Impact of the global financial crisis on local communities in Moldova EXPERT -GRUP 9/08/2009 2 Impact of the global financial crisis on local communities in Moldova Copyright © UNDP Moldova 2009 All rights reserved Author: Expert Group Editing: Hugh Biggar, UNDP Regional Centre, Bratislava Opinions expressed in this Report do not necessarily reflect the official views of the United Nations Development Programme in Moldova. The United Nations Development Programme (UNDP) is the UN’s global development network, advocating for change and connecting countries to knowledge, experience and resources to help people build a better life. 3 Impact of the global financial crisis on local communities in Moldova Contents 1. General introduction ..............................................................................................8 2. Executive summary ..............................................................................................10 Channels of contagion ............................................................................................................ 10 Impact of the crisis .................................................................................................................. 10 Main policy recommendations .............................................................................................. 13 3. Exposure and vulnerability: how global financial crisis proliferates at local level? ........................................................................................................................15 4. Impact of the global financial crisis on domestic labour market ................19 Introduction ............................................................................................................................... 19 Impact of the economic crisis on the employment and unemployment ....................... 21 Changes in the work environment ........................................................................................ 24 Work-schedule ..................................................................................................................................... 24 Underemployment ............................................................................................................................... 24 Wages ................................................................................................................................................... 25 Closing jobs as effect of the financial crisis ....................................................................... 27 Crisis discouraging people on the labour market ............................................................. 28 Crisis and returning migrants ................................................................................................ 28 5. Impact of the financial crisis on local budgets and local public administration ..................................................................................................................31 Introduction ............................................................................................................................... 31 Financial short-sightedness .................................................................................................. 31 Relationship between the state budget and local budgets .............................................. 32 Impact of the crisis on local budget revenues ................................................................... 33 The impact of the crisis on the local budget expenditures .............................................. 36 Relevant case study: the budgetary situation of Telenesti district ................................ 39 4 Impact of the global financial crisis on local communities in Moldova 6. Impact of the financial crisis on households ..................................................42 Introduction ............................................................................................................................... 42 Households perceptions regarding the crisis .................................................................... 42 Who suffered the most? ......................................................................................................... 44 Who suffered the least? .......................................................................................................... 47 Households’ expenditures: shifting to a cheaper life… ................................................... 48 Relying on whom? ................................................................................................................... 52 7. Impact of the crisis on local businesses ..........................................................54 Introduction ............................................................................................................................... 54 Crisis is more felt than perceived ......................................................................................... 54 How exactly crisis affects companies? ............................................................................... 59 What companies have done and plan to do to offset the crisis effects? ...................... 60 The shape of the future to come… ....................................................................................... 62 8. Policy conclusions and recommendations .....................................................65 Appendice 1 : Policy Recommendation Matrix ..........................................................69 9. Annexes ..................................................................................................................74 1. List of conducted in-depth interviews .......................................................................... 74 2. Sociological survey: methodological details .............................................................. 74 3. Methodological aspects of the conducted focus-groups ......................................... 75 4. Moldova’s statistical areas ............................................................................................. 75 5. List of people consulted for the local budgets’ impact assessment ...................... 76 5 Impact of the global financial crisis on local communities in Moldova List of tables Table 1 Difference between the real and forecasted values for DER and UR in Q1’09, percentage points ........................................................................................................................... 22 Table 2 Regional differences between real and forecasted value of DER and UR in Q1’09, percentage points ........................................................................................................................... 23 Table 3 Difference between the real and forecasted value of the work hours per week in Q1’09, % ......................................................................................................................................... 24 Table 4 The share of own revenues in the total revenues ......................................................... 33 Table 5 Local budgets execution, 5 months 2009 ....................................................................... 35 Table 6 The structure of local budget expenditures by economic classification ....................... 36 Table 7 The structure of expenditures by economic classification in Telenesti district 2008 .. 36 Table 8 Financial situation and perspectives for 2009 in Moldovan territorial units, thousand MDL, if not overwise indicated. ..................................................................................................... 38 Table 9 Telenesti budget distributed by district communities, 2009, thousand MDL ............... 40 Table 10 Distribution of answers to the question „For you personally or for your family what does the current financial crisis mean?” (multiple answers), % ................................................. 44 Table 11 Ranking of territorial units according to the evolution of retail trade volume in the 1st half 2009 ......................................................................................................................................... 51 Table 12 Ranking of territorial units according to the evolution of volume of services rendered to the population in the 1 st half 2009 ............................................................................................ 51 Table 13 Ranking of territorial units by value of industrial production in 2009 ......................... 56 Table 14 Ranking of territorial units by growth rate of the goods transported in 2009. ........... 58 Table 15 Ranking of territorial units by fixed capital investment in 2009 .................................. 58 6 Impact of the global financial crisis on local communities in Moldova List of charts: Chart 1 Evolution of quarterly GDP in 2000-2008 and 2009 forecast, constant prices of 2000 ......................................................................................................................................................... 15 Chart 2 General mechanism of financial crisis propagation at local level in Moldova ............. 17 Chart 3 Evolution of the DER during 2000-2008 and the 2009 forecast ................................... 21 Chart 4 Evolution of unemployment rate during 2000-2008 and the forecast for 2009 ........... 22 Chart 5 Evolution of DER in Q1’07-Q1’09, by statistical regions ..............................................