Publisher: EXPERT-GRUP Centrul Analitic Independent

Monitoring report on the implementation of the Roadmap regarding the Agenda of Priority Reforms (March-June 2016)

Raport de monitorizare a implementării Foii de parcurs privind agenda de reforme prioritare (martie-iunie 2016)