is shown

in the macro inancial chapter o this study,

is aected by a “consumerist” approach rather

than ocused on “investment” measures, like

optimization o the state sector along with

building capacities, justice reorm and legal

approximation to EU norms and standards,

support or the real sector o economy and in-rastructure development or export promo-

tion. he oversized state sector (in Moldova

every ourth employee is working in the bud-

getary sphere10) coupled with its ineiciency

and high shares o social expenses (70.8% o

total expenditures o the national public bud-

get) is putting pressure on state expenditures

and tightens budgetary constraints, whichcannot be resolved without donor’s support.

An aspect to mention in this respect is that

once the Government receives the inancial

support (the direct budget support unds

which are going into a “common basket” [the

budget]) the monitoring o the programs is

done on the basis o policy matrix ocused

on policies adoption and less on their con-

crete results. his does not allow assessing

the extent o accomplishment o the primary

objectives o the program, like eiciency o

spending the unds and the real alignment to

the national priorities according to obtained

results11 (results based accountability 12). At

10 Alexandru Fala, Budgetary adjustments are imperative or eco-

nomic transormation, Policy brie, June 2011 http://www.viitorul.

org/public/3427/en/CHELTUIELI%20SOCIALE_ENG.pd

11 http://books.google.com/books?id=onvrGcO353sC&printsec=rontcover&hl=ru&source=gbs_atb#v=onepage&q&=alse

12 http://web.worldbank.org/WBSITE/EXTERNAL/PROJECTS/EXTRE

SLENDING/0,,menuPK:7321732~pagePK:7321723~piPK:7321730~t

heSitePK:7514726,00.html





the same time, individual programs/projects

continue to have poor monitoring and evalu-

ation, as in the most cases donors and Gov-

ernment are making ormal evaluations and

are not suiciently transparent (subject to be

covered urther in the administrative capacity assessment chapter).

Figure 2: Funding according to NDS

Objectives in 2008-2010

Source: United Nations Development

Programme

As the Paris Declaration highlights,

main objectives are ownership, alignment,

harmonization, managing or results and mu-

tual accountability, and it is relevant to givea comparative view on the assessment and

changes that have occurred since 2006, by us-

ing the data o the three PD surveys, which

have been carried out in Moldova. he con-

straints that are presented in these surveys,

together with other problems reported in

some assessments, represent some o the im-

pediments or the absorption capacity.here is a common opinion that own-

ership is critical or development and there-

ore needs to be broadly applied. he owner-

ship in this context is the ability o national

authorities to guide donors in providing as-

sistance by exercising leadership over policies

and coordinate the eorts o the development

partners.13 In 2006, Moldova’s ownership wasrated with D on a scale rom A (highest) to E

(lowest). he main problems being the high

degree o ragmentation within the govern-

ment and “lack o long-term vision, holistic,

balanced and well-se-

quenced strategy”14.

In 2008 the rag-

mentation was re-duced due to the

act that the division

among the actors was

much clearer and,

most importantly,

the new NDS was a

much better priori-

tized document thanthe irst attempt. But

despite this, Mol-

dova received C, main reason or this grade

was that improvements were under way, but

most o them only reached the halway point.

Compared to the previous years, not much

has changed, meaning that there are still many

sectors in which donors, especially those that

are also heavy political players, have not been

established, leading donors to coordinate

with the other active actors in the sector. Ad-

ditionally, a low-degree o involvement o

local stakeholders is observed, at least in the

phase o preparation o strategic documents.

hus, ownership remains to be a problem,

also due to the act that the priorities derived









rom dierent documents are large enough

to allow donors to jump in the sector that is

most suitable or them, leaving other sectors

“orphan” and allow engaging more ormally

rather than committing themselves to a long-

term harmonized sector work. At the sametime, local stakeholders are poorly involved

in the drating process and monitoring o the

implementation o strategic documents. he

political crisis is negatively inluencing the

Parliament in being more active in monitor-

ing some policies, while the NGOs are still

having poor expertise and low capacity to

grasp complex policies, rather being ocusedon some narrow ields (not mentioning the

trade-unions which had limited participation

in drating country’s strategic documents and

reused to participate in the National Partici-

pation Council15). Despite the shortcomings,

the ownership will most likely increase in the

next years, as the new strategy will take into

consideration ormer mistakes and, most im-portantly, will be the result o a higher partic-

ipation rom dierent stakeholders, given a

higher degree o involvement o the civil soci-

ety within the National Participation Coun-

cil, which could serve as a platorm or tight

monitoring and higher participation in the

decision making process. However, despite

the criticism that could be addressed to NGO

sector in terms o weak expertise or participa-

tion in some sector issues, one has to men-

tion that a bigger problem is the “cosmetic”

consultations o the government institutions

with the civil society, especially, at the moni-

toring and evaluation stage. he interviews

carried out with several civil society activists

and civil servants are revealing the act that

the state institutions consultations’ with the

15 Report regarding the participation process at the elaboration o

the National Development Strategy (2008-2011)

civil society sector is very inclusive and use-

ul, but, nevertheless, the problem is that the

government does not implement the issues

agreed upon with the civil society, thus gen-

erating a disappointment o civil society and

weak ownership. hereore, given the above-mentioned reasons, the latter should be more

participative at the level o results evaluation.

Despite diiculties in evaluating the

alignment and criticisms, one has to men-

tion that there are concrete examples when

donors aligned along some dimensions, like

the UNDP support package or young pro-

essionals who came rom abroad to work inMoldovan administration. his program was

designed at the request o the government

and was ulilled, not speaking about the act,

whether it is good or bad to have consultants

paid by donors and others paid by govern-

ment. However, this approach is not sustain-

able, as the government has no means to pay

ater 6 months when the scholarship expires.he problem o salaries is quite obvious in

the public sector and there are diiculties in

attracting proessionals or a position with a

salary o 100 USD per month (e. g. MFA).

Good examples are the Central Public Ad-

ministration Reorm program16 (Multi-donor

Fiduciary und managed by the WB) and the

project Support to National Development

Strategy 17 project inanced by the DFID and

Sida.

16 www.rapc.gov.md

17 http://avempolitici.gov.md/





A particularly interesting issue is the

predictability o unds. Donors usually com-

mit to disbursing a certain amount o unds

in a certain year and are encouraged to shareinormation on the multi-year commitment,

as required by the Accra Agenda or Action

2008. As we see in able 1 rom the 2010

Survey, currently, the rate o promised unds

versus actually disbursed is 81%, which is an

important improvement compared to 2005

(67%) and shows an improvement in pre-

dictability and a certain absorption capacity.However, the largest part o the unds allo-

cated was direct budget support and one can-

not know how eiciently these unds have

been absorbed. It is important to mention the

unds promised, but not disbursed (about 77

mln. USD), were included in the budget, andlater ormed a gap due to the act that ore-

casted actions could not be inancially cov-

ered. he constraints that exist or Moldova’s

absorption capacity will be described in more

detail urther on.

Deepening the coordination and e-

ectiveness requires harmonization. In the

context o the donor-recipient relation, theharmonization means establishing and us-

ing common arrangements within program-

Table 1: Donor commitments versus disbursement





based approaches, sharing inormation and

analysis, conducting joint missions and sim-

pliying procedures or the stakeholders. In

Moldova only hal (51%) o aid made use o

program-based approaches and in even ew-

er cases (23%) joint missions were carriedout. Comparing to the baseline survey and

2008 survey, there is observed an improve-

ment o the situation, but the 2010 targets

are not met. Going beyond the Paris Declara-

tion ramework, there is indeed a burden or

authorities and other stakeholders (NGOs)

that donors are demanding too much with-

out taking into consideration the capacitieso the beneiciaries. An enormous amount

o resources is being spent on reporting and

other procedures required by donors. his

decreases the amount o resources directed to

actual implementation, meaning that a lot o

resources are spent on the orm and not on

the substance, not to mention that joint ana-

lytical work is decreasing, which also causesproblems or ownership and mutual account-

ability.

On Managing or Results, Moldova’s

progress seems to be an important one and

indeed there are dimensions which were stag-

nant or inexistent beore - like collecting data

based on the NDS and using it to monitor

and assess the eiciency. However, despite

the progress, the problem is that the access to

data is rather limited and ormat o discuss-

ing the results is rather non-inclusive18.

Also, on Mutual Accountability, prog-

ress is observed between government and do-

nors, but again, other stakeholders are not re-

ally included. here are no public reports o

donors, except a ew o them, like the World

Bank, Sida, and thus leading to limited trans-18 Final monitoring report on compliance with the transparency o

the decision-making process, April-December 2010, Association or

Participatory Democracy, 2011

parency, and, even worse, it seems like Mol-

dova is not learning enough rom past mis-

takes, knowing that non-transparency might

generate the same eects as it did beore. On

the other side, the civil society is not active

in assessing the development programs andthe activity o donors. he reasons generating

limited attention to these important issue is

the lack/limited capacity to carry out a com-

plex assessment on development programs

and donor activity. Also, there is a limited ac-

cess to documents and meetings between the

stakeholders and ear that the donors, which

are also inancing civil society, might reactnegatively (especially, the NGOs that are be-

ing dependent on donors’ unds in Moldova).

1.3 Conclusions

he overall outlook or absorption

capacity is improving, nonetheless, there are

some dimensions, which are overlooked and

may cause substantial problems over time.

he improvement o the cooperation with

donors and the increase o ODA in the last

year was a result o the changing politics in

Moldova as well as o donors’ shiting deci-

sions, which witnessed a higher degree o

openness and, most importantly, the bigger

convergence on the actions to be taken.he recorded progress is related to

better prioritization in strategic documents,

but also to their connection to the state bud-

get and policy ramework. he remaining

task related to the strategies is to assess their

cost in order to ensure that inancial resourc-

es are allocated and the priorities are corre-

lated with the mid-term expenditures. In thisregard, it is noteworthy that a higher atten-

tion should be paid to past lessons that would





bring more analysis-based approach, and also

to ensure a higher degree o transparency and

accountability that would increase the level

o legitimacy and responsibility. Given the

more sector-oriented approach, it is necessary

to proceed with a iscal and organizationaldecentralization, shiting the balance within

the system in order to coner to the central

authority the role o coordination and har-

monization, rather than that o an entity that

is imposing its rules. he ministries and re-

gions (local authorities) should take the lead

in their sectors, thus ensuring that they are

going to implement what they have designed,and not the imposed policies.

Last but not least, it is important to

answer what is the ODA absorption capac-

ity o Moldova? According to the Inter-min-

isterial Committee or Strategic Planning,

the Government was able to contract projects

o EUR 1.2 bln out o the EUR 1.8 bln ear-

marked at the donors’ conerence on Moldo-va on 24th March 201019. Percentagewise, this

is about 66% and, at irst, one might say that

the absorption capacity is in general around

65%, but beore insisting on this, several ar-

guments should be considered. he Coun-

try Spreadsheet o the 2010 Survey 20 shows

19 Prim-ministrul Vlad Filat a prezidat astazi sedinta Comitetului In-terministerial pentru Planicare Strategica, 21/06/2011, http://www.

gov.md/libview.php?l=ro&idc=436&id=3962

20 Country Spreadsheet Moldova 2010, Paris Declaration Survey

http://www.un.md/donors/support_aid_e/index.shtml

that important parts o allocations were di-

rect budget support, thereore, one can de-

termine that the real absorption capacity on

concrete projects, which is going to be the

key approach when integrating in the EU, is

balancing between 40-50% (+/- 10%). heconstraints to absorption o unds and new

possibilities to beneit rom more assistance

derive mainly rom building adequate admin-

istrative capacities and need to be consolidat-

ed urther on, in order to prepare the institu-

tions or the EU inancial instruments, given

the increasing importance o the EU as a de-

velopment actor in the region and Moldova`saspirations (issue covered more detailed in

the last chapter).

Considering the above, it is recom-

mended that the authorities create inclusive

ormats and capacity building to state insti-

tutions, but also increase the motivation o

the latter and prestige o the civil service.

It is crucial to have strong institutions withskilled and motivated personnel because

without them no reorm will be possible. At

the same time, it is advised that donors per-

ceive authorities and civil society at large as a

reliable partner that has to be consulted, and

not imposing certain directions.





CHAPTER II.MACRO-ECONOMIC ABSORPTION

CAPACITY Corina Gaibu

From macroeconomic perspective,

aid lows have an essential impact related

to the balance o payments, exchange rates

and the behavior o the macro economy in

general. his way it has a signiicant im-pact on economic growth o the recipient

country. he macroeconomic ramework

o Development Assistance addresses issues

that relate to long term perspective on aid

absorption capacity such as:

• Long term debt sustainability : ODA in-

lows may be subject to debt sustain-

ability when increased ODA inlows are

in the orm o loans, even i they are

concessional.

