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MOLDOVA PUBLIC EXPENDITURES FOR AGRICULTURAL DEVELOPMENT

MOLDOVA PUBLIC EXPENDITURES FOR AGRICULTURAL DEVELOPMENT. June 2006. OBJECTIVE & SCOPE. OBJECTIVE Assist in enhancing the impact of agricultural development in Moldova SCOPE (1998-2006) Agriculture spending Central and local government expenditures

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MOLDOVA PUBLIC EXPENDITURES FOR AGRICULTURAL DEVELOPMENT

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  1. MOLDOVA PUBLIC EXPENDITURES FOR AGRICULTURAL DEVELOPMENT June 2006

  2. OBJECTIVE & SCOPE • OBJECTIVE • Assist in enhancing the impact of agricultural development in Moldova • SCOPE (1998-2006) • Agriculture spending • Central and local government expenditures • MAFI and related public institutions (state budget) • Other agriculture support funds (outside MAFI) • Local government spending on agriculture

  3. GENERAL BUDGET FRAMEWORK • Public finances expected to remain very tight in the medium term • Over the period 2007-2009 (MTEF), share of public expenditure would shrink from 38% of GDP in 2005 to 37% in 2009 • Public spending on agriculture, forestry, fishery and water services, following some increase (ongoing), would also shrink as percentage of GDP from 2008 onwards: • 2005 (completed) approx. 1.0% • 2006 (approved) 1.4% • 2007 (estimated) 1.5% • 2008 (estimated) 1.3% • 2009 (estimated) 1.2%

  4. TOTAL AGRICULTURAL SPENDING At less than 1% of GDP prior to 2006, agriculture spending in Moldova is low relative to comparator countries

  5. POLICY ISSUES • Role of government • Affordability and efficiency • Balance between productive and distributional policies • Coordination, rural development and decentralization

  6. EXPENDITURE MANAGEMENT Strengthening required in: • Planning and budgeting • Budget execution • Transparency and accountability • Impact/ efficiency indicators

  7. OVERALL SPENDING TREND Total budget spending in agriculture has increased significantly since 2001

  8. COMPOSITION OF SPENDING • Farm subsidies show large variations over the last 8-10 years, and account for most of the increase in spending since 2001 • Delivery of services (and investment) have been more stable, with only limited increase in recent years

  9. FARM CASH SUBSIDIES (1) • Prior to 2006, most of this growth came from funds with earmarked revenues outside MAFI (vineyard support fund) • In 2006, allocation for MAFI support fund is also increased (3.5 times compared to 2005 actual spending) Expenditures on subsidies have been growing in recent years

  10. FARM CASH SUBSIDIES (2) Efficiency and targeting of farm subsidies is a main issue • Frequent modifications and amendments during the year – low predictability • Since 2004, trend towards concentration on subsidies benefiting medium to large operators – additionality debatable

  11. FARM CASH SUBSIDIES (3) • Many subsidies are intended to foster private investment, but they cannot substitute for improvement in the overall climate for private domestic and foreign investment • Amounts are small compared to investment needs – need to ensure adequate targeting and efficiency of subsidies • No rural development subsidies

  12. PUBLIC SERVICES & INVESTMENT (1) • Public expenditures from national budget for agricultural investments are negligible • IFI-financed investment and recurrent expenditures are not included in the budget • Public expenditures for the delivery of services represent a very low share of GDP, in comparison with other countries

  13. PUBLIC SERVICES & INVESTMENT (2) Distribution of public funding for services delivery has remained stable across activities – some additional activities introduced, but no systematic review of existing ones

  14. PUBLIC SERVICES & INVESTMENT (3) Delivery of services need to be strengthened and rationalized: • reform veterinary services to focus on public good aspects • fully integrate extension activities in MAFI budget • critically review activities of dubious value • make irrigation support sustainable • restructure agricultural research and education

  15. PRIORITIES FOR PUBLIC SPENDING • International evidence (including cross-country comparisons), market failure and social objectives suggest future priorities for public spending directed towards: • public goods such as research and development, advisory services and information systems • facilitating private sector delivery of other services (e.g. rural finance) • rural infrastructure, including rural roads and irrigation • empowerment of farmers’ groups • supporting the emergence and addressing the needs of family farms and commercial farmers/ entrepreneurs • policy formulation, statistical systems, regulatory activities, • Along with creating a good and stable policy environment, favorable investment climate.

  16. SUMMARY OF KEY ISSUES • Main policy challenge • to raise agricultural productivity and improve on-farm and off-farm employment opportunities • Clarify public / private roles • avoid the pitfall of excessive (and difficult to reverse) subsidies • Strengthen PEM to provide • link between strategic objectives, functions, outputs and resources available • framework that enables prioritization between competing activities • Impact and efficiency of service delivery • M&E systems to justify agricultural sector spending

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