Donor Assistance to the Republic of Moldova€¦ · overview of development partners, types of...

Donor Assistanceto the Republic of

Moldova

Special Report 2016

Introduction

Donor organisations and donor countries

Types of donor financing

The value of donor supported projects

Sectors

Remittances

The International Monetary Fund

Foreign direct investment

Conclusions

References

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4

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10

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Table of contents

Donor Assistance to the Republic of Moldova2

Introduction

The Cathedral and bell tower

This report on donor assistanceto Moldova provides a comprehensive overview of development partners, types of financial aid, and prioritized sectors for development in Moldova. It describes three major sources of financial flow that comes to Moldova from abroad: donor-funded projects, remittances and foreign direct investment (FDI).

Donors are very active in Moldova. This hasled to a major stream of projects that are helping the Moldovan government implement reforms and develop infrastructure projects, reaching and covering the main sectors,including education, health care,transportation, justice, etc. In this context, the report identifies the largest donor organisations and the most involved governments in terms of sums allocated, but also refers to the existing types of funding provided to Moldova and to those particular sectors where that funding is directed.

Remittances are a major source of financial aid received directly by individuals. Although not spent on projects and reforms, as in the case of donor aid, remittances improve the general quality of life of households receiving them.

The result is that the money boosts the local economy by stimulating demand for products and services, thereby leading to economic growth.

The final source of financial flow analysed in the report is foreign direct investment (FDI). Unlike money provided by international donors, FDI is provided by the private sector and is considered as a significant alternative to remittances, donor aid and credit, as the money is injected directly into the economy.

Donor Assistance to the Republic of Moldova 3

European Union

European Investment Bank

World Bank

United States of America

Romania

Poland

United Nations Organization

Japan

Global Fund for combating AIDS, Tuberculosis and Malaria

Austria

Sweden

Other

European Bank for Reconstructionand Development

Development Bank of European Council

Germany

Value of projects funded by donors in Moldova, by main donors,2010-2015, m €

825.1

517.5

385.8

335.3

313.6

121.8

115.6

61.7

59.4

52.4

51.5

50

47.5

35.6

126.8


Photo: www.noi.md

According to the Moldovan Government working agenda, the key priority for achieving a better standard of living for all Moldovans is to develop the country’s economy, reduce poverty, increase transparency and work towards integration in the European Union (Moldovan Government Activity Plan, 2016). Based on the amount of funds disbursed, the European Union is the main donor to the Republic of Moldova.


Source: Aid Management Platform, 2016

European Union


World Bank


Romania

Poland


Japan

Global Fund for combating AIDS, Tuberculosis and Malaria

Austria

Sweden

Other


Development Bank of European Council

Germany

Value of projects funded by donors in Moldova, by main donors,2010-2015, m €

825.1

517.5

385.8

335.3

313.6

121.8

115.6

61.7

59.4

52.4

51.5

50

47.5

35.6

126.8


The Moldovan State Chancellery identified 3 big aid-disbursing organisations in Moldova for the period of 2010–2015:

Between 2010-2015 they funded projects with a value of €1.73 bn. Contributions from all other donors combined totaled €1.37 bn. The EU is the main donor and has multiple areas of inter-vention, including conflict prevention, by supporting projects on both banks of river Nistru, rural development, human development, employment, infrastructure, water and energy supply, trade and regional integration and good governance (Delegation of the EU to Moldova, 2016).

The EIB is focused more on supporting small and medium sized business development in Moldova, in particular, in agricultural sector, by offering lending on a convenient interest rate. An example would be the “The Fruit Garden of Moldova”, the project initiated in 2014 and constituted a €132 m loan to the Ministry of Finance (European Investment Bank, 2014).

The EBRD focuses on “creating an environment that supports private sector activity, promoting European standards across sectors and regional integration to bring domestic producers closer to their markets, as well as developing efficient and sustainable public utilities which have a direct impact on people’s lives” (EBRD, 2016).

The European Union(EU)

The EuropeanInvestment Bank (EIB)

The European Bank for Reconstruction and Development (EBRD)

Pirkka Tapiola Photo: www.eeas.europa.eu


Donor Assistance to the Republic of Moldova

Although the United Nations is not one of the top donor organisations as measured by the value of projects, it is still one of the main organisations by the number of projects implemented in Moldova during 2010–2015. There are currently 83 implemented projects, almost the same number as the US, while the EU had the largest number of projects, 291.