• Cautious level of aid dependence : Eects

caused by external aid inlow and ad-

ditional expenses can have a signiicant

accent on labor market. It can be ten-

sioned by aid increases that generate

premises or rising demand or skilled

labor orce and climbing up wages.• Possible appreciation of the exchange rate

and its following impact on export com-

peti tiveness : ODA is received by Mol-

dova in oreign currency; thereore an

unexpected and considerable ODA in-

crease can cause an appreciation o the

exchange rate and ollowing damage

to the export sector competitiveness,

i.e. Dutch Disease eects. his means

that the amount o national currency in

circulation decreases, which is a conse-

quence that strengthens the monetary

value o the Moldovan Leu. It, there-ore, does not avor inlation and the

growth o wages.

2.1 Current macroeconomic

situation

Here are some macroeconomic indica-

tors or 2006-2010 period shown in the table

below. Generally speaking, macroeconomic

indicators or 2010 are better than the pro-

jected ones. Mainly, indicators are better due

to the act that 2010 is a post crisis year re-

lecting the recovery o economy ater a deep

coma in 2009. he inlation is running hot

in 2010 at 8.1%, compared to previous year

when the CPI (consumer price index) increase

was only 0.4%, the lowest level ever regis-tered. he inlation in Moldova is mostly im-

ported and is highly dependent on exchange

rate. Remittances went down in 2009 and

have not recovered yet to the pre-crisis level

o $1.66 billion. As a percentage o GDP, re-

mittances go down every year, rom 35.8% in

2006 to 21.6% in 2010.





Table3. RM Budgetary Finances, 2006-2010mil lei

2006 2007 2008 2009 2010

GDP 44069 53430 62840 60043 71849

Total Revenues and Grants 11117 14059 15978 13568 17168

Direct Taxes 423 562 303 183 216

Indirect Taxes 8053 9832 11776 9977 12252

Grants 315 968 1068 1026 1955

Total Expenditure 11019 14257 16466 17203 18792

Current Expenditure 8382 11006 12839 14741 16194

Transfers and Subsidies 4570 6189 7369 8728 10448

Wages 2094 2551 2849 3441 3430

Goods and Services 1289 1656 1899 1738 1769

Interest Obligations 429 610 722 834 548 Development Capital Expenditure 2688 3347 3604 2488 2716

Sources: Economic Statewatch, IDIS Viitorul, RM Government

At the macroeconomic level, Moldova’s

economic perormance has been supported by

substantial amount o remittances. he mostimportant concern in the medium term is the

uture decline in remittance inlows. In 2010,

32 % o imports were covered by remittances.

It means a serious drop rom 44% in 2006.

Government revenues depends on remittanc-

es in proportion o up to 15% and about 41%

o oreign currency inlow is guaranteed by

these transers. he current overall debt ser-vice burden and iscal deicit are moderate.

In the medium term, remittance infows

could run down in about 12-15 years and it

is likely that in the meantime transers would

drop gradually. Nevertheless, in the long run,

the potential o reduced transers o unds

(with transer amounts possibly halving as acontribution to revenue by 2025) involves

both an increased need or aid and expanding

macroeconomic and scal constraints that may

aect the ability to use aid eectively. Also, the

decline in remittances will involve some depre-

ciation o the Moldovan Leu in real terms.

he possible drop in Moldova’s remit-

tances over the medium term represents aollowing signiicant challenge. he shit to

a non-remittance economy will probably in-

volve some depreciation o the local currency

in real eective terms.

Table 2. Selected macroeconomic indicators, 2006-2010 year

2006 2007 2008 2009 2010

Real GDP growth, % 4.8 3 7.2 -6.5 6.9

Ofcial Transfers, in % of GDP 35.8 38.6 27.4 21.9 21.6

Consumer Price Index, % end of period 113.8 113.1 107.3 100.4 108.1

Exports, mil $ 1051.6 1341.8 1591.2 1287.5 1541.5

Imports, mil $ 2693.2 3689.9 4898.9 3278.3 3855.3

Commercial Balance, mil $ -1642 -2348 -3308 -1991 -2314

National Bank foreign reserves, mil $ 650 1050 1505 1480.3 1717.7

Sources: Economic Statewatch, IDIS Viitorul, National Bank of Moldova, IDIS computation





In Moldova it is already an established

tradition that expenditures grow aster than

revenues. Even when the economic situa-

tion was pretty harsh (in 2009) and revenues

dropped by 15%, a 4% increase in expen-

ditures was recorded. he sole exceptionis 2010 when revenues expanded by 27%,

while expenditures increased by 9%. From

the dynamic perspective, there is a remark-

able increase in the grants’ share in the rev-

enues, by 90% in 2010 compared to 2009

year. Furthermore, the table above shows

that the RM budget is dependent on indi-

rect taxes and this situation will last or along time.

2.2 Debt dynamics and its

burden on national

economy

In Moldova iscal deicits are at leastpartially unded by donors in the orm o ex-

ternal loans and grants. At the end o 2010,

Moldova’s total external public debt was

slightly over $1.1 billion (19% o GDP). Ex-

ternal duties (76,7% o total external debt)

are payable to multilateral creditors, mostly

to the IDA and the IMF ($386 mln and

$304 mln). he stock o the domestic debt

is about 7% o the GDP.

In terms o percentage o GDP, exter-

nal public debt, appearing in the period un-

der consideration, increased to 19% o GDP

by 2010. At the same time, the total debt

service liability declined over the period till

almost $90 mln in 2010, rom $125 mln

in 2009 (due to internal debt service obli-

gations reduction - about twice less i com-

pared to $30 mln in 2010 and $57 mln in

2009). In the long run, in order to avoid

compromising Moldova’s external debt sus-tainability, one needs a strategy on improv-

ing grant support development and careul

debt management. Besides, it is necessary to

make as much use as possible o the con-

tracted unds in the most productive way,

not just to spend them on plain consump-

tion (inancing increases in wages).

2.3 Aid absorption

– international

comparisons

Below are shown particular interna-

tional comparisons o the level o aid re-

ceived by Moldova in 2008 and 2009 (orthe year o 2010, inormation or countries

other than Moldova is not available yet).

he selection o countries with similar level

o income per capita shows that Moldova is

in the same group with some countries like

Papua New Guinea or Nicaragua. Neverthe-

less, or comparison purposes, we included

some ex-soviet and a ew other countries that

are considered relevant or comparison. he

table below illustrates that Moldova receives

moderate levels o aid per capita when com-

pared to other countries which have similar

levels o income per capita and/or are in the

same region.





Table 4. Comparisons of indicators: GNI, ODA for a series of selected countries for

2008/2009 years

Country

2008 2009

GNI pc, $ ODA pc, $ ODA/GNI, % GNI pc, $ ODA pc, $ ODA/GNI, %

Bolivia 1450 64.76 4.47 1630 73.59 4.51

Azerbaijan 3830 27.10.71

4840 26.50.55

Bhutan 1770 126 7.12 2020 179.9 8.91

Bosnia and

Herzegovina 4520 122.72.71

4700 110.22.34

Kosovo 2950 0 0.00 3240 436.5 13.47

Macedonia 4120 100.3 2.43 4400 94.7 2.15

Serbia 5520 132.4 2.40 6000 83.1 1.39

Congo, Rep. 1980 134.16 6.78 2080 76.81 3.69

Georgia 2450 206.06 8.41 2530 213.07 8.42

Moldova 1500 81.88 5.46 1560 68 4.36

Mongolia 1670 93.29 5.59 1630 139.35 8.55

Nicaragua 1050 130.68 12.45 1000 134.78 13.48

Papua New

Guinea 1090 46.28 4.25 1180 61.44 5.21

Sri Lanka 1780 36.24 2.04 1990 34.66 1.74

Ukraine 3210 13.35 0.42 2800 14.52 0.52

Armenia 3350 98.32 2.93 3100 171.13 5.52

Albania 3880 114.97 2.96 4000 113.42 2.84

GNI - Gross National Income per capita, ODA - Net Oicial Development Assistance Disbur-

sements per capita

Source: worldbank.org, IDIS Computations

As noticed in the table above, Moldova

is among those countries which have a low

to middle level o aid, compared to other

countries (as attested by the share o ODA to

GNI). From macroeconomic point o view,

there is room or improvement. he estimat-

ed aid absorption rate, without reaching the

level o aid dependence that is generally con-

sidered the upper limit or aid to be eective,

is placed between 15% and 30% o GDP21.

Increasing aid above this level begins to have

a negative impact on growth. So, in principle,

Moldova could increase the amount o aid to

be absorbed without reaching the level o aid

dependence that is generally considered the

upper limit or aid to be eective. he ab-

21 OECD: Ocial Development Assistance Flows To Fragile And

Confict-Aected States

sorption capacity is quite high or this actor

as Moldova’s dependence degree is low.

he optimal limit or yearly aid absorp-

tion is considered to be up to 5% o GDP22.

At this rate, or the ollowing 3 years, Mol-

dova would not ace signiicant problems on

macroeconomic level related to aid absorp-

tion. Local Forex market would be slightly

aected as the volume o about $300 million

would produce eects which can be easily

controlled by the National Bank. O course,

the exchange rate can appreciate, but the

supply o oreign currency can be certainly

balanced through the National Bank’s instru-

ments.

Even i there is potential o expand-ing the inancing capacity, authorities should22 European Union unding requirements





consider that rapid increases in aid may ace

institutional and management capacity limi-

tations, even i the aggregate aid levels remain

within bounds that are thought to be normal

according to international organizations. So,

the increase in aid should be done careully asto avoid institutional and management con-

strains. Moldova is unlikely to ace signii-

cant macroeconomic constraints in increas-

ing the level o aid substantially, while a large

and rapid increase in aid may encounter dii-

culties. International experience shows there

might appear challenges to monetary and ex-

change rate management, resulting not only in high burden, but also in the instability o

the exchange and interest rates.

2.4 Monetary Aggregates

Monetary authorities in Moldova use

inlation targeting as a ramework or mon-

etary policy. he National Bank o Moldova

(NBM) is constantly involved in a combi-

nation o open market type operations and

oreign exchange sales to manage liquidity

in order to keep inlation at 5% (2010). We

should mention that the monetary policy in-

struments have a limited or no impact on the

scope o monetary authority: inlation target-

ing. o avoid inlationary pressures, the au-thorities attempt to reduce the resultant lo-

cal currency injections by sterilizing national

currency liquidity o anything up to 6% o

GDP. Sterilizing process is required in order

to prevent the injections o liquidity translat-

ing into inlationary increases. Moreover, i

money demand does not rise as ast as money

supply, interest rates become lower and moreunstable than they might otherwise be. his

can happen in case when national authority

does not apply sterilization at a high cost,

which already happened during the period

analyzed o 2006-2010 years. In these con-

ditions, commercial banks are likely to be

tempted into taking larger quantities o trea-

sury bills.However, on account o thin inancial

markets and limited range o monetary policy

instruments, upward pressure is applied on

prices o the ew instruments available, like

interest and exchange rate. he lesson clearly

underlined is that the large-scale sterilization

in thin inancial markets is detrimental or

the economy in terms o competitiveness.he burden on the exchange rate and

high interest rates are incompatible with the

government’s development objectives o in-

creasing exports and increasing the role o the

private sector in economic growth. In order

to solve this policy divergence, in the short

run, the NBM can ollow a more balanced ap-

proach to treasury bills and oreign exchangesales. Although, getting the right balance can

be very challenging. But the long term solu-

tion stays in a gradual iscal strengthening.

Improvements in liquidity management to-

gether with the introduction o longer dated

government bonds can be successul in reduc-

ing interest rate volatility in the money mar-

ket.

2.5 Conclusions on

Macroeconomic Aspects

At present, the level o aid inlow to

Moldova is relatively low. Moldova’s current

debt levels are sustainable and repayment is

not an issue. At the same time, it is consider-ably below the bound where urther increases

in aid would produce modest results. Conse-





quently, the problem o the macroeconomic

impact o increased aid should not be con-

sidered a irst-order problem. Nevertheless,

Moldova’s authorities should take into ac-

count the ollowing issues:

• For debt sustainability improvement,

grants should be preerred over loans.

An exception could be cases when

loans are taken at a highly convenient

interest rate and used to inance di-

rectly growth creating investments.

• In case o a loan agreement, lower in-

terest rates and longer grace periodsor repayments should be considered.

• In the short run, Moldova should get

only aid amounts that would not orce

the sterilization capacity o the mon-

etary authorities and compromise ex-

port and private sector growth.

• here is a substantial challenge repre-

senting the possible drop in Moldova’sremittances over the medium and long

term. Consequently, a new macroeco-

nomic model should be developed or

Moldova based on the shit to a non-

remittance economy.

• Due to institutional and management

capacity limitations - institution’s ab-

sorption capacity should be strength-

ened.

