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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

MOLDOVA PUBLIC EXPENDITURES FOR AGRICULTURAL DEVELOPMENT

June 2006


Objective scope
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


General budget framework
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%


Total agricultural spending
TOTAL AGRICULTURAL SPENDING

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


Policy issues
POLICY ISSUES

  • Role of government

  • Affordability and efficiency

  • Balance between productive and distributional policies

  • Coordination, rural development and decentralization


Expenditure management
EXPENDITURE MANAGEMENT

Strengthening required in:

  • Planning and budgeting

  • Budget execution

  • Transparency and accountability

  • Impact/ efficiency indicators


Overall spending trend
OVERALL SPENDING TREND

Total budget spending in agriculture has increased significantly since 2001


Composition of spending
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


Farm cash subsidies 1
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


Farm cash subsidies 2
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


Farm cash subsidies 3
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


Public services investment 1
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


Public services investment 2
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


Public services investment 3
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


Priorities for public spending
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.


Summary of key issues
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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