The country that contributed the most bilaterally is the United States, through the United States Agency for International Development (USAID) and other agencies. A total of €313.6 m was provided by the US during the period of 2010–2015, an amount comparable to the funds provided by a multilateral organisation like the World Bank (€335.3 m). The second individual government providing a significant level of aid and other funding toMoldova is Romania. Although not one of the world’s largest and strongest economies, Romania supports Moldova in various areas. In terms of funding, Moldova received €121.8 m from Romania during the period of 2010–2015. Romania shares considerable ethnic and cultural links that also play an important role in the process of providing development assistance to Moldova.

Turkey and Romania implemented an almost identical number of projects 45 and 39, respectively. Turkey focused its financing mostly on the Gagauz communities in the south of Moldova, where the local population share a lot of cultural and linguistic ties with Turkey.

One of its largest projects concerned the construction of a potable water supply system and interurban pipelines in Ceadir-Lunga, a city in the Gagauz Autonomous Territorial Unit (Aid Management Platform, 2014).

Other countries, providing considerable financial support to Moldova include Poland, Japan and Germany.


Photo: www.theguardian.com

6

European Union



Turkey

Romania

Slovakia

Austria

Czech Republic

Japan

Sweden

Switzerland


World Bank

Germany


Poland

Liechtenstein

Other

Number of projects in Moldova during 2010-2015

291

83

82

45

39

35

35

33

27

27

25

24

24

15

14

12

12

90


The quantity of projects is not always relevant in describing a donor’s contribution to Moldovan development, but a large number of projects implemented by a donor generally indicates its ability to reach more beneficiaries, by organising a higher number of narrower and more specific projects which have a smaller individual value.



U.S. Embassy Moldova

There are 3 main types of donors financing common in Moldova:

Grants

In this case the government does not have to reimburse the money received; grants are provided under certain conditions and they reflect more the donor’s agenda, rather than the agenda of the government.

Investing governmental funds

In some cases, a partialcontribution from the central and/or local authorities isnecessary to receive a larger amount in the form of grants.

Preferential loans

In this case, the government has more power to direct themoney and is responsible forhow money is spent. By receivingpreferential loans, the government can boost small business, support certain key sectors of theeconomy and/or invest ininfrastructure projects.

Of the €3.1 bn received by Moldova during the period 2010–2015,51% came from grants.

The contribution of the Moldovan government to projects implemented by donors is not significant and accounted foronly 0.6% of the total sum during the period 2010–2015.

Preferential loans represented 48.4% of the total value of donor projects implemented in Moldova during the period 2010–2015.

Photo: Lisa Haven



1.200

1.000

800

600

400

200

0

350

539

140

114

232

409

134

Types of donor financing, 2010-2015, m €

391

9

734

Grant Governmental funds Preferential credit

2010 2011 2012 2013 2014 2015

508

4

5244



Photo: www.bloomberg.com


2010 2011 2012 2013 2014 2015

184

248

632

921

129

889

Annual value of projects funded by donors in Moldova,2010-2015, m €

The value of donor supported projects



Projects implemented using foreign assistance since 2010 exceeded €3 bn. The year 2010 saw the establishment of a non-Communist government in Moldova and, as a result, many donors committed to providing a higher level of support.

Reflecting a slower adoption of reforms in the country, the value of projects launched in 2011and 2012 fell dramatically compared to those in 2010. During the following two years, 2013 and 2014, the level of donor support in the form of projects increased once again.

This could be explained by the existence of a large stock of donor funds in 2010 that were meant to support the new pro-European government in the post-crisis period. Nevertheless, many of those donor-funded projects were designed for long-term periods, thus even if funding was attributed in 2010, the actual spending could have happened much later, for example during 2013-2014, which raised again the level of donor support.