• Moldova should keep the stability o

the exchange and interest rates.• Large-scale sterilization o the na-

tional currency in case o Moldova is

detrimental or the economy in terms

o competitiveness, consequently, it is

highly recommended to avoid apply-

ing monetary policy instruments that

have as a consequence massive steril-

ization o liquidity.• Additional increases in aid, i need-

ed, should be done careully as to

avoid institutional and management

constraints. Moldova is unlikely to

ace signiicant macroeconomic con-

straints in increasing the level o aid

substantially. Nevertheless, a too large

and rapid increase in aid (more than5% o GDP per year) may encounter

some diiculties.





CHAPTER III.FINANCIAL ABSORPTION CAPACITY

Corina Gaibu

Financial absorption capacity stands or

the capacity o central, regional and local au-

thorities (depending on the territorial set-up

o the country) to co-inance programs and

projects assisted by donors, to plan and guar-

antee these domestic contributions in multi-

annual budgets and to collect them rom thevarious partners involved in a project or pro-

gram (Horvat 2004, Šumpíková, Pavel and

Klazar 2004).

Thus the major factors that influence the

financial absorption capacity are:

1. Co-inance requirements o the do-

nors

2. Co-inance ability o central and local

authorities

3. Multiannual contributions capacity

required to repay inances

4. Co-inance ability o the private sec-

tor that can be attracted in public pri-

vate partnership (PPP)

3.1 Co-finance requirements

of the donors

An important condition in inancial

support policy o main donors is the co-

participation o the receiving country in the

project or program. his actor is usually de-

scribed poorly or even dropped when the i-nancial absorption capacity is studied and is

described as given static inormation. Yet, this

is a crucial element that determines the total

inancial absorption capacity o the authori-

ties, as it acts as a inancial leverage or the

available resources o the central or local au-

thorities. hus, an increase in co-inance re-

quirements o donors rom 10% to 30% will

decrease the absorption capacity by 3 times.his actor has to be taken in consideration

especially when co-inance abilities o the au-

thorities are very limited and become the bot-

tleneck o the entire system. As a rule, in the

context o pre-accession unds, 15 to 30% o

the total costs had to be made available by the

authorities. Especially, in rural areas it proved

to be impossible or (local) public authorities

to inance this share o the program at times.

Moldova deinitely will not be an exception.

3.2 Co-finance ability of

authorities – major

factor that influences

the financial absorption

capacity

Frequently, authorities are tempted to

ocus public expenditure on short term so-

cial needs and provide basic services in the

short run. hus, it solves the problem related

to eects and not to causes that led to the

socio-economic discrepancies. hereore, the

policies o the donor aim to reorient nation-al expenditures to areas where results can be

better in medium term and also to develop





a sense o consciousness o the beneiciaries

regarding the projects promoted.

Naturally, beneiciary is responsible or

co-inancing the external assistance, and in

some cases will support some o the costs o

development and execution o projects pro-posed. Authorities must, however, be careul

not to use up unds as soon as possible, but to

make the most eicient o it.

he co-inance ability has to be ana-

lyzed separately or central authorities and

or local authorities. Yet, one criterion is

crucial or distributing this capacity between

them: the state iscal and taxation policy that determines the distribution criteria at

central and local levels. Moldova’s policies

determines a high level o concentration o

revenues at central level and most o the local

authorities lacks inancial autonomy and are

dependent on the centralized distribution o

revenues. Except this actor, the distribution

criteria are very volatile and unstable, thus

generating too high uncertainty or poten-

tial multiannual post-accessing co-inancing

requirements. Only a deep reorm o reve-

nue distribution can improve the extremely

poor position o local authorities in gather-

ing unds or co-inancing purposes. Donorcommunity can stimulate the redistribution

o revenues by requiring a dierentiated

contribution or local authorities versus cen-

tral authorities, keeping the required average

or the country. his tool will signiicantly

improve the inancial capacity leverage or

the local authorities, increasing their total

inancial absorption capacity. Donor com-munity can apply this tool at least till the

decentralization reorm will be implemented

and unctional.

he table below contains the list o re-

gions which receive inancial support on a

permanent basis rom the central authority,

thus having a very limited or close to zero ca-

pacity o co-inancing projects:

Table 5. Financial Revenues by Source and Expenses of Regions for 2010 year, thousands lei

Region

(rayon or

municipality)

Taxes

collected

locally

Total expenses

(region budget)

Total support from

central authorities

(transfers from state

budget)

Rate of the

support

of central

authorities, %

mun.Chisinau 1,329,385 2,074,197 349,840 16.9%

mun. Balti 119,425 263,960 109,726 41.6%

Anenii Noi 28,074 163,913 124,451 75.9%

Basarabeasca 9,919 58,935 49,875 84.6%

Briceni 27,099 142,571 117,497 82.4%

Cahul 51,130 251,815 186,236 74.0%

Cantemir 15,813 134,547 117,331 87.2%

Călăraşi 20,906 158,513 136,527 86.1%

Cauşeni 29,290 186,833 153,460 82.1%

UTA Găgăuzia 60,082 348,962 210,195 60.2%

Cimişlia 19,082 118,720 99,178 83.5%

Criuleni 22,446 161,060 132,783 82.4%Donduşeni 18,035 82,988 65,889 79.4%

Drochia 34,166 166,367 123,513 74.2%





Dubăsari 9,517 97,408 81,286 83.4%

Edineţ 31,183 150,999 119,428 79.1%

Făleşti 27,924 182,306 154,880 85.0%

Floreşti 35,564 172,489 132,676 76.9%

Glodeni 19,602 117,938 103,235 87.5%

Hînceşti 36,992 255,009 215,998 84.7%Ialoveni 27,155 205,127 159,715 77.9%

Leova 14,358 108,823 90,341 83.0%

Nisporeni 13,450 140,045 127,265 90.9%

Ocniţa 18,028 100,243 79,479 79.3%

Orhei 38,942 221,733 172,241 77.7%

Rezina 22,186 121,767 77,546 63.7%

Rîşcani 30,587 142,845 110,265 77.2%

Sîngerei 23,085 187,176 156,612 83.7%

Soroca 37,347 191,865 154,120 80.3%

Străşeni 22,878 177,133 149,621 84.5%

Şoldăneşti 11,103 91,654 80,803 88.2%

Ştefan Vodă 26,213 151,336 126,265 83.4%

Taraclia 16,628 80,872 62,133 76.8%

Teleneşti 16,024 157,325 143,916 91.5%

Ungheni 39,340 241,797 196,466 81.3%

TOTAL 2,302,957 7,609,266 4,670,793 61.4%

Source: Budget Law, Ministry of Finance

As can be noticed in the table above,majority o regions, except Chisinau and

Balti municipalities, have a dependence o

more than 75 % on inancial support rom

central authorities. Some o them, like Ni-

sporeni and elenesti, rely on centralized i-

nancial assistance to an extent o over 90 %.

Consequently, only Chisinau municipality

and Balti can be considered to have potentialor co-inancing projects.

As can be seen above, the inancial ca-

pacity o co-inancing is concentrated at the

central level authority; the evaluation o this

actor should be done at the level o the entire

country.

3.3 Co-finance effort

estimation at

macroeconomic level

Moldova had reduced access to exter-

nal inancial support and as we can see rom

the table below, it was not exceeding 3% o

GDP, except 2010 when the country received

a more signiicant assistance to support the

reduction o crisis consequences.





Table 6. Moldova’s External Financial

Support 23

2006 2007 2008 2009 2010External Assistance ,

Received by RM, including 55.22 125.96 141.84 140.55 365.41

Grants, million USD 23.95 78.67 98.59 99.36 153.37

Credits, million USD 31.27 47.29 43.25 41.19 212.04

External assistance rate in

GDP, % 1.6% 2.9% 2.3% 2.6% 6.3%

Source: Ministry of Finance

Co-inance eort during the same pe-

riod o moderate assistance is tiny. Almost all

assistance projects were entirely covered by

donors’ inances. he table below shows thepercentage o the Moldova co-inancing e-

ort compared to a variety o macroeconomic

indicators.

Table 7. Co-financing Effort of RM and

Macroeconomic Indicators

2006 2007 2008 2009 2010

Governmental co-nancing related to

External Assistance, mil. lei50.7 35.4 14.2 20 20.8

Co-nance share from external

assistance, %6.99% 2.32% 0.96% 1.28% 0.46%

Co-nance share from state budget,

%0.46% 0.25% 0.09% 0.12% 0.11%

Co-nance share from GDP, % 0.12% 0.07% 0.02% 0.03% 0.03%


he above igures emphasize the actthat Moldova almost lacks experience o co-

inancing projects. Co-inancing historical

trends o Moldova can hardly serve as a reer-

ence or capacity evaluation in this ield, but

this can help to understand that requirements

o signiicant inancial co-participation can

become a limitation or projects realization

or at least lead to signiicant delays. A dierent approach should be con-

23 Data recorded by MoF are mainly aid or Government sector

sidered or co-inancing capacity estimation.

he state budget and the lexibility o ex-

penses categories represent the key actor o

analysis. It must be mentioned that the statebudget is signiicantly oriented to social ex-

penses, which in the context o actual politi-

cal situation and the overall quality o lie o

the population, cannot be decreased. Almost

10,5 billion lei (56%) represent the statebudget support to the social expenditures,

healthcare, population and local administra-

tion. Wages is another category that cannot

be decreased, as the level o salaries is very

low or the majority o state employees. More

than 76% o the budget represents categories

that cannot be optimized in the short run, so

that substantial unds could be redirected toco-inancing projects. he remaining catego-

ries cannot aord a lexibility o more than





15%, which represents a total maximum limit

o 3.6% o the budget. Below is presented the

structure o the budget or 2010.

Table 8. Budget Structure of RM for 2010

year, million lei

Budget 2010

Budget

amount

Budget

structure

Total Expenditure and

Net Lending

18792 100%

Current Expenditure 16194 86%

Transfers andSubsidies (subsidies,

social support and

support to local

authorities)

10448 56%

Wages 3430 18%

Goods and Services 1769 9%

Interest Obligations 548 3%

Development Capital

Expenditure

2716 14%


3.4 Multiannual repayment

capacity

Only ew projects represent ull grants

and most o them require repayments to be

done on a multiannual basis. Funds can be al-

located in one o the ollowing way: ull grant

support, ull credit inancing or partial credit

– partial grant support.

here are two sources or unds repay-

ment:

1. Existing revenues o the accessing-

unds authority

2. Revenue generated by the project

Being limited in revenues, the unique

beneiciary o external unds is the central

authority. hus repayment history exists only

with central authorities.

Table 9. Credit and Repayment Indicators of RM in dynamics

2006 2007 2008 2009 2010

Governmental Credit Balance,

year end, million USD718.23 765.8 778.3 773.67 1116.18

Principal Repayment of

Governmental Credits, million USD48.58 36.86 39.31 50.95 45.91

Annual Service of GovernmentalDebt, million USD

17.55 16.34 15.59 18.58 14.6

Total Repaid Amount, million

USD66.13 53.2 54.9 69.53 60.51

Repaid Amount, share of the budget,

%7.9% 4.5% 3.5% 4.5% 4.0%






Due to high infexibility o the major state

budget expense positions, as explained above, the

repayment capacity is highly limited and it has to

be analyzed in conjunction with the co-nancing

capacity.

An unexplored and promising source o repayment is the implementation o projects that

are able to generate revenues to repay partially or

entirely accessed unds. For this purpose it is nec-

essary to increase the knowledge and administra-

tive capacity o local and central authorities to

be able to identiy such opportunities and build

sound nancial analysis and projections to en-

sure availability o revenue. A prerequisite wouldbe to ensure a thorough regulatory ramework

that will secure these revenues to be directed ex-

clusively to the repayment o accessed unds, so

that political changes do not infuence these ca-

pacities.

3.5 Co-inanceabilityofthe private sector that can be attracted to public private

partnership (PPP)

Te basic concept o Public Private Part-

nership (PPP) is to combine the individual

strength o a public and a private partner to

contribute to obtain better products and servic-

es that are protable and have a development-

policy benet. Te partnership between public

and private sectors is in a very early phase in

Moldova. Public-private partnership schemes

(PPP) are agreements between actors in the

public sector and private sector, or a project

implementation or providing some services

that are traditionally provided by public sector.Both partakers, public and private, share in-

vestments, risks, benets and responsibilities in

implementing PPP projects. Te most common

types o PPP are:

• Design-Built-Operate (DBO) - Con-

sist o phases o planning, constructionand operation o a acility that is made

by private sector or some time and then

returned to the public sector. Te acility

is publicly unded and public authority

remains the owner throughout the proj-

ect, but the private sector has to bear the

risks o planning, construction and op-

eration. Combining all three stages into aDBO approach maintains the continuity

o private sector involvement and can a-

cilitate private-sector nancing o public

projects supported by user ees generated

during the operations phase.

• Design-Build-Operate-Finance-Main-

tain (DBOFM) - With the DBOFM

approach, the responsibilities or design-ing, building, nancing, operating and

maintaining are bundled together and

transerred to private sector partners.

