The economic expert Marina Soloviova from the think tank Expert-Grup gave an interview for FES/APE newsletter on foreign policy in which we discussed about the “Budget + Plus” programme to be implemented by the Government and the shortcomings of this programme. We discussed about public consultations on this programme and about its economic and political perspective. We invite you to read the interview below:

This month, the largest financial package for investment and growth in recent history was approved. The Expert Group has pointed out a number of shortcomings, especially regarding transparency, and I would like to start the discussion with that. Has it been a transparent and inclusive process, consulted with civil society experts or do you see it as an eminently political initiative?

In my opinion, the public consultation process was practically circumvented, because according to the law on transparency in the decision making process, the notice on the organization of public consultations should have been published at least 15 working days before the draft decision was finalized. Likewise, the deadline for submitting recommendations on the draft had to be at least 10 working days since the date of the announcement. In reality, both announcements appeared on the same day the draft was approved by the government, on April 3rd.

The deadline for receiving comments was also indicated as April 8th, but even this was not respected, because on April 7th the Parliament had already approved this draft law in the first reading. So, basically, the law was adopted without public consultation.

But where do you think this haste comes from? Is there a political reasoning behind it?

I don’t know, maybe they wanted to do it as quickly as possible so they could implement it. The government gave an explanation, but I didn’t find it convincing. They said it was so fast because people want the investments to get to their localities as quickly as possible. However, it was not made clear which investments cannot wait the 10 days that the regulation stipulates. It is therefore difficult for me to say what was the reason for such a haste. What was most disturbing was the fact that not only was national legislation not complied with, but the very general principles for which we were provided this funding were defied.

It is worth mentioning that the European Parliament’s regulation establishing the Reform and Growth Facility for the Republic of Moldova contains the phrase “inclusive partnership principle”, which stipulates that the local authorities, civil society, various vulnerable groups and other stakeholders must participate in the selection and shaping of eligible activities from this funding.

In other words, this process has to represent the pluralism of Moldovan society, especially since the loan part of this financial package will be repaid by all Moldovan taxpayers

Inconsistency with objectives

You mentioned the inconsistency of some budgetary measures with the philosophy and objectives set out in the Growth Plan signed with the EU. What exactly does this mean, could you give us examples?

In fairness, it must be said that this draft law also contains some good measures that are consistent with the Economic Growth Plan, such as, for example, the modernization of agricultural markets in various cities, the modernization of local roads, which, in the same way, represent the economic infrastructure, subsidizing wages for young employees, support for small entrepreneurs and farmers, etc.

But there are also some measures that did not seem to me to be consistent with the objective of economic growth, that of moving to a higher value-added economic model. As an example, we can mention the “European Courtyard” programme, which provides for the renovation of dozens of courtyards in the city of Chisinau and its suburbs. We have analysed this programme published on the specialized website and found out that among eligible expenses are the rehabilitation of sidewalks, renovation of doors, landscaping, ornamental trees. We do not doubt that these things are necessary, but there are still some reservations that they could generate sufficient economic growth. Moreover, we have to bear in mind that we will have to pay interest on these loans, so such projects must be invested in such a way that they generate an economic growth higher than the interest rate, so as not to accumulate public debt.

Political competition

Do you see the same model implemented by the mayor of Chisinau, Ion Ceban, to beautify the city centre without much economic added value? Does the government want to take similar measures aimed at votes in the run-up to the parliamentary elections?

This is our assumption because we do not see the finality of this project in repairing a fairly small number of yards. Moreover, this project is planned only for the municipality of Chisinau, not for the whole country. Normally, even if we want to renovate the courtyards, there should be a comprehensive programme for the whole country, which would provide for phased renovation, perhaps over several years, of all the courtyards in the country.

But when it is only about the municipality of Chisinau and only a few dozen courtyards, the impression is that this project has electoral connotations, to rival the projects carried out by Mayor Ion Ceban, a political competitor for the ruling party. Unfortunately, this impression exists.

In your position paper you also talk about the risks of limiting local autonomy. How do you explain this with regard to this programme?

We are not talking about the entire programme, but there are some projects that have been proposed, such as the “Europe is near, 2025 edition” programme, which foresees the construction and modernization of local roads. This project will be financed from EU resources through the National Fund for Regional and Local Development.

