The size of government for its level of income is unusually large in Moldova and State Owned Enterprises (SOEs) still dominate several sectors. SOEs display much lower productivity levels and growth than their nonstate counterparts, and SOEs are present in at least 19 out of 30 sectors, in contrast to 8 sectors in Estonia, for example, says the World Bank study “Rekindling Economic Dynamism” that is quoted by IPN.
“With less productive firms, Moldova is less able to compete on global markets, and thus, while trade occupies a substantial share of GDP, the country’s exports are growing more slowly than in other Eastern European countries,” said one of the study authors Elisa Gamberoni, noting also other factors that explain the low productivity of the Moldovan enterprises, which could slow down economic growth in the medium term. Among these factors are the migration of qualified employees, including young ones, from Moldovan enterprises.
Competition can be a powerful driver of productivity growth. Yet only 41 percent of manufacturing markets are workably competitive – the remainder are monopolies or shared monopolies. Tax policy has also created perverse incentives that discourage productivity growth in two ways. First, the tax system taken as a whole, although capable of mobilizing substantial resources that are necessary to sustain overall revenue, is biased against employment and capital accumulation with high labor taxes, which reduce the incentives of employers to create jobs. Second, the system of poorly designed tax incentives undermines productivity growth in multiple ways. These incentives are costly, and their impact is not monitored against specific objectives.
The WB experts said policies to propel growth should focus on unleashing private enterprises development and changing incentives to foster enterprise productivity. Changing the industrial organization - diminishing the role of less productive state enterprises and increasing the role of more productive private companies, especially foreign investments - is a priority. Furthermore, tax policy requires a systematic review of the entire tax system to ensure that overall revenue does not decline. Another priority is to enhance the contribution of the higher education system to economic diversification and growth. Governance-related indicators have deteriorated, and corruption is cited as the main constraint to firm operations. Therefore, addressing governance challenges remains a priority. A final priority to redress low growth in productivity is human capital.
The World Bank forecasts an economic growth of 3.4 % in 2019, 3.6% in 2020 and 3.8% in 2021 in Moldova. The Moldova 2020 strategy stipulates 6 percent growth aspirations a year.