Planning, construction, operation and

nancing acilities are made by private

sector or a while and then returned to

the public sector. Private investors own

the acility in this period, bear the risks

o planning, construction, operation,

maintenance and recover the costs rom

public subsidies.

• Concession (similar to the one beore,

but private sector recovers costs rom ees

paid by users).

Private investments in structural opera-

tions depend on a strong national political com-

mitment to undertake sustainable reorms need-ed. PPP implementation may be hampered by





lack o legal regulations, the knowledge and ex-

perience o countries and administrative barriers.

In dierent regions o Moldova, local

population support entire or partial costs or

dierent social and inrastructure projects, like

gasication, water and sanitation projects, sup-port or local schools and kindergartens. Unor-

tunately, the ramework is underdeveloped and

ownership, responsibilities, guarantees over the

processes and the results o such partnerships are

unclear or the private sector as well as or the

authorities.

aking into consideration that local au-

thorities has extremely limited co-nance andrepayment capacities, the PPP expertise and ra-

mework are highly needed in Moldova, as only

such a partnership can bring real results in devel-

opment o dierent economic sectors and meet

demands o the public.

Te advantage o PPP is that a well devel-

oped project may attract private partnership not

only rom the region that is subject o the unds,but also bring nation-wide companies to partici-

pate in the implementation o selected projects.

3.6 Conclusions onFinancial Aspects

• Although co-unding eort rom the

state budget is an important one, thegreatest pressure could be elt by local

authorities. Te ability o local authori-

ties to co-nance programs and projects

supported by external donors is close to

nil. Predominantly, central authorities

have the opportunity to contribute with

nancial means to the projects assisted

externally.• Co-nance requirements o the donors

are a powerul leverage actor and a cru-

cial element that determines the total

nancial absorption capacity o the au-

thorities.

• Donor community can stimulate the re-

distribution o revenues by requiring a

dierentiated contribution or local au-thorities versus central authorities, keep-

ing the required average or the country,

i this is required. Tis tool will signi-

cantly improve the nancial capacity le-

verage or the local authorities increasing

their total nancial absorption capacity.

Donor community can apply this tool at

least till decentralization reorm will beimplemented and unctional.

• Requirements o signicant nancial co-

participation should be avoided as it can

become a limitation or projects realiza-

tion or at least generate signicant delays.

• An increase in knowledge and admin-

istrative capacity o local and central

authorities should be done in order toidentiy opportunities o starting more

projects capable to generate revenues to

repay borrowed unds.

• A regulatory ramework that will se-

cure revenues would be a guarantee or

project generated returns to be directed

exclusively to the repayment o accessed-

unds, so that political changes do not

infuence these capacities.

• Public private partnership needs to be

developed as it has a greater capacity o

co-nancing and will allow local author-

ity potentially to attract partners at the

nationwide level. It is an unexplored tool

and in order to stimulate the collabora-

tion between public and private partners,

more analysis o the opportunities andobstacles should be done.





he administrative absorption capacity

o the oreign assistance is important rom

the perspective o Moldova’s aspirations or

the accession to EU, as well as or the general

process o social and economic development

o the country. he analysis o the adminis-trative absorption capacity can be carried out

on two dimensions. he irst dimension is

concerned with institutional ramework o

the management o the oreign assistance.

hree aspects need to be considered at this

stage.

1. Institutional arrangements

2. Human resources 3. Procedures and instruments

he second dimension is ocused on the

aspects related to the implementation o the

oreign assistance projects, including:

1. Preparation, elaboration, and implementa-

tion of the projects

2. Performance in public service, financial

management and public procurement

4.1 The institutional framework of themanagement of the

foreign assistance

4.1.1 nstitutional arrangements

he institutional ramework determineshow eicient and optimal in time national

authorities implement projects inanced rom

oreign assistance. In this sense an eicient

management system o the Oicial Develop-

ment Assistance (ODA) is important or the

inal success o the projects. he divisions

o responsibilities between institutions that

orm mentioned system in a systematic ap-proach to setting development priorities, rep-

resent actors that determine the overall e-

iciency o the oreign assistance allocation.

In Moldova, the oreign assistance is co-

ordinated at the central level in 3 stages24.

Co-relation o the oreign assistance’s

major allocation directions with country’s na-

tional social and economic development pri-orities is carried out by the Inter-ministerial

Committee or Strategic Planning (ICSP),

led by Prime Minister o Moldova, who acts

as the national coordinator o the oreign as-

sistance. his committee is also responsible

or eicient utilization o the ODA at the na-

tional level. ,.

Program design, monitoring, opera-tional and methodological evaluation are car-

ried out by the State Chancellery, which is

the national coordination authority, also re-

sponsible or keeping the record and ensuring

transparency o the oreign assistance allo-

cated to Moldova by the donors community.

At the sectoral level, the design and

monitoring o the oreign assistance pro-

24 Government Decision Nr. 12 o 19.01.2010 the Regulation on the

institutional ramework and mechanism or coordinating the exter-

nal assistance provided to Moldova by the international organizati-

ons and donor countries.

CHAPTER IV. ADMINISTRATIVE ABSORPTION CAPACITY

Valentin Lozovanu, Viorel Gîrbu





grams and projects are carried out by the Sec-

toral Council or Foreign Assistance that is a

consultative body chaired by the Sectoral Co-

ordinator o Foreign Assistance - represented

by the head, or his/her deputy, o the central

public authority responsible or policy in thegiven sector.

he local or regional level o oreign

assistance management emerged in Moldova

in particular due to the Government’s eorts

to implement in 2010 regional development

policy. Ministry o Regional Development

and Constructions is the administration body

in charge o elaboration and implementationo the regional development policy. hus,

within a relatively short period o time, a sys-

tem o regional development was set opera-

tional. Regional Development Agencies were

established (North, Center, South, with more

to be set up in Chisinau, AU Gagauzia, and

ransnistria) with the purpose o managing

regional development at the local level. Fi-nancing o the regional development activi-

ties is carried out using the resources provided

by the National Fund or Regional Develop-

ment (NFRD), ormed rom 1% o the state

budget revenues and unds provided by some

donors, like DFID, GIZ. In accordance with

the National Strategy or Regional Develop-

ment, development strategies or the regions

North, Center, and South were adopted. As

a result o the irst national regional projects

call, Unique Program Document25, contain-

ing 56 regional projects (o a total o 128,

amounting to 2,2 billion lei) and Operational

Regional Plans or North, Center, and South

regions development was adopted.

ransparency in the ield o oreign

assistance is ensured by ree access to all in-

25 GD Nr. 772 o 26.08.2010 regarding approval o the Unique Pro-

gram Document or 2010-2012

terested persons to the database containing

oreign assistance projects implemented or in

the process o implementation in Moldova,

available at www.ncu.moldova.md26,. his

database oers various opportunities or se-

lecting inormation, according to the num-ber, name o the project, data about donors

or sector o implementation. As o June 29,

2011, according to the inormation rom the

above-mentioned website, 1167 projects have

been registered in the data base. However,

it should be mentioned that, when searched

or active projects that are currently imple-

mented, the search engine did not return any result. his situation points to some dysunc-

tions in the algorithm used by this instru-

ment. Also, it should be mentioned that data

oered by the authorities on the mentioned

web site do not allow the possibility to moni-

tor projects implementation, or to carry out

generalizations that would help in preparing

some analytical inormation. It is necessary to amiliarize interested public or civil society

with the sectoral developments, by providing

on above mentioned address some operation-

al inormation or reports o general character

prepared.

4.1.2 Human Resources

A critical aspect related to the absorp-

tion capacity o oreign assistance is the avail-

ability o human resources with appropriate

level o qualiication. In order to provide a

comprehensive picture, the situation in this

area will be analyzed in three dimensions:

· availability of human resources

· professional preparedness

· level of motivation

In order to ensure successul imple-

26 http://www.ncu.moldova.md/ro/search-project





mentation o oreign assistance projects, the

administrative system must be capable o

recruiting and maintaining highly qualiied

personnel, properly motivated to perorm

their tasks. Relevant institutions must have

a well-qualiied Human Resources service,capable o ensuring identiication and hiring

o well-trained proessionals, in order to op-

timally implement projects carried out within

the ODA activities. Human resources services

o public administration must have detailed

job descriptions, while the level o compensa-

tion must be competitive with economy-wide

and regional averages.

· availability of human resources

Annual ly a large number o spec iali sts

in various ields graduate rom the higher

education establishments in Moldova. In

2009 the number o graduates was over 26

thousand, while in 2010 over 23 thousand

students inished cycle 1, and over 4500

students completed cycle 2. Specialists are

trained in various ields, although one can

observe a clear preerence or economics

and law. his data allows us to claim that

there is a signiicant supply o specialists ca-

pable o being engaged in implementation

o oreign assistance projects. he national

education system is widely criticized or

the quality o trained specialists and its in-

ability to adapt itsel to the demand trends

prevailing on the labor market. However,

to support the claim mentioned above, onecan argue that the adaptation to the speciic

requirements o various public institutions

could be carried out within proessional de-

velopment/training courses, these aspects

being described below.

· Professional development courses

Implementation o oreign assistance

projects requires in most cases highly quali-

ied personnel, with high degree o special-

ization in narrowly deined ields, which calls

or the necessity to organize continuous de-

velopment courses or specialists that already

possess a certain skill level.

he legal ramework in Moldova deter-

mines the right and obligation o public ser-

vants to improve their proessional skills and

abilities on a continuous basis. o this end,

public authorities ensure organization o a

systematic and planned process o continuous

proessional development o public servants.

Continuing proessional developmento civil servants in Moldova is carried by the

Table 10. Graduates across general elds of study and cycles, 2005-2010

2009 2010

Cycle I Cycle II Cycle I Cycle IITotal 26 049 - 23 264 4 536

Humanities 1 281 - 848 321

Political sciences 730 - 612 286

Social sciences 502 - 391 166

Communication 390 - 384 72

Economics 9 014 - 7 319 1 828

Law 4 026 - 3 737 706

Agricultural studies 274 - 287 32

Public services 682 - 797 59

Source: NBS





Academy o Public Administration (APA).

Since the oundation o Academy, over 4000

graduates received higher education degrees,

including master’s and postgraduate. As o

this moment, about 21000 public servants

have completed initial and continuing pro-essional development courses. APA oers

training courses or the personnel employed

by the local (LPA) and central public authori-

ties (CPA) that comprise a wide range o sub-

jects relevant or the oreign assistance sector,

including:

Management and strategic plan-

ning, aimed at developing abilities re-lated to the strategic planning at the

national and institutional levels, oper-

ational and project planning, budget-

ing, administrative tools o ensuring

implementation. Monitoring, evalua-

tion and reporting o the results;

Public procurement, aimed at amil-

iarization with state regulations in thedomain o public procurement, such

as: public procurement procedures,

tender documentation, publicity, etc.,

organization and management o pub-

lic procurement. Development practi-

cal skills in the ield o public pro-

curement include: providing tender

notices, preparation o relevant docu-

ments, negotiations, selection and/or

qualiications criteria, contract award,

procurement contracts, identiication

o sources o risk, raud and corrup-

tion, dispute resolution and legal li-

ability;

Developing skills for the exercise

of duties for civil servants, such as:

activity regulations, rights and obliga-tions, the Code o conduct or civil

servants, sel-management skills and

ability to work with documents, com-

munication skills, requirements or

public services quality;

Management of public service and

civil servants, such as: regulation o activities carried out by civil servant,

regulatory ramework, personnel pro-

cedures;

Organizational management : in-

ternal communication, orming and

leading teams.

A special role in enhancing o proes-

sional expertise o the public authorities per-sonnel is played by Central Public Adminis-

tration Reorm, which has been carried out

with the support o donor community since

200527. According to the reported data, in the

course o 2010 the personnel capacity o the

public authorities was enhanced within this

project through the use o various orms o

proessional development: proessional train-ing courses, English courses, and inormation

sessions or public servants, visits abroad with

the purpose o amiliarization with the expe-

rience o the European countries.

Within these orms o trainings that

have also been carried out with contribution

o APA about 2780 civil servants received

proessional training: 66.7% o them rom

CPA, and 33.3% rom LPA.

he above mentioned courses contrib-

uted to development o proessional abilities

o public servants in such areas as: human re-

source management, inancial management,

audit and internal control, English language

skills or 400 civil servants in central public

administration.

Seminars/workshops and quarterly ses-sions dedicated to dierent topics were orga-

27 http://rapc.gov.md/md/rapcrez/





nized or public servants employed in CPA

and LPA.