Government and civil society

Education

Other social infrastructure and services

Health

Multisector

Agriculture

Business and other services

Water and sanitation

Generation and supply energy

Transportation and storage

Industry

Turism

Other

Reproductive health policies and programs of the population

233

119

118

94

86

50

39

38

31

25

15

13

10

31

Number of projects funded by donors in Moldova, by main sectors, 2010-2015

Sectors



During the period of 2010–2015, the prioritized sectors of international donors, as measured by the number of implemented projects, were:


233 Projects 118 Projects119 Projects 94 Projects 86 Projects


Education Health Multisectoral

The Government of Republic of MoldovaPhoto: www.politics.md


Looking at the breakdown of donor organisations’ priorities in terms of the level of financial assistance granted, donors do not categorise Moldova to be a poor agricultural economy, but rather a country requiring more support in undertaking reforms in its public sector, delivering improvements to participation in civil society and upgrading both its public services and infrastructure.

Donors perceive Moldova as a poorly governed country and not in direct need of humanitarian assistance or direct aid for its citizens. However, they see opportunities in developing the Moldovan economy, infrastructure and refining the functioning of the country’s central and local public institutions.

A significant number of projects focused on infrastructure, agriculture, business and other services, water and sanitation, energy generation and supply, etc. One significant infrastructure project funded from grants was showcased by the US Agency Millennium Challenge Corporation, which expended €237 m on repairing roads in Moldova during the period of 2010–2015 (Millennium Challenge Corporation, 2015).

Sectors

Photo: www.gov.md

Priority sectors funded by donors in Moldova during 2010-2015(by value)

Transportation and storage


Agriculture

Business and other services


Health

Generation and supply energy

Water and sanitation

Education

Other

24%

22%

13%

8%

6%

6%

6%

5%

4%

5%

According to official government statistics, Moldova received a total of €3.1 bn from donor organisations in the period of 2010–2015, out of which:

Sectors


About a quarter has been allocated to the transportation and storage sector.During this period, several important roads have been repaired using various donors’ contributions, mainly from the US and EU.

Nearly €679 m, or 22% of the total, was allocated to government and civil society.

Approximately €404 m, or 13% of the total was allocated to the agricultural sector,the 3rd on Moldova’s list of sectors receiving the most foreign donor finance.

Photo: www.gov.md



Sectors

Although a lot of projects were implemented in the education sector, these account for only 4% of the total funding provided by donors in Moldova. A large amount of money (5% of the donors’ funds) has been invested in consultancy projects, direct support to public institutions, infrastructure improvement projects and optimising public services, including the implementation of various e-solutions.

In terms of donors’ sectorial preference, the EU focuses on a large range of activities in Moldova, and these are classified into several major categories:

The United States acts through USAID, with USAID Moldova Office currentlyemphasizing 2 main priorities:

The EBRD, which offers preferential credits has the following priorities in Moldova:

Governance, democracy, human rights and support for economic and institutional reforms

Trade and regional integration

Infrastructure, communications and transport

Water and energy

Social cohesion and employment

Human development

Rural development, territorial planning, agriculture and food security

Conflict prevention

Multi-sector

Economic growth

Good governance and democratisation

Supporting private sector development

Promoting European standards and regional integration

Enhancing commercialisation and the sustainability of municipal enterprises


Sectors

Other international organisations and development agencies that covered development projects in Moldova are:

FAO, Food and Agriculture Organisation

GIZ, Gesellschaft für Internationale Zusammenarbeit

IFAD, International Fund for Agricultural Development

ILO, International Labour Organization

IMF, International Monetary Fund

IOM, International Organization for Migration

KfW, Kreditanstalt für Wiederaufbau

OECD, Organisation for Economic Co-operation and Development

OHCHR, Office of the High Commissioner for Human Rights

OSCE, Organisation for Security and Co-operation in Europe

SDC, Swiss Agency for Development Cooperation

SIDA, Swedish International Development Cooperation Agency

WB, World Bank Group

WHO, World Health Organization

Most of these are represented in Moldova, while others are part of various regional offices and cover work in Moldova by sending their staff on temporary field missions. UN agencies with staff in Moldova are in charge of many areas, from business development, to health, protection of women’s and children’s rights, migration and others.

