moldova public expenditures for agricultural development
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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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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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