· Level of motivation

According to the NBS data or the pe-

riod 2008-201028, the level o compensation

in public administration was above the aver-age recorded or the overall economy. hus,

in 2010 the average salary in public admin-

istration was 3204.8 lei, while the national

economy average constituted 2971.7 lei. his

situation involve less risks or the public au-

thorities related with outlow o skilled per-

sonnel towards the private sector. At the same

time, it must be mentioned that, in absolutevalue, the income received by the public ad-

ministration employees in Moldova does not

motivate civil servants to pursue a career de-

velopment in the chosen domain, as it alls

well below the regional average. Moldova is

acing signiicant exodus o labor orce, some

o which are highly qualiied. For instance,

according to the statistic data, just in the pe-riod 2000-2008 labor orce reduced in Mol-

dova by one quarter.

A particular aspect is that o the do-

nor agencies with established representations

in Moldova, that allow them to carry out

management and implementation o either

their own projects or those o other donors.

While there is no precise data in this respect,

it should be mentioned that the compensa-

tion level oered by these institutions is well

above the averages or the national economy

and public administration, being about 4-5

times higher. hus, in Moldova public ad-

ministration in their eort to attract quali-

ied personnel have to compete on the la-

bor marker not with the private sector, as it

would be natural, but rather with the donor

28 http://statbank.statistica.md/pxweb/Database/RO/03%20

MUN/MUN10/SAL01/SAL01.asp

community who can oer much better terms

or their employees.

Table 11. Compensation level, yearly ave-

rage.

2008 2009 2010Economic activities -

total 2529,7 2747,6 2971,7

Public administration 2802,4 3209 3204,8

Source: NBS

4.1.3 Procedures and instruments

Sustainability o oreign assistance

projects implementation activities is provid-ed by existence o eicient procedures and

instruments. hese procedures and instru-

ments are related to relevant instructions,

methods, manuals, and orms. he system o

procedures and instruments, in order to be

eicient, must guarantee accumulation and

transmission o knowledge.

he existence o such systems and in-struments reduces vulnerability o imple-

menting institutions, allowing or attenua-

tion o the negative eect generated by the

personnel luctuations and guaranties their

eicient operation.

Overall operational management o or-

eign assistance projects is one essential ele-

ment that determines the administrative ab-

sorption capacity o unds provided by the

donor community. he main role in ulilling

this unction in Moldova is attributed to the

National Coordinating Authority or Foreign

Aid (NCAFA) represented by the State Chan-

cellery. he NCAFA duties lies in the ield

o providing necessary support or eicient

operation o the Inter-ministerial Committee

or Foreign Assistance Coordination; holdingnegotiations with the donor community; par-





ticipation in elaboration and negotiations o

the sectoral government contracts; ensuring

diversity and eiciency in cooperation with

donors present in the country; monitoring

and coordinating implementation o ongoing

project activities; ensuring record keepingand transparency o the relevant activities.

Coordination mechanism o oreign as-

sistance in Moldova29 is divided into 3 steps:

- Program design

- Implementation

- Monitoring

he program design includes: deter-

mining assistance priorities, identiying andormulating project proposals, negotiating

and concluding the state contract.

Assistance priorities are ormulated by

the NCAFA and approved by the ICSP, based

on the proposals approved at the sectoral lev-

el and in accordance with the major national

policy documents. he circuit o oreign as-

sistance projects is similar to the mechanismo ormulation o assistance priorities. Project

proposals are elaborated in accordance with

some predetermined orms by the sectoral

coordinator and, ollowing their approval

by the sectoral council, are submitted to the

NCAFA to be approved by ICSP.

Subsequently, ater being accepted by

the ICSP, the national coordinator submits

the project proposal to the donor and negoti-

ates the state contract.

he second stage o carrying out a or-

eign assistance project, the implementation

phase, is characterized by a high degree o

coherence and is generally conducted by the

sector coordinator.

he third part reers to the monitoring

29 Government Decision Nr. 12 o 19.01.2010 the Regulation

on the institutional ramework and mechanism or coordinating the

external assistance provided to Moldova by the international orga-

nizations and donor countries.

o oreign assistance projects. Monitoring is

implemented by the NCAFA, according to

the ollowing reports prepared by the benei-

ciaries o the oreign assistance projects and

approved by the sectoral council:

- monitoring report on the initial phase of

the project/program

- progress monitoring report

- final monitoring report

In addition to this, the sectoral coordi-

nator prepares an annual report on progress

in implementation o projects and programs

o oreign assistance in the given sector and

presents it to the National coordinator. heNCAFA prepares a consolidated annual re-

port on progress in implementation o oreign

assistance projects and programs and presents

to ICSP. he NCAFA can also participate in

evaluation o projects and programs o or-

eign assistance implemented in Moldova.

Another aspect related to the proce-

dures and instruments o oreign assistancemanagement has to do with the internal orga-

nization o activities o the public authorities.

he norms governing the secretariat

activities, elaboration and implementation

o legislative provisions, as well as inancial

management o the public entities in Mol-

dova are regulated by the relevant legal provi-

sions.

Qualiied assessment o inancial man-

agement procedures applied in Moldova is

contained by the Public Expenditure and

Financial Accountability Assessment report,

prepared with the support o the WB30. Ac-

cording to this report, in 2008, as ar as the

system o accounting, record keeping and re-

porting is concerned, Moldova showed posi-

tive results in ensuring regularity and com-30 Republic o Moldova Public Expenditure and Financial Accoun-

tability Assessment Public Financial Management Perormance Re-

port July 2008





pliance with the timing requirements in ac-

counts reconciliation; in what concerns avail-

ability o inormation on resources received

by service delivery units, on an A to D scale,

Moldova received a B grade; quality and time-

liness o in-year budgets reports and annualinancial statements received a grade o C+.

In the part related to external control

and audit, it should be mentioned that the

highest grade was that or the legislative scru-

tiny o the annual budget law , B+, while the

scope, nature and ollow-up o external audit

received C+. he worst grade in this respect

was received or the legislative control o theexternal audit reports, graded with D.

As a whole, integrated assessment o

public inance management perormance in

Moldova received 9 marks A, B, and B+, 8

marks C and C+, and 5 marks D and D+. In

comparison to 2006 data, 15 criteria ollowed

an upward trend, while 2 criteria recorded a

downward trend.he system o public procurement im-

plemented in Moldova, according to a report

prepared by the World Bank in 201031,, was

evaluated as presenting moderate risks and

complying with the basic criteria o an ei-

cient public procurement system32. However,

there are also certain shortcomings that need

to be solved in order to attain a desirable

level o eiciency, but these aspects will be

discussed in more detail in the second part o

this chapter.

31 Document o The World Bank Report No. 61829 MOLDOVACOUNTRY PROCUREMENT ASSESSMENT REPORT (CPAR), June 2010

32 According to the conclusions o the sel-evaluation report and

the World Bank report, the procurement system in Moldova corres-

ponds to the „C” level.

4.2 How well are prepared national authorities

for the implementationof foreign assistance

projects?

4.2.1 Preparation, elaboration, and im-

plementation of projects

During the period May-June 2011, the

IDSI Viitorul team carried out a survey re-

garding the problems that the CPA and the

LPA ace while implementing projects and

programs inanced rom oreign assistanceunds. hirty nine localities, 16 bodies o the

CPA, and a relevant number o active donors

operating in Moldova took part in this survey.

At the LPA level, the survey results

showed that 17.9 o the respondents stated

that they had applied either or a single proj-

ect, or or more than 5 projects, while the

majority o the participants, 41% o the total,had submitted 2 to 5 project applications, .

Also, 23.1 per cent o the respondents did not

apply or any project inanced by oreign as-

sistance unds.

From the above mentioned data can

be made general conclusion that , once the

skills related to application or external unds

are acquired, the LPA uses this instrument to

solve problems aced at the local level increas-

ingly oten. Tis shows that there is a need to

strengthen inormation campaigns regarding

LPA’s opportunities to apply or unds provid-

ed within the oreign assistance ramework, as

well as the need to train potential beneciaries

in order to develop project elaboration skills.

It is also desirable to design certain instru-

ments or simpliy procedures or those whoapply or the rst time or this kind o unds.





he situation is somewhat similar when

looking at the number o successul project

applications that shows that the respondents

who indicated 3 to 5 successul applica-

tions represent the largest share, accounting

or 33.3% o the total. he number o par-ticipants who stated that they had won one

or two projects is, correspondingly, 10.3%

and 15.4%, while only 7.7% indicated they

awarded more than 6 projects.

hus, i we are to compare data pre-

sented or these two questions, we can ob-

serve that out o 17.9% applications or one

project, 10.3% were successul, while out o 58.9% applications or at least 2 projects,

48.7% represent those who managed to win 2

to 5 projects. At the same time, out o 17.9%

o applications or more than 6 projects, only

7.7% o the total turned out to be successul.

his last act possibly points to existence o

some administrative barriers aced by those

who apply or more than 5 projects, becausegiven the large number o applications, the

argument regarding lack o experience or low

quality o the application documents appears

to be less plausible.

An interesting situation can be observed

when looking at those who participated in

project elaboration. hus, most o responses

reer to either employees who besides elabo-

ration o project proposals, are also involved

in other activities within the ramework o

their employing institutions, or either to the

active representatives o local communities,

with the sum o both accounting or 23.1%

o the total. Also, a high share is reerring to

local NGOs (20.5%). his situation points to

importance o those who have local expertise

and are directly involved in resolution o day to day problems aced by their communities,

in preparation o the application documents.

At the opposite pole one can ind employees

who are only involved in project elaboration

activities, such as consulting companies, in-

ternational organizations, and national or in-

ternational NGOs, who make up 33.4% o the total number o responses.

One can also ind suggestive the re-

sponses o the surveyed who have not previ-

ously applied or externally unded projects,

about their intention to apply in the uture,

with 89.7% responding positively. his de-

notes popularity enjoyed by this instrument

o resolving problems at the local level. In thissense, it is necessary to increase the amount o

unds channeled towards the LPA. It could be

taken in the consideration the examination o

the possibility to channel using this system at

least a part o allocations o the state budget

that are in present directly transerred rom

the state budget and orm over 60% o the

LPA’s revenues .Lack o qualiied personnel and mate-

rial resources are the most important reasons

making up two thirds o the problems aced

by the LPA when applying or external unds.

Other important problems encountered by

the LPA are access to inormation, passivity

o the local NGOs, or lack o experience. his

description denotes importance o strength-

ening the LPA’s potential, including through

raising salary bar, at least or the public ser-

vants in the given domain, as well as expand-

ing inormation campaigns aimed at amiliar-

izing the LPA with the opportunities to apply

or unds allocated within oreign assistance

programs.

Lack o well-trained personnel and o

the initiative at the local level are also majorproblems that aect the quality o the process





o implementation o the oreign assistance

projects by the LPA. We consider that un-

dertaking above-mentioned actions with the

purpose o eliminating deiciencies encoun-

tered in the process o applying or the proj-

ects inanced by donors will also contributeto elimination o the major causes revealed in

the process o their implementation.

Deiciencies in attracting unds at

the local level, as well as lack o interest

with the population, are the major causes

that render diicult implementation o the

projects unded by the donor community

that also need to be co-inanced by the ben-eiciaries. Although the LPA stands ready to

identiy additional unding sources in order

to successully implement projects carried

out with the donor support: 84.6% o re-

spondents. One should also note the low

degree o cooperation among communi-

ties in Moldova as ar as launching o some

projects o common interest at the level o these communities is concerned. In this

sense, it is necessary to increase the num-

ber o inancing instruments at the regional

level that would make cooperation among

two or more community a compulsory re-

quirement.

While limited capacity o implementa-tion o the externally unded projects repre-

sent an important cause or the success o this

process, the surveyed respondents expressed

optimism with regard to their capacity to

ensure eicient management o the projects

unded by the donor community, without

hiring any additional sta: 45.7% o the par-

ticipants said they were ready to manage ouror more projects.

In this sense, one can ind suggestive

the opinions expressed by the respondents in

connection with the major challenges aced

by Moldova in the process o European inte-

gration: these are corruption (21.4%), con-

lict in ransnistria (17.9%), but also limited

administrative capacity (14.5%) and deicito inancial resources (14.5%).

Table 12

Nr.% of

cases

1. 1. Low administrative capacity (central and local public

administration)17 14.5% 43.6%

2. 2. Lack of political will in the government’s side 10 8.5% 25.6%

3. 3. Decit of nancial resources 17 14.5% 43.6%

4. 4. Shortage of qualied personnel 6 5.1% 15.4%5. 5. Lack of foreign investment in the economy 10 8.5% 25.6%

6. 6. Conict in Transnistria 21 17.9% 53.8%

7. 7. Corruption 25 21.4% 64.1%

8. 8. High number of cases at ECHR 3 2.6% 7.7%

9. 9. Russia’s foreign policy 7 6.0% 17.9%

10. 10. Others 1 0.9% 2.6%

Total 117 100.0% 300.0%





However, the respondents expressed

somewhat dierent opinions with regard to

the capacity o the local administrations to

elaborate strategies and policies relevant to

local economic development that was appre-

ciated as being positive by the majority o therespondents.

