Moldova’s economy requires substituting the quality of growth from remittances. Interview with Mr. Edward Brown, World Bank Country Manager for Moldova

[- The World Bank, along with other international financial institutions and donors, has announced availability to massively credit Moldova’s economy in the following three years. What is the budget planned for 2007, what sectors will it aim at and what will be the main projects?] The Consultative Group meeting in December 2006, reaffirmed donor’s support to Moldova in addressing the financing gap opened by the recent external shocks. This assistance, however, is contingent on successful implementation of reforms declared by the Government during the CG meeting in Brussels. To respond to Government priorities as outlined in the EGPRSP and reaffirmed at the CG meeting, the World Bank, in collaboration with key development partners will continue budget support, aimed at deepening implementation of structural reforms, particularly those related to improving the business environment, public administration, improving access to and quality of social services (health and education) and more efficient and effective targeting of social assistance. On the Bank side, these reforms would be accompanied by investment lending for rehabilitation of infrastructure, particularly roads and projects in the social sector, focusing on poverty reduction and mitigating the negative impact of recent macroeconomic shocks on the population. Total planned commitment of the World Bank for Moldova in 2007 calendar year is about USD 52.0 million, with about similar amounts for 2008-2009. [-What are the main requirements of the WB that Moldova needs to follow with regards to privatization, structural reforms, etc?] As you are fully aware, the reform program was elaborated by Moldovan authorities, in concert with the civil society in the country; thus they have full ownership of the program. It is therefore up to the Authorities to deliver on their commitments, thus enabling the donors to continue assistance of the program. Thus, the Bank does not make any specific requirements per se. On structural reforms and privatization of state owned enterprises, the World Bank is encouraged by the efforts of the Government to improve the efficiency and management of public sector resources, to improve the investment climate. In this regard, we are pleased to note that the Government has developed a privatization program, with clear timeline for implementation, and we are working with them on the privatization law. Further, we are particularly encouraged by the recent appointment of the head of New Competition Agency, as well as the establishment of the Mega Regulator for the non-bank financial sector. All these urge well for boosting private sector confidence and enhancing competitiveness of the economy. [-What are the most important macroeconomic risks the Government should pay special attention to in order to avoid new shocks in 2007, and in the following years?] Some of the worst possible macroeconomic risks were experienced in 2005-2006. The substantial increase in energy prices, with price of natural gas more than doubling, as well as loss of significant part of the export markets, particularly for wine, fresh fruits and vegetables, were major external shocks, which had significant fiscal implications for the economy. While these shocks were as massive as those experienced in the 1998/99 Russian crisis, the consolation is that their negative impact have been much better managed, due to the implementation of sound macroeconomic policies, over the last three years. To be sure, these shocks, particularly the energy shocks, will continue in 2007 and thereafter. Thus, continuing prudent fiscal and monetary measures, particularly price stabilization measures would be key, as rising prices (inflation) pose the greatest threat to mitigating the negative effects of these shocks, particularly on the poor. Further, structural reforms, particularly in the social sectors to better distribute the benefits of growth, as well as enhancing competitiveness through further improvements in the business environment should continue to be the focus of Government attention in the near term. As you are aware, the IMF PRGF program currently ongoing is designed to help the government mitigate these risks. [- What period of time do you think Moldova needs in order to get back to the previous growth pace, approx. 7% per year?] It very much depends on the depth and the pace at which the reforms I mentioned above are implemented. Already, some recovery from the recent shocks is evident, but it would require concerted and continued efforts to attain 7%. And, to sustain it at that level and beyond (that is, to enhance long-term growth prospects), sources of growth need to be more endogenous, and its distribution more equitable. This would require changing the quality of growth from remittances driven to greater improvements in labor productivity, and the creation of more and better quality jobs, consistent with the measures mentioned above.