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Republic of Moldova: Poverty Reduction Strategy

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Republic of Moldova: Poverty Reduction Strategy GOVERNMENT OF THE REPUBLIC OF MOLDOVA ANNUAL EVALUATION REPORT ON THE IMPLEMENTATION OF THE ECONOMIC GROWTH AND POVERTY REDUCTION STRATEGY 2005 Chisinau, 2006 LIST OF ACRONYMS CPAR Central Public Administration Reform MEYS Ministry of Education, Youth and Sports CIS Commonwealth of Independent States MTEF Medium Term Expenditure Framework DFID Department for International MMIF Mandatory Medical Insurance Fund Development NGO Non Governmental Organization EBRD European Bank for Reconstruction and NBM National Bank of Moldova Development NBS National Bureau of Statistics EFA Education for All PAR Public Administration Reform EGPRS Economic Growth and Poverty Reduction PC Participation Council Strategy PPP Purchasing Power Parity FSAP Financial Sector Assessment Program SDC Swiss Agency for Development and EU European Union Cooperation GDP Gross Domestic Product SS State Securities GVA Gross Value Added SSIB State Social Insurance Budget HBS Household Budget Survey TAU Territorial Administrative Unit HIV/AIDS Human Immunodeficiency Virus/ TB Tuberculosis Acquired Immunodeficiency Syndrome VAT Value Added Tax ILO International Labour Office UNICEF United Nations Children’s Fund IDA International Development Agency UNDP United Nations Development Program MDG Millennium Development Goals USSR Union of Soviet Socialist Republics MET Ministry of Economy and Trade 12.04.2006 TABLE OF CONTENTS EXECUTIVE SUMMARY............................................................................................................ i INTRODUCTION......................................................................................................................... 1 1. POVERTY AND INEQUALITY EVOLUTION IN 2002 – 2004 ...................................... 2 Poverty definition and its evaluation.......................................................................................... 2 Dynamics of poverty and inequality........................................................................................... 2 Demographic and other poverty aspects..................................................................................... 4 Chronic and subjective poverty ..................................................................................................5 Conclusions ................................................................................................................................ 6 2. ECONOMIC DEVELOPMENT TRENDS.......................................................................... 8 Macroeconomic evolution and quality of economic growth...................................................... 8 Conclusions .............................................................................................................................. 12 The evolution of revenues and expenditures. Public finance management.............................. 13 Funding EGPRS priorities........................................................................................................15 Conclusions .............................................................................................................................. 16 3. ECONOMIC INFRASTRUCTURE .................................................................................. 18 Regulatory framework.............................................................................................................. 18 Fiscal policy.............................................................................................................................. 19 Financial system ....................................................................................................................... 22 Conclusions .............................................................................................................................. 24 4. REAL SECTOR ................................................................................................................. 26 Industry and agriculture............................................................................................................ 26 Infrastructure ............................................................................................................................ 30 Roads and transportation ......................................................................................................... 30 Energy....................................................................................................................................... 31 Water supply and sewerage...................................................................................................... 32 Telecommunications and information technologies................................................................. 34 Conclusions .............................................................................................................................. 35 5. THE IMPACT OF SOCIAL POLICIES ............................................................................ 37 Education.................................................................................................................................. 37 Healthcare................................................................................................................................. 41 Social Protection....................................................................................................................... 45 Social Insurance ....................................................................................................................... 46 Social Assistance ...................................................................................................................... 47 Labor Force market .................................................................................................................. 50 Conclusions .............................................................................................................................. 52 Labor Force Market.................................................................................................................. 54 6. CENTRAL PUBLIC ADMINISTRATION REFORM ..................................................... 55 7. REGIONAL DEVELOPMENT ......................................................................................... 56 8. COMMUNICATION AND PARTICIPATION PROCESS .............................................. 58 9. MONITORING AND EVALUATION SYSTEM............................................................. 61 List of tables 1. Distribution of consumption expenditures between 2000 – 2004 2. Accomplishment of MDG poverty indicators 3. Persistent poverty by area of residence, 2001-2004 4. GDP by categories of resources 5. GDP by categories of use 12.04.2006 List of figures 1. Dynamics of poverty rate between 1998 - 2004 2. Relationship Final Consumption – Remittances 3. Relationship Final Consumption – Net Export 4. Inflation rate at the beginning of the year 5. Exchange rate evolution 6. Cash availability 7. Direct net foreign investments dynamics 8. Evolution of public revenues and expenditures 9. Credits granted to economy 10. Industrial growth 11. Net rate of enrolment by educational levels, 2000-2004 Annexes - Annex A1: Data and methodology for poverty measurement - Annex A2: Statistical annexes on poverty - Annex A3: Government Decision on establishing the Poverty Monitoring System, no. 851, dated 15 August 2005 - Annex B: EGPRS monitoring indicators - Annex C: Draft Guidelines for EGPRS monitoring and evaluation 12.04.2006 EXECUTIVE SUMMARY 1. Economic growth and income redistribution policies promoted in the context of Economic Growth and Poverty Reduction Strategy (EGPRS) implementation contributed to higher incomes and improved access of population to social services, which led to higher living standards and poverty reduction. During 2002 – 2004, poverty rates decreased by 14.5 percentage points (p.p.). By 2004, only 26.5% of the population of the Republic of Moldova was poor, i.e. their welfare was below the absolute poverty line (as compared to 40% in 2002). The most essential decrease (by 11.4 p.p.) took place in 2002-2003. In this period, extreme poverty decreased considerably (by 11.2 p.p.). However, in 2004 the pace of poverty reduction slowed down. 2. Together with poverty rate, inequality level also reduced. This trend is reflected by the Gini coefficient that measures inequality at country level and income and consumption distribution by quintiles. As a result, in the period of 2000 – 2004 the Gini coefficient decreased from 0.38 to 0.36. However, the downward trend was not so clear and stable, as in the case of poverty rate, inequality remaining at a relatively high level. In 2004, the richest 20% of households had over 40% of the total consumption, while the poorest 40% benefited from less than 20% of the total consumption. 3. Economic growth is a pre-condition for higher living standards and poverty reduction. Between 2003 and 2004, the estimated average poverty elasticity to average consumption growth was 2.1 %. That means that with each percent of growth, the poverty rate reduces by 2.1%. In 2002-2004, two thirds of reduction of poverty rates (which was empirically decomposed into growth of household consumption and redistribution of consumption between households) can be attributed to consumption growth, and one third is due to inequality reduction, i.e. redistribution among households. 4. Under these circumstances, at this stage Moldova manages to achieve the intermediary targets
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