EGPRSP expired, long live new EGPRSP! Info-Prim Neo economic commentary

2006 is a significant year for the national economy because, besides foreign economic shocks, Moldova is experiencing one of the most discussed and most important medium-term social-economic document until now – the Economic Growth and Poverty Reduction Strategy Paper expires. And although its effects were not properly accounted yet (the Government is to present a report in this respect), a new document is already discussed. At the end of the spring-summer Parliamentary session, the Speaker Marian Lupu mentioned that the Parliament will solicit the Government to draft a new Strategy Paper. Lupu mentioned that there wasn’t still outlined a clear format of the next medium-term development strategy of the Republic of Moldova. Thus, it is suggested that the new document could be a basic one, which will show the economic direction Moldova should follow the next years. Though a natural question emerges: Who needs a new EGPRSP if we already had one? On one hand we should mention that besides the fact that it settles some development and poverty reduction objectives, the Strategy Paper is an important internal document and useful in the foreign affairs field. It is the basic point which is presented at the discussions with international financing bodies and foreign donors, institutions which announced their willingness to finance the greatest part of the actions included in the document and which watch closely all the achievements in this respect. On the other hand, we must take into consideration that the Strategy Paper is one of the most “delayed” documents drafted by the Cabinet Council ever, with significant violation of the launching and implementation terms. The grounds of strategy’s drafting were laid by Braghis’ Cabinet in 2000 and it was approved at the end of 2004. Therefore, if the strategy was planned for 2004-2006, the first year was lost and practically only two years remained for its implementation. At the same time, the Government lacked one of the most important instruments for a successful implementation of EGPRSP – a new program with the International Monetary Fund, which could have unblocked the financing process on the basis of the Mechanism for Poverty Reduction and Economic Growth. In addition to the money that could have been offered by IMF, the lack of this program made impossible unblocking or increasing the necessary assistance of other foreign donors. As a consequence, 2005 was based on activities which didn’t include significant foreign resources, including reform activities. Only in the last year of strategy’s implementation, the Government managed to receive the first installment amounting to USD 16.9 mln of the total IMF credit of USD 118.2 mln. Recently, Paul Bermingham, regional director of the WB for Moldova, Ukraine and Belarus declared that the WB will pay a special attention to the Strategy Paper. The Bank already decided to allocate USD 15 mln for the support program of the rural and agricultural program RISP II, and on June 16, 2006 two more agreements on two projects were signed: 1. The Soil Conservation Program Follow up Project for 2006-2015, amounting to USD 2.5 mln. The project aims at reestablishing forests on 6 thousand ha. 2. Avian Influenza Control amounting to USD 10.6 mln, of which USD 8 mln are offered by the International Development Association of the WB and USD 2.6 mln by Japan, EU, USAID and Moldova. The Avian Influenza Control and Human Pandemic Readiness and Response Project for Moldova is planned for a period of 2006-2009 and aims at minimizing the threat posed to humans by Highly Pathogenic Avian Influenza (HPAI) and other infectious diseases that originate in animals. For 2007, the WB plans to finance Moldova in three projects based on poverty reduction and economic growth. As a result in 2007 another three projects financed by the WB could be launched. On the whole, the Bank announced that it is inclined to offer USD 90-137 mln for the implementation of EGPRSP. The Government also expects USD 2.5 mln from the Government of Holland, money which will be used in developing transport infrastructure. Thus we see an increase of the foreign financial sources for the implementation of the Strategy Paper. The only problem is that an important part of this money will come after its expiration. So the object of the financing practically disappears, and also the object on the base of which the process of using sources and the success of the Government are monitored. At the same time the recent macroeconomic situation does not allow talking about the success of EGPRPS. If the Government has some accomplishments in intiating the regulatory reform, liquidating the Council of Creditors and increasing fiscal transparency, starting the process of privatization, accelerating the fight with corruption (at least it declares so), than the indexes measuring poverty and economic growth are rousing concerns. “It is concerning that in the last years the process of reducing poverty became slower, and in some regions poverty started to grow”, Paul Bermingham, the representative of World Bank recently declared. These concerns are shared by the IMF. The reasons are strong enough. The percentage of poverty increased from 26% in 2004 to 29% in 2005. The industrial crisis and the misbalances of the external commerce, the volatile energetic market (exposed to shocks), generates enormous pressures over economic growth and prices. Subsequently the price increases will affect the population, increasing this way the level of poverty. The inflation of 14% at the end of the year, foreseen by the economic analysts will be hardly endured by the population with incomes up to MDL 1000 and the first risk group in this situation is the farmers (rural population) whose salary scarcely amounts to MDL 700. At the same time, industrial enterprises do not have internal capacities for increasing wages, and some of them even for maintaining the present workplaces. As a consequence the “army” of unemployed and of persons fleeing the country is increasing. Analysts say that of the total economically active persons the percentage of persons leaving the country to work abroad will increase to 30%, compared with 27.7% in 2005. Under these conditions, a new Economic Growth and Poverty Reduction Strategy Paper is absolutely necessary, regardless of how one calls it. The Government already has experience in drafting such documents and will have the possibility of avoiding some debts and to increase the implementation efficiency of the stipulated actions. As well, the Government will have the possibility to rethink a considerable part of the indicators included in the Strategy Paper, which according to the Country manager of the WB, Edward Brown “are vague and must be narrowed in order to be evaluated”. It is worth to mention that the Executive has a real chance to elaborate a true medium and long-term strategy, the necessity of each is broadly discussed in Chisinau and which needs the support of international financial institutions. The economist Valeriu Prohnitchi offered a clear explanation on this issue: “The Government needs a long time development vision. This is to clearly settle for a long-term our place in Europe, which are the most important assets that can be capitalized”.