Local public authorities encounter tech-

nical and management problems while imple-menting ODA projects. Opinions in this re-

spect were expressed during the roundtable

organized on May 18, 2011 by the Working

group on agriculture and regional develop-

ment33 within the National Convention or

European Integration. Problems that need to

be resolved are the ollowing:

• simpliication and reduction o ad-

ministrative constraints;

• increase the number o employees en-

gaged in the ield o regional develop-

ment;

• elaboration o job descriptions with

the purpose o setting up a stable,

unctional, and operational structure;

• providing training to personnel in-

33 http://www.conventia.md/petru-a-atrage-c%C3%A2t-mai-mul-

te-onduri-europene-pentru-dezvoltarea-sa-regional%C4%83-re-

publica-moldova-trebuie-s%C4%83-%C3%AE%C5%9Fi-ortice-ca-

pacitatea-institu%C5%A3ional%C4%83-%C5%9Fi-uman%C4%83/

volved in management o the regional

development programs;

• organizing study visits to both EU

member states and EU partner states

with the purpose o good practices

and experience exchange;• setting up an eicient mechanism o

communication between government

institutions, as well between govern-ment institutions and private and

non-government sectors;

• creating web pages that would con-

tain detailed inormation related to

the concept o regional development,

institutional and legal ramework on

both national and international scale,

situation in Moldova, instruments o

cooperation and regional develop-

ment, application opportunities, eli-

gibility criteria, etc.;

• development o national mechanism

o monitoring and evaluation o proj-

ects carried out using oreign assis-

tance.

At the CPA level, as a result o a survey car-ried out at 16 central authorities, it was

Table 13

To what extent do you agree

with the following statements?

Strongly

agree

Somewhat

agree

Somewhat

disagree

Strongly

disagree

Don’t

know/No

answer

Local administration in

Moldova has capacity for

elaboration of strategies and

policies of local economicdevelopment

4 28 5 2 39

10.3 71.8 12.8 5.1

100%

Local administration in

Moldova has capacity and

resources for implementation

of strategies and policies of

local economic development

2 20 13 4 39

5.1 51.3 33.3 10.3

100%





shown that the most acute problems related

to the project proposal elaboration are:

· Lack o well-trained personnel;

· Ineicient inter-institutional/intra-in-Ineicient inter-institutional/intra-in-

stitutional collaboration;

· Ineiciencies in providing inancialcoverage;

· Project design is imposed by the donor

organization;

· Lack o inormation (statistics, relevant

qualitative data, etc.).

At the implementation stage, challenges

aced by the CPA are:

• Lack o well-trained personnel;• Bureaucracy;

• Lack o initiative and diiculties o

collaboration among institutions.

he ollowing problems were specii-

cally reported in connection with elaboration

o the projects related to EU topics:

• Diiculties in inding co-inancing;

•

Problems o inter-institution collabo-ration (with other institutions).

hus, at the CPA level similar to LPA,

the major problems that impede implementa-

tion o the oreign assistance projects are lack

o qualiied personnel, deicient inter-minis-

terial cooperation, as well as insuicient co-

inancing.

his situation is also reported by the

donor community which were also surveyed

as part o the mentioned opinion poll. hus,

in opinion o donors, elaboration o bilateral

cooperation programs is hindered by lack o

qualiied personnel, as well as lack o initia-

tive and weak collaboration among institu-

tions. hese problems are more prominent at

the CPA level.

As ar as project implementation isconcerned, the range o the problems at the

CPA level is similar to that reported in the

program elaboration part, while at the local

level the reported problems were: complicat-

ed procedures/systems o reporting, as well as

high level o corruption.

4.2.2 Efficiency of public service, financial

management, and public procurement

Public procurement system is an im-

portant link in the process o public unds

utilization. A transparent and competitive

public procurement system is important or

ensuring the eicient use o public unds.

Deiciencies in this domain can be traced to a wide range o problems, rom determination

o the needs, elaboration o the documents,

lack o transparency or competition to con-

tract awarding or low-quality supervision o

contract execution. he donors are held ac-

countable or allocated unds and oten opt

or their own systems o public procurement.

In case o Moldova, according to the data onthe current year’s survey on indicators o the

Paris declaration, the vast majority o unds

managed within the projects inanced by ex-

ternal technical assistance are implemented

using donors’ own public procurement sys-

tems. he use o national systems is ound

only when unds are channeled using the

mechanism o direct budgetary support (this

type o assistance signiicantly increased com-

pared to the previous monitoring in 2008).

While as ar as technical assistance is con-

cerned the situation has not changed much,

projects being usually implemented outside

the national systems.

How justiied is this situation? In or-

der to provide an answer to this question, one

needs to reer to the assessment o the nationalprocurement system contained in the Coun-





try Procurement Assessment Report (CPAR),

carried out in June 2010 by the World Bank.

In this report it is speciied that the

normative ramework applied in this domain

in Moldova is similar to that o the EU, meet-

ing a signiicant number o basic criteria o eicient public procurement system. Upon

adopting the new law on public procurement

in 2007, organization o the public procure-

ment in Moldova underwent signiicant

changes. Procurement processes were decen-

tralized at the public entities level and a pro-

curement agency, subordinated to the Minis-

try o Finance, was ounded, which ensuresmore eicient cooperation within the entire

inancial management system.

However, one can also observe prob-

lems in this domain:

- he agency’s sta size is too small rela-

tive to the amount o work that has to

be carried out within the range o ac-

tivities that all under its competency;- he report mentioned above identi-

ied the need to improve the norma-

tive ramework in the domain, partic-

ularly through preparing and adopt-

ing secondary normative acts.

In conclusion, the national public pro-

curement system was ound by the authors o

the report to present moderate risks.

he report also speciies that most o

the projects that are inanced by the World

Bank are implemented by the Parallel imple-

mentation units (PIU), created by the donor,

and not through the government agencies.

he main reason or this lies in limited ca-

pacity and lack o qualiied personnel within

the government agencies. On the other hand,

the PIU are able to hire well-trained person-nel, better qualiied or procurement, inan-

cial management and other relevant activities

within the projects inanced by the World

Bank. Also, the PIU are able to hire required

personnel on the individual contract basis or

the duration o the project, in exchange or a

compensation that is well above the averagesalary level o public servants in Moldova.

he assessment o the national system

o public inance management is contained in

the report on eiciency o the public inance

management prepared in 2008 with the sup-

port o the World Bank. his report compris-

es several parts that appear important or this

study. In the part dedicated to the credibility o the national budget the authors o the re-

port mention that in Moldova there is a good

relation between the budgeted unds and ac-

tual expenditures. Also, it is mentioned that

the ramework within which the preparation

o the national public budget takes place and

the way the inormation is disseminated to

interested public are optimal. In the part thatdescribes the correlation between the budget

allocations and the national strategic priori-

ties and policies, taking into consideration the

long-term impact o the adopted decisions, it

is mentioned that adequate and comprehen-

sive relecting o the national strategies in the

medium-term inancial planning documents

still needs to be improved.

he quality o inancial reporting di-

ers greatly across authorities at the local level

due to the lack o a unique accounting pro-

gram or budget authorities approved by the

government.

he independent audit o the activities

o public entities is carried out by the Court

o Accounts that has the ability to veriy any

public entity or institution, including specialunds. Starting with 2005, the Court o Ac-







2010 suggests, the disbursement o unds is

linked to policy conditionalities, which are

sometimes imposed without an evaluation

o the national capacities and inancial pos-

sibilities or implementation35. he Govern-

ment has managed to ensure a common listo conditionalities, which are in line with the

National Development Strategy objectives,

but as a rule, the unds are still accompanied

by high administrative costs per unit due to

dierent management constraints and/or be-

ing implemented by parallel implementation

units. hereore, it is even more important

or Moldova to administer ODA in the mosteicient way possible in order to use this win-

dow o opportunity to support reorm imple-

mentation.

4.3.2 Administrative constraints of

CPA`s and LPA`s

Although the ramework o the oreignassistance management in Moldova is gener-

ally well structured, it is not devoid o short-

comings. hus, the Government Regulation

regarding the institutional ramework and

coordination mechanism o oreign assistance

received by Moldova rom the international

organizations and donor countries36 makes a

reerral to the notion o state contract, but

not to that o the sectoral state contracts (it

is mentioned in the text o the Regulations,

paragraph 20, point „c”, but without provid-

ing a distinct and clear deinition). For this

reason, the text o this decision represents a

dichotomy that triggers certain lack o coher-

ence and ineiciency in the given domain.

35 Even i there are some evaluations made they are oten mostly

or donor`s use and the authorities and public are not aware aboutthe conclusions which could be otherwise used or making the ne-

cessary improvements o the country systems.

36 http://lex.justice.md/index.php?action=view&view=doc&lang=

1&id=333522

While in Moldova, in virtue o the structure

o the government, the totality o social and

economic areas are coordinated by the au-

thorities created or this purpose that are re-

sponsible or promotion and implementation

o sectoral policies, introduction o the men-tioned notion o state contract creates a new

dimension, that lies above the sector-speciic

ields. his state o aairs reduces importance

o the ownership principle o the sectoral au-

thorities, and implicitly their autonomy in the

sectoral activities management. In this way

risk o intererence o the national authority

or oreign assistance coordination with thedecision-making process at the sectoral level

is created, transorming its coordination role

into the implementation one, which is not

desirable. In order to eliminate this draw-

back, it is considered necessary to transer the

responsibility or carrying out negotiations o

the state contracts and promoting national

interests to the sectoral authority. his ac-tivity can be carried out with the support o

the national authority or oreign assistance

coordination, i this is the case, as a part o

the negotiating team, but not in charge o it.

he role o the national authority or oreign

assistance coordination should be, in this re-

spect, as it actually ollows rom its title, to

provide methodological support or elabora-

tion o the standard ormat o the state con-

tracts and providing necessary consultancy

support or negotiation and contracting pro-

cesses, leaving the right to take decis ions with

the sectoral authorities who are naturally re-

sponsible or the perormance in their sector

and who will submit these proposals or inal

approval within the Inter-ministerial com-

mittee or strategic planning.In what concerns the sustainability o





the oreign assistance coordination activi-

ties carried out by the authorities through

a system o procedures and instruments, it

should be mentioned that this could only be

implemented in Moldova under condition o

compliance o the donor community members with the procedures o nancial management

and activity coordination applied at the na-

tional level by the public authorities in Mol-

dova.

Application o some specic procedures

by the donor community, procedures that vary

across donors, sometimes signicantly, intro-

duces an element o instability or the nationalauthorities that, despite their limited capaci-

ties, must comply with these requirements.

In accordance with the data on monitoring

indicators o the Paris Declaration regarding

the eciency o the Ocial Development

Assistance (ODA), at this moment, approxi-

mately one hal o the assistance granted to

the country is implemented using nationalprocedures o public nance management and

procurement. I we are to exclude rom the

total amount unds transerred using the in-

strument o direct budgetary support, which

by its very nature does not presuppose utiliza-

tion o some individual procedures or donors,

one can observe that the overwhelming major-

ity o oreign assistance received by Moldova

within the ramework o individual projects

is managed applying donors’ own procedures

o nancial management and public procure-

ment. Tis is urther conrmed by the signi-

cant number o implementing donors present

in Moldova, which can be ound in the oreign

assistance database at www.ncu.moldova.md .

Tese implementing donors represent parallel

project implementation units, declared withinthe above-mentioned monitoring report in a

number o 18 or the year 2010.

In this part, one should also mention

that the programming phase is heavily central-

ized. Te NCAFA has the right to establish

the extent to which the proposed project will

contribute to resolving major problems in thesector, or this duty alls within the competency

o the authority responsible or this sector and

can only be adjusted within the ICSP rame-

work.

Te second part o carrying out oreign

assistance projects, called implementation, is

characterized by a high degree o coherence

and is generally managed by the sector coor-dinator. However, it must be noted that due

to the existence o dierentiated approaches

towards the state contract and the sectoral

contracts types in the programming part, there

can be certain deciencies in the implemen-

tation part, because the sector coordinator is

assigned responsibility or coordinating imple-

mentation o the oreign assistance projectand is held ully accountable or its ecient

and eective implementation, although at the

elaboration and approval phases o the proj-

ect, including development and approval o

the terms o reerence37, the sector coordinator

had only limited participation.