The United Nations Country Office in Moldova represents an umbrella fora large list of agencies such as:

UN Women, UN Entity for Gender Equality and the Empowerment of Women

UNAIDS, Joint UN Programme on HIV/AIDS

UNDP, UN Development Programme

UNFPA, UN Population Fund

UNHCR, UN High Commissioner for Refugees

UNICEF, UN Children’s Fund

UNODC, UN Office on Drugs and Crime

2006 2007 2008 2009 2010 2011 2012 2013 2014

34.5 33.9 31.2 22.0 23.3 25.8 27.3 27.4 26.2

Remittances received in Moldova, as % GDP, 2006-2014

30%

40%

20%

10%

0%

Remittances

Source: World Bank, 2015


Moldova is one of the worlds’ top receivers of remittances as a share of its GDP- in 2014, ranked 3rd in the World (KNOMAD, 2016). Despite reaching a peak level of 34.5% of GDP in 2006, the share of remittances (as a percentage of GDP) remained relatively high over the last several years. In 2014, it represented 26.2% of GDP, but preliminary data show that the absolute value of remittances received in 2015 fell by 30% compared to 2014 (National Bank of Moldova, 2015).

Due to this and also to the fact that the Moldovan Leu (MDL) depreciated against the US dollar, Moldova’s share of remittances fell to 18.1% of GDP in 2015.

The absolute value of remittances received in 2015 by natural persons in Moldova was $1.13 bn (National Bank of Moldova). This value is higher than the amount received by Moldova from donor organisations and shows that, in reality, the population of Moldova is mostly dependent on their relatives who work abroad.

According to the International Organisation for Migration (IOM), most remittances are used to fund current consumption, further highlighting the importance of donor contributions, as their assistance goes beyond merely fulfilling the basic necessities of the population and enables a focus on long-term national goals (International Organization for Migration, 2016).

Moldova’s use of IMF credit, 2006-2014, m $

2006 2007 2008 2009 2010 2011 2012 2013 2014

600

500

300

100

700

800

400

200

0

318.2345.6 347.5 338.4

508.7

654.7

792.9772.6

699.0

The International Monetary Fund (IMF) is the main provider of preferential loans. The IMFprovides short-term loans for balancing the national budget. The use of IMF loans peakedin 2012 at a total of $792.9 m, but in the years since, has fallen by a total of almost $100 m.

Source: The World Bank, 2016


International Monetary Fund


Photo: www.bnm.md

IMF net financial flows to Moldova, concessional and nonconcessional, 2006-2014, m $

2006 2007 2008 2009 2010 2011 2012 2013 2014

100

150

50

0

-50

Net financial flows, IMF concessional (NFL, current US$)

Net financial flows, IMF nonconcessional (NFL, current US$)

During the period of 2006–2014, Moldova received both concessional (substantially more generous terms than the market loans) and non-concessional (market based interest rate) financial flows from the IMF. In aggregate, concessional sums reached $291 m during theperiod 2006–2014, whilst non-concessional flows totalled $167.6 m.




Value of FDI received by Moldova during 2006-2014, m $

2006 2007 2008 2009 2010 2011 2012 2013 2014

600

500

300

100

700

800

400

200

0

258.7

536.0

726.6

135.2

212.0

347.9

282.6 290.5

349.9

Value of FDI received by Moldova during 2006-2014, m $

2006 2007 2008 2009 2010 2011 2012 2013 2014

600

500

300

100

700

800

400

200

0

258.7

536.0

726.6

135.2

212.0

347.9

282.6 290.5

349.9


Foreign Direct Investment (FDI) is another important source of financing for the Moldovan economy. Unlike other international donors, FDI is provided by the private sector. A high level of FDI acts as an indicator of a country’s level of openness and attractiveness for investment from the rest of the world. Most developing countries rely on FDI to obtain the funds needed to build infrastructure for business and to invest in key sectors of their economies. FDI is an alternative to donors’ funds, credit and remittances, as the money is injected directly into the economy, often alongside appropriate know-how.


Photo: www.gmfus.org




In spite of greater levels of donor financing and more credit provided after 2009, the amountof FDI fell sharply compared to 2008.

This decrease in FDI was not due to the political situation, but to the economic crisis happened in 2008-2009 that affected the Moldovan economy severely.

In 2014, FDI reached approximately $350 m, but this was less than half of the equivalent amount in 2008.