The use of resources from this fund, for example in the European Village programme, has previously been criticized by civil society for the risks of political patronage. A number of studies have been carried out, some of which have picked up several signals suggesting possible influences that could have favoured localities run by some mayors affiliated to the ruling party. And the concept of this new “Europe is near” road programme is similar in design to the previous “European Village” project. If there were problems before, it is very likely that the same problems will be perpetuated in the new programme. If we look at the design of this programme, we will see that the procedure entails certain risks of clientelistic control of mayors.

Let me give you an example of how selection takes place. First level Local Public Authorities (LPAs) apply for funding. Then, the Ministry of Infrastructure evaluates these projects and draws up a list of priority projects for funding, which then has to be endorsed by the National Coordination Council for Regional and Local Development.

Given the composition of these inter-ministerial councils, there is a risk that decisions may be politicized at the selection stage. Some abuses are also possible after the selection stage, as the winning LPAs have to carry out public procurement procedures and monitor the execution of construction works by contractors. As the works are carried out, the National Service for Local and Regional Development has to disburse payments from the fund to the LPAs on the basis of a series of confirming documents.

The value of the instalments must be at least one third of the total value of the contract. Here again, the problem arises that the supporting documents of perhaps more “stubborn” ones may not be accepted. And if it is one third of the total value of the contract, the contractors risk not being paid for the one third of the work already carried out, and mayors are thus blackmailed, creating the conditions for clientelism and political subordination on the part of mayors.

Possible politicization of funds?

Have you seen such patterns in the European Village programme before? Have there been such discussions in the past about giving money to mayors on political grounds?

Yes, we have indicated such a scenario in our position paper. For example, our colleagues in Balti – the Human Rights Association LEX21– have monitored the implementation of the “European Village” programme in the northern region of the country and identified some signs that mayors affiliated with the ruling party were favoured, both by the number of projects won and by the amount per beneficiary.

So there were certain problems, which may not necessarily have been intentional, but there were signs that some municipalities may have been favoured. So we believe that if the design has not changed, it means that the same problems could occur in the road rehabilitation programme.

Do you think that some allocations in this “Budget + Plus” programme have a populist character that somehow comes before the parliamentary elections? Do you perhaps see the allocation of some funds also as part of an electoral logic?

The government has allocated some money for vulnerable families and families with children, which has been criticized. I am happy when vulnerable people also receive certain benefits, but it is not right that this should be designed as a means of attracting votes. Such practices must be avoided.

In order to achieve economic growth, we should generally avoid investing money in unproductive projects of a populist nature. Those projects which can lead to economic growth in the future should be prioritized, as this is what the economic package offered by the European Union is intended to do.

In general, the problem is not so much the haste, but the directions in which resources are invested. With reference to the latter, back in March, the Expert-Group made recommendations which we published and presented to the government.

First of all, it is about the energy sector and energy efficiency – distribution and storage infrastructure, renewable energy sources. The government needs to invest in research and development, as well as retraining and upskilling the workforce to increase value added in the economy.

How much of your recommendations since then have been taken on board? Because there are some allocations for energy independence, but we do not know how much the government has taken into account the recommendations that you made earlier?

We have the impression that the Government has not really been inspired by the recommendations of economists from civil society. It does include energy efficiency projects and projects to support small entrepreneurship, but most of the measures are related to current expenditures. And this is not good, because it will not generate economic growth in the future, and we need this so that we can pay interest and repay those loans.

Modest economic growth

PAS MPs claim that this “Budget + Plus” targets a 5 percent annual growth of the economy in the coming years. Civil society experts say 10 percent growth per year is needed. Are additional measures needed on top of the “Budget + Plus” to reach the 10 percent growth we need in the coming years?

Now it is not even a question of having a 5 percent economic growth, because we saw the other day that the International Monetary Fund (IMF) has updated its forecast for the Republic of Moldova. The IMF has forecast economic growth of less than 1% for 2025, and a growth of up to 2.5% for the following year, if I am not mistaken. And this is very little.

In other words, even the 5 percent that is stated in the programme will probably not be reached in the next year or two. And, indeed, we would need higher economic growth than that, for which a bolder vision is needed. We need to invest in programs that generate sustainable economic growth, increase competitiveness and alignment with European standards.

Thank you!