In order to ensure ecient operation

o an evaluation and monitoring system, it is

important to determine what aspects exactly

need to be monitored and evaluated and what

is the nal goal o this monitoring activity. It

should be noted that the oreign assistance co-

ordination activity in Moldova mostly consists

in monitoring, and less in evaluation, which

would imply not only interventions during

the implementation period o the project/pro-

gram, but also an evaluation o its eective-

37 Paragraph #29 point „b” o the Regulation presupposes „ormu-

lation o the terms o reerence or the project”





ness/eciency at the sector level, as well as the

analysis o the mistakes committed during the

implementation period, in order to avoid their

repetition in the uture (an example in this

respect is set by the projects aimed at build-

ing capacity o ministries/government agen-cies MIEPO, MMPSF, MF, etc., where some

o the new projects had the same objectives as

the previous ones, thus casting doubt upon the

eciency o the previous interventions). It is

sometimes believed that the impact o oreign

assistance can be measured by a simple sum-

ming–up o the results obtained within the

ramework o separate projects. However, thisis not true. Tere can be situations where the

results o dierent projects can be mutually

exclusive. In Moldova there is no practice o

a common evaluation exercise o the oreign

assistance projects by relating their outcomes

to the national development strategy, as well

as to a set o internationally relevant indica-

tors, such as Millennium Development Goalsor Human Development Index, which is the

most suitable in this context. Tus, de acto in

Moldova the quality assessment o the projects

implemented by the donors is not carried out,

instead there is just an evaluation o accom-

plishment o the objectives set by the donors

at the moment when they decided to provide

assistance to the country. Te impact o the

received assistance, which should be o prima-

ry interest or the government o Moldova, is

not analyzed. Starting rom the moment when

Moldova began to benet rom ODA to this

moment there has not been a single annual

global evaluation report o the implemented

projects and their nal impact and accom-

plishments o the priorities set in the strategic

planning documents. Moreover, not all sec-tors have their sectoral strategies elaborated,

as the activity o the sectoral councils in most

ministries varies in its degree o operationail-

ity. While some began their operation in the

beginning o 2010 (councils established even

beore the adoption o the Regulations, e.g.,

Ministry o Health), others had only their rstmeeting conducted in 201138. An eloquent ex-

ample is provided by one o the rst elaborated

sectoral reports39, which displays continuing

supercial treatment with regard to the moni-

toring and evaluation. Tis report only con-

tains a list o activities/outcomes o various

projects according to the priorities o dier-

ent sectoral programs/National DevelopmentStrategy without trying to estimate what was

their contribution to attaining sectoral goals.

On the other side, evaluation reports or most

o the projects implemented by the donors

were not made public (with some exceptions,

like in the case o the World Bank) or were not

submitted to the relevant administrative bod-

ies in order to make possible an evaluation o their eects by the state authorities and/or civ-

il society and, thus, strengthen ownership and

capacity at the national/local level, as ar as

the ramework o the sectoral policies is con-

cerned. Moreover, although the government

committed itsel to ensuring transparency o

the governance process, as one can iner rom

the provisions contained in the Regulation re-

garding the activity o the sectoral councils, in

the part related to the council membership,

invitation o the representatives o the civil so-

ciety and o the representatives o the private

sector to its meetings is done “in cases when

it is relevant”40, which leaves a large room or

interpretation and allows or unilateral appli-

cation o the transparency principle at one’s

38 http://www.mcdr.gov.md/index.php?pag=news&opa=view&id=405&start=20

39 http://ms.gov.md/_les/8139-RAPORT%2520ANUAL%2520ASI

STENTA%2520EXTERNA%25202010.pd

40 Paragraph 24, points “b” and „e”





liking and which does not contribute to estab-

lishing o the mutual accountability practices.

Tis, along with other actors, even-

tually made it impossible to carry out an in

depth evaluation o the outcomes o the rst

substantial tranche in amount o USD 1.2 bil-lion received by Moldova in 2006, as a result

o the Donor Meeting in Brussels, and o the

actual contribution o the assistance unds to

implementation o the Economic Growth and

Poverty Reduction Strategy (EGPRS) and the

National Development Strategy (NDS).

At the same time, as concerning the re-

gional level there were identied the ollow-ing actors that are related to the institutional

constraints identied at the LPA level and that

limit the opportunity to attract and utilize ex-

ternal unds or development purposes:

Lack o a real scal decentralization at

the local level and, thereore, existence

o constraints that negatively aect the

capacity at the local level and accumu-lation o the relevant experience by the

involved personnel,

Inadequate legal and regulatory rame-

work that does not t the actual con-

text o the regional development (or

example, lack o legal ramework with

regard to provision o common services

by local administration in multiple lo-cations) regionalization o public ser-

vices

Weak inter-ministerial and regional

coordination o the regional develop-

ment problems and insucient inter-

connection o the sectoral strategies

and regional development priorities

(decient coordination o the LPA pro-posals at the regional level and sectoral

priorities lead to a chaotic character o

the projects. Investment proposals are

weakly coordinated between levels 1

and 2, there are no common criteria

or project prioritization, the quality o

the projects is unsatisactory, many o

them are inadequately planned and donot envisage durability upon projec-

tion completion).

Lack o coherent vision with regard

to the consolidation o capacity o the

LPA at the local level (interventions

through projects are spontaneous and

o local character, and due to the lack o

sucient unds at the local level, theirsustainability cannot be maintained)

and o the Council or Regional Devel-

opment necessary or monitoring and

evaluation o the project at the regional

Other actors include: improvement o

nancial management, such as internal

audit, improvement o regional statis-

tics, etc.

4.4 Best practices in foreign

assistance absorption

Te examples o oreign assistance ab-

sorption can be ound by looking at two coun-

tries, each being a leader in the group o coun-

tries it is customarily attributed to: Poland41,

the biggest country in the eastern block o

the European Union and the only one to have

recorded positive growth, 1.8%, in times o

economic crisis (2009) (and expected to at-

tain the growth rate o about 4% in 2011), and

Estonia, the leader o the post-Soviet country

block.

41 http://www.mrr.gov.pl/english/Documents/Broszura%20MRR_

ENG_PREVIEW_OST.pd





Te key element that contributed to the

success achieved by Poland 42 in attracting and

absorbing unds consists in a high degree o

decentralization and strengthening o the lo-

cal/regional capacities. At the same time, the

main institution at the central level responsi-ble or coordination and taking nal decisions

is the Ministry o Regional Development.

In case o Estonia 43 (a country that aced

roughly the same challenges at the local level44

as Moldova), a dierent scheme was used, as

in 2000, even beore the country’s accession

to the EU, there was created a specic institu-

tion, Enterprise Estonia (285 employees anda budget o 201.5 million Euros or 2011),

with a large network represented in the re-

gions and internationally that participates in

the program implementation. In this case, the

Ministry o Finance plays the main role in co-

ordination and nancial management o the

structural unds. During the European Union’s

nancial period o 2007-2013 approximately 796.1 million Euros, out o over 3.25 billion

Euros o structural assistance (about 20%),

will be attracted and implemented in Estonia

through Enterprise Estonia. In both Estonia

and Poland the utilization o structural unds

is looked at through the prism o the support

rendered at the national level or the private

sector development and assistance in the re-

gions, supplying nancial assistance, consul-

tancy and opportunities o cooperation and

instruction or entrepreneurs, unding certain

research and development platorms, develop-

ment o the regional inrastructure, and ex-

ports promotion.42 http://www.adevarul.ro/actualitate/Elzbieta_Bienkowska-mi-nistrul_polonez_al_Dezvoltarii_Regionale-_Cum_a_cheltuit_Polo-

nia_toti_banii_de_la_UE_0_498550514.html

43 http://www.eas.ee/index.php/about-enterprise-estonia/over-

view44 Estonian Local Government Absorption Capacity o European

Structural Funds, Merit Tartar, University o Tartu, 2010http://dspa-

ce.utlib.ee/dspace/bitstream/handle/10062/719/tatarmerit.pd;jses

sionid=96FBD84C2D1098D6139976B4C035B00B?sequence=5

Enterprise Estonia carries out ollowing

activities:

• Raising durability and stimulating

higher growth rates o the start up

companies;• Improvement o exports and develop-

ment o the production capacities o

Estonian companies.

• Ensuring a stronger impact o the or-

eign investment in Estonian economy;

• ourism development

• Promoting regional development and

civil society

Poland has at its disposal 68 billion Eu-

ros supplied by the EU, but the entire pack-

age, including the co-nancing part, exceeds

100 billion Euros. Te large share o unds is

redirected towards innovation, I, higher edu-

cation (60%), but also towards inrastructure,

roads or railways. 25% o the total amounto 68 billion Euros are directly distributed

among regions. Autonomous administrations

o voievodeships (regions) manage programs

on their own, decide upon what kind o invest-

ments will be unded, and negotiate directly

with the European Commission. Te Ministry

o Regional Development participates in these

discussions, but does not dictate to the regions

what they have to do. At the same time, in

order to maintain capacities developed by the

central and local public administration, a sys-

tem o competitive remuneration was provided

or the employees’ stability.

As a result, most o the European unds

were already contracted, so that virtually all o

the European money was used.





With the rising GDP per capita Mol-dova will soon graduate rom the IDA 45 bor-

rowing conditions and will pass under the

IBRD conditions, where the share o loans in

total ODA and the interest rate are higher.

he European Union has already become one

o the biggest donors or Moldova and in the

near uture will constitute the leading devel-

opment partner or Moldova. he perspec-

tive o stepping in the process o European

integration will be correlated with the critical

need to access unds to support the needed

reorms - pre accession unds and hopeully

later structural unds which will be directly

proportional to its absorption capacity. In

this respect, at this moment, the real stake or

Moldova is the capacity to absorb as much as

possible rom the unds which were already allocated or will be provided in the uture. At

the same time, it should be noticed that these

two dierent types o assistance provided by

the WB and the EU will imply urther changes

in the composition o the ODA in Moldova.

While irst is inancing a certain type o proj-

ects/programs (mainly ocused on economic

growth/poverty reduction programs) and hasa certain expertise and ield capacities, the

EU is oering its assistance largely through

direct budget support. In this respect, beore

“graduating” rom the WB`s IDA Moldova

should use both possibilities in order to pre-

pare itsel or the more sophisticated and di-

versiied EU inancial instruments by:

1. Further strengthening o the na-45 http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/ID

A/0,,contentMDK:20051270~menuPK:83991~pagePK:51236175~pi

PK:437394~theSitePK:73154,00.html

tional systems and more eicient use o di-rect budget support rom the EU or the im-

plementation o the Government priorities,

mechanism which is usually conditioned by

improvement o control over the eiciency

o unds spending (M&E) and transparency/

mutual accountability. More assertive negoti-

ation over the priorities to be covered by this

instrument and use o the “more or more”

principle guiding some o the instruments o

the EU development assistance.

2. At the same time, to address current

weak administrative capacities, Government

could use the existing national expertise (cur-

rently employed sta within the dierent

WB and other donors’ PIUs, civil society etc.)

by gradually raising the standards o the civil

service and prestige and trying to integratein civil service or either using them as local

consultancy or externalized speciic techni-

cal tasks.

One thing is obvious that no one will

push you rom behind when it comes to at-

tracting and spending (in an eicient way)

unds made available at a avorable rate or

developing countries or in the longer per-spective, unds which could be available or

the EU candidate/member countries. De-

spite this, in Moldova the current political

management o the institutions seems to be

barely involved and interested in this issue

at all, which needs not only rhetoric, but

also developing speciic technical knowledge

and capacities. Foreign assistance is seen asan opportunity to cover the existing budget

deicit “consumerist approach” rather than a

CONCLUSIONS





conscious strategy o gradually building up

the national economy capacity, in order to be

able to cover persisting iscal deicits and to

keep up pace o reorms46. In this respect, it

is o utmost importance that the contracted

credits be used or more productive purposes, while grants can be used to cover social or

other current expenditures (like technical as-

sistance or strengthening the administrative

capacities, etc.).

1. he institutional ramework has pos-

itive background or ensuring an adequate

level o absorption o the oreign assistance

in Moldova, but the noncompetitive com-pensation levels greatly reduce the national

public authorities’ capacity to administer this

process. It is imperative to improve attrac-

tiveness o positions related to the process o

coordination and implementation o oreign

assistance, in order to attract sta with high

qualiications relevant or this domain.

2. he excessive centralization o thecurrent model o oreign assistance coordina-

tion is prone to ineiciencies caused by inco-

herent distribution o competences in the de-

cision-making process and o accountabilities

or inal implementation o those decisions.

It is also necessary to accelerate the process

o decentralization o the public procurement

system with the purpose o strengthening

conidence o the donor community in its ca-

pacity to operate eiciently.

3. he practice o implementation o

the oreign assistance development projects

by the donor organizations reduces the ad-

ministrative capacity o public authorities,

as the highly qualiied personnel is attracted

rom the labor market by better opportuni-

ties oered within the ramework o these in-46 Foreign Assistance and Moldova`s Economic development, Fo-

reign Policy State watch 2010, IDIS Viitorul http://www.viitorul.org/

public/3006/en/Policy_Statewatch11_en.pd

stitutions that partially duplicate public ad-

ministration and some o the segments o the

budgetary system. he capacity o the donor

organizations to oer much higher compen-

sation in comparison with the average sal-

ary in public administration and the overalleconomy gives them a clear advantage in at-

tracting the most qualiied personnel on the

labor market. At the same time, this situation

negatively aects the administrative capacity

o the national public administration that has

above all to ensure eicient communication

with the entire donor community by using

each donor’s own “inancial language”. In thisrespect, it is necessary to eliminate practices

that are oriented towards pursuing the partic-

ular interest o each individual donor in suc-

cessul implementation o its own projects, in

avor o the situation where the goal would

be strengthening o the overall capacity o the

national authorities and, consequently, their

capacity to eiciently implement projectsunded by the ODA. hus, it is necessary to

ind some ways o continuing consolidation

o the capacity o the national public authori-

ties, including through oering additional

compensation to their personnel that is in-

volved in implementation o the oreign assis-

tance projects by using donor-provided unds.

hus, one can eliminate pressure exerted by

donors over the national public authorities,

and re-create, as it is natural, the competition

between the public and private sector on the

labor market.