An apple orchard near Sirota village, Orhei raion.Photo: U.S. Embassy Moldova

Conclusions

International donor assistance focuses on various areas of the Moldovan economy and society. Most support is provided to assist with initiatives aimed at good governance and democracy, but an important part of donor assistance is also directed towards supporting development of the private sector.

The biggest donor organisation in Moldova is the European Union (EU), which operates through its various agencies. The EU was responsible for most of the projects implemented during the period of 2010–2015 and for the largest combined value of projects.

The other major donor organisations are the European Investment Bank and the European Bank for Reconstruction and Development, both focusing on supporting private sector activity and promoting European standards across various sectors. Out of the main international organizations involved, the United Nations (UN) conducts a large variety of projects through its multiple agencies represented in Moldova.

Foreign individual governments also actively support Moldova. The United States is one of the most significant donors that has focused on improving democracy, civil society, development of the private sector and justice reform.

Romania and Turkey both share linguistic and cultural ties with Moldova, one of the main factors of influence in their process of providing aid to Moldova.

However, donor-funded aid to Moldova is not the largest source of financial inflow to the country. Remittances make up the largest share of finance held by or directed to citizens and are helping them meet their current needs, whereas international organisations are directing financial resources to help public authorities fund key infrastructure projects and reforms within public institutions, such as the IMF. FDI is also a crucial resource to be taken into consideration, yet as data in this report show, its funding decreased in the past years due to the economic crisis and political instability.


The Gates of the City Chisinau, Republic of MoldovaPhoto: Mihail Arhipov

References

Aid Management Platform (2014), Agreement between the Government of the Republic of Moldova and the Government of the Republic of Turkey concerning the construction of potable water - supply system and interurban water pipelines in Ceadir–Lunga.www.amp.gov.md/aim/viewActivityPreview.do~public=true~pageId=2~activityId=4309~language=en

Aid Management Platform (2016), Report on project launched by donors in Moldova.www.ncu.moldova.md/public/files/000000000000000000____2014/Proiecte_lansate_pe_donatori_2010-2015_eng.pdf

Delegation of the European Union to Moldova (2016).www.eeas.europa.eu/delegations/moldova/projects/list_of_projects/projects_en.htm

European Bank for Reconstruction and Development (2016), What we do in Moldova.www.ebrd.com/moldova.html

European Investment Bank (2014).www.eib.org/infocentre/press/releases/all/2014/2014-197-eu-supports-development-of-moldovas-agriculture-with-eur-120-million.htm

European Bank for Reconstruction and Development (2016), Moldova Overview.www.ebrd.com/where-we-are/moldova/overview.html

International Organization for Migration (2016), Remitente.www.iom.md/index.php/ro/rograme/migratia-si-dezvoltarea/remittances

KNOMAD (2016), Migration and Remittances.www.openknowledge.worldbank.org/bitstream/handle/10986/24012/9781464809132.pdf?sequence=2&isAllowed=y

Millennium Challenge Corporation (2015), Modern European Roads in Moldova. https://www.mcc.gov/where-we-work/program/moldova-compact

Moldovan Government Activity Plan (2016), Page 4.www.gov.md/sites/default/files/document/attachments/guvernul_republicii_moldova_-_programul_de_activitate_al_guvernului_republicii_moldova_2016-2018.pdf

National Bank of Moldova (2015), Graphical analysis of the money transfers in favour of natural persons (in Romanian).www.bnm.md/ro/content/analiza-grafica-transferurilor-de-mijloace-banesti-efectuate-favoarea-persoanelor-fizice-27

OECD statistics on ODA (2016).www.oecd.org/dac/stats

State Chancellery (2015), Report on Projects initiated by donors, by sectors.www.ncu.moldova.md/public/files/000000000000000000____2014/Proiecte_lansate_pe_sectoare_2010-2015_ro.pdf

The Global Property Guide (2016), GDP per capita in Europe.www.globalpropertyguide.com/Europe/gdp-per-capita

United Nations in Moldova (2016), UN entities in Moldova.www.md.one.un.org/content/unct/moldova/en/home/about-us/un-entities-in-moldova/

World Bank data on ODA (2016).www.databank.worldbank.org/data/reports.aspx?source=2&country=&series=DT.ODA.ALLD.CD&period=


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