4. he highly limited inancial au-

tonomy o the LPA reduces their capacity to

implement oreign assistance projects that

require co-inancing as most o the unds at

their disposal are transerred rom the statebudget and do not come rom their own rev-





enues. hereore, it is necessary to transer to

the LPA certain categories o the iscal reve-

nues that are currently being collected by the

state budget. his will stimulate competition

between the LPAs, including in the domain

o the oreign assistance implementation, which will have a positive impact over their

absorption capacities.

5. An important actor that reduces the

oreign assistance absorption capacity, re-

ported by all parties involved, is the lack o

cooperation among authorities. he growing

number o projects, as well as development o

some new projects that would encourage co-operation at both regional and inter-institu-

tional level, will contribute to limiting o this

disadvantage and will encourage the exchange

o experience and best practices among the

authorities.

6. Lack o any evaluation that would as-

sess the impact on the national level o the to-

tality o the oreign assistance projects carriedout in Moldova by correlating their outcomes

to the internationally used perormance in-

dicators, such as HDI or MDG, reduces the

relevance o oreign assistance projects and

makes it impossible to ollow their imple-

mentation with the purpose o identiying

major causes that lie at the basis o possible

ineiciencies in this domain.

7. Employing qualiied human re-

sources and their training remains a critical

problem in the process o the management o

the programs/projects. his issue is partially

solved in the case o CPA and the regional

development agencies that beneit rom di-

erent technical assistance projects/programs

which involve a certain exposure o the per-

sonnel to the experiences and requirementso the donors. On the other hand, in case o

LPA, the process is very slow. One needs spe-

ciic programs or training the personnel in

the aspects concerning the EU unds at the

level o the implementing units o the min-

istries/government agencies and regional de-

velopment agencies/local authorities. Eveni majority o them have already beneited

rom dierent trainings, the constantly high

personnel turnover is posing a problem and,

thus, the process o capacity building cannot

be addressed without the urther reorming o

the public service and proper system o mo-

tivation o the civil servants. he public ser-

vants could be positively motivated throughcorporate style incentives and by oering

bonuses tied to perormance in their activity.

Additionally, a tracking system is needed to

be established in order to ollow the carrier

o the public servants to have periodically the

certainty that employees eel the importance

o their work or the public and to avoid pos-

sible loss. Another recommendation wouldaim at building institutional memory, so that

each document or discussion could be ar-

chived, preerably in electronic orm, to cir-

culate inormation and not to go rom a

zero point when people would leave the in-

stitution.

8. Currently, most o the technical as-

sistance programs implemented are win-

ning, AIEX instruments, while the newly

launched Comprehensive Institution Build-

ing Program is expected to address this issue

on a larger scale47. here are some aspects

to mention regarding the technical assistance

oered or building public administration ca-

pacities. Firstly, in many situations the real

implication o the institutions rom the EU

is insuicient due to a more ormal stance o

47 http://eeas.europa.eu/delegations/moldova/press_corner/all_

news/news/2010/20101124_01_en.htm





the national authorities when the projects/

programs are at the elaboration stage (de-

sign) and/or because o weak capacities o the

authorities to promote their views and lack

o bargaining power on negotiation over the

agreements regarding the technical assistanceto be provided. his is ampliied by the lack

o transparency in making public the project/

programs evaluation reports, while the bene-

iciaries usually do not want to go to deep and

show possible deiciencies in required quality

o assistance they are receiving and also de-

teriorate their relations with the donor. Sec-

ondly, the technical assistance is elaboratedusually by the oreign partner, which barely

has the knowledge o the local environment

and needs. hirdly, otentimes the content

o the training courses is determined by the

qualiications o the oreign experts which

can be mobilized to come to Moldova at that

speciic time. In conclusion, the eiciency o

the twinning programs is not up to par be-cause o the communication problems both

parts might have, as the assistance oered is

not always provided in the most eicient way.

In this respect, an analysis o the e-

iciency o the winning/AIEX programs

would be necessary. An active involvement

in these programs is necessary or building

the absorption capacity o the institutions in

Moldova. In other words, i we beneit romthese programs, we need to do it properly.

A major challenge is the internalization in

the next period o evaluation and monitor-

ing capacity in order to reduce dependence

on the external technical assistance, which

is very expensive, and which prevents more

extensive accumulation o institutional mem-

ory. he irst step is that o learning by do-ing “at work”, and not only at the theoreti-

cal level, which otherwise is also needed. he

second step is the gradual outsourcing to lo-

cal monitoring and evaluation research in-

stitutions. his step should not be seen

as compromising the quality o its own ca-

pacities, but should be thought as a natural

progress towards independent monitoringand evaluation capacities, located in the pri-

vate and nongovernmental sector.





Actions to increase

absorption capacity Tis study has analyzed a number o ac-

tors infuencing the absorption capacity o Mol-

dova and key elements o a strategy which will

increase aid absorption and eectiveness needed

to concentrate on addressing the bottlenecks in

institutional and policy arrangements, technical

and managerial capacity constraints and sucient

coordination between donors. Where institution-al arrangements have been developed these proved

to be eective in using aid (and where aid could be

scaled up urther). Te main elements o a strat-

egy to increase absorption capacity or aid should

thereore contain the ollowing elements:

1. Adopt a credible macroeconomic adjustment

and microeconomic restructuring strategy to

address the steep decline in long run o theremittances.

2. Urge scal decentralization reorm

3. Step up progress in the reorm o the civil ser-

vice and increase wages or civil servants (one

option could be the unds rom ODA)

4. Make urther progress in coordinating donor

activities and increasing the inormation base

on the activities regarding attraction and ab-

sorption o unds

5. Develop coherent and prioritized sector strate-

gies around which donors can align their ac-

tivities.

6. Assess the extent to which the positive lessons

can be integrated into and replicated across

other areas o government, making more

use o the Sector Wide Approach Programs

(SWAPs) and rationalize the existing structureo Project Implementation Units to maximize

their positive impact and reduce the threat

RECOMMENDATIONS

that such arrangements might ragment aid or

take capacity out o government.7. Continue PFM reorm implementation in or-

der to improve transparency and comprehen-

siveness o budgetary processes.

8. Address the problems encountered in the na-

tional procurement systems

9. Address inconsistencies in the Law on Local

Authorities and sector strategies in order to

put conditions in place or increased aid ab-sorption capacity at the local level.

10. Deepen anti-corruption eorts already un-

dertaken by adoption and implementation o the

anti-corruption law, like:

the establishing and making operational the

Commission o Ethics to deal with the cases

o confict o interests and dealing with the

declaration o incomes o the civil servants

and state ocials.

o ormulate strategies or ghting corrup-

tion in donor-unded project to enhance

condence o donors in GoM reorm pro-

grams.

11. Signing o development cooperation agree-

ments with the donors (to which will be also

added more technical Memorandums) or a pe-

riod corresponding with the national develop-ment strategy, whenever possible, will contribute

or a better predictability, division o labor, har-

monization and alignment.

12. Even i EU is the main development part-

ner, or which Moldova needs to prepare instru-

ments, simultaneous exploring o new “opportu-

nities” can complement the work in those sectors

where the presence o the donors is weaker48.48 Valentin Lozovanu/Viorel Girbu, Foreign Assistance and

Moldova's Economic Development, IDIS Viitorul, September 2010.





1. Alexandru Fala , Budgetary adjustments

are imperative or economic transor-

mation, Policy brie, June 2011 http://

www.vi i torul .org/publ ic/3427/en/

CHELUIELI%20SOCIALE_ENG.

pd

2. Association for Participatory Democ-

racy , Final monitoring report on com-

pliance with the transparency o the de-

cision-making process, April-December

2010, 2011

3. Atos Origin , “Monitoring and evaluat-

ing external assistance programs”. EC

Framework Contract “Support to the

coordinating Unit - Moldova”: Con-

tract No: 2005/106713 – Lot No 7.

Project unded by the EC

4. Boian Victoria , Inventarierea şi Evaluarea

Asistenţei Financiare acordate Moldovei

de Uniunea Europeană, 2010

5. Centre for Strategic Studies and Reform

Experience and Techniques of Aid Co-

ordination in Moldova , January 2003,

6. Country Chapter Moldova , Survey on

Monitoring o the Paris Declaration,

OECD, 2006.

7. Country Chapter Moldova , Survey on

Monitoring o the Paris Declaration,

OECD, 2008.

8. Dovydas Vitkauskas/Stanislav Pavlov-

shci/Eric Svanidze, Assessment o Rule

SELECTED BIBLIOGRAPHY:

o Law and Administration o Justice

or sector-wide programming, Moldova

Government, April 2011

9. European Commission, Progress Reports

(2007, 2008, and 2009)

10. Fareed Zakharia , he Post American

World, May 2009.11. Gheorghe Oprescu/Daniela Luminiţa

Constantin/Florinel Ilie/Dragoş Pîs-

laru, Analiza capacităţii de absorbţie

a ondurilor comunitare în România,

2007

12. Government Decision Nr. 12 of

19.01.2010 the Regulation on the in-

stitutional ramework and mechanism

or coordinating the external assistance

provided to Moldova by the interna-

tional organizations and donor coun-

tries.

13. Guvernul Republicii Moldova a nego-

ciat şi a contractat pînă acum proiecte

în valoare de 1,2 mlrd euro, http://

www.interlic .md/2011- 06 -21 /guve r-

nul-republicii-moldova-a-negociat-shi-

a-contractat-pina-acum-proiecte-in-

valoare-de-12-mlrd-eur-21543.html

14. Hyewon Kang , he Philippines' Ab-

sorptive Capacity or Foreign Aid, July

2010

15. Liliana Popescu, Optimizarea prac-ticilor şi politicilor Republicii Mol-





dova de utilizare constructivă a oertei

asistenţiale a UE, ADEP and Expert-

Grup, 2006.

16. Maia Sandu, he analysis o the evo-

lution o oreign assistance oered orMoldova in the period 2001-2007, AD-

EP http://www.e-democracy.md/iles/

prioritati-guvernare-2009.pd

17. Ministry of Planning and Internation-

al Cooperation/Oxord Management

Institute (London), Aid Absorption Ca-

pacity, September 2006

18. Olga Lukashenko, Moldova: Needs

Assessment on Aid Coordination and

Management, UNDP, 2004

19. Report World Bank Moldova , Debt

Management Perormance Assessment

(DeMPA)., April 2008

20. The Paris Declaration Country Chap-

ters – Moldova, 2006, 2008, 2010Survey on Monitoring, OECDEU

Code o Conduct on division o labor

in development assistance, Bruxelles,

28.02.2007

21. Valentin Lozovanu/Viorel Gîrbu, For-

eign Assistance and Moldova's Eco-

nomic Development, IDIS Viitorul,

September 2010

22. Victor BODIU, Secretarul General alGuvernului a prezidat astăzi şedinţa

Comitetului de coordonare a elaborării

proiectului documentului naţional de

planiicare strategică pentru anii 2012-

2020, http://cancelaria.gov.md/libview.

php?l=ro&idc=277&id=983

23. Aanaliza Capacitatii de Absorptie a

Fondurilor Comunitare in Roma-nia , Institutul European din România

24. Bulgaria’s and Romania’s absorption

capacity for EU Structural and Co-

hesion Funds, he Hague School o

European Studies Haagse Hogeschool,

Berlin, June 2007

25. Aid Absorption Capacity-Ministry of

Planning and International Coope-

ration, Oxord Management Institute

(London)





NOTE



The Institute or Development and Social Initiatives (IDIS) “Viitorul” is a research, education and

outreach organization which activates in the feld o economic analysis, governance, law, politi-

cal sciences, strategic and organizational science. IDIS is also a common platorm that brings

together young intellectuals who are concerned with the models o transition towards the ree

market and the open society in the Republic o Moldova

The Institute or Development and Social Initiatives (IDIS) “Viitorul” is the legitimate successoro “Viitorul” Foundation and keeps at-large the traditions, objectives and principles o ounda-

tion activity, including: ormation o democratic institutions and development o a spirit o e-

ective responsibility among politicians, civil servants and citizens o our country, consolidation

o civil society and critical thinking, promotion o the liberties and values o an open-society,

modernized and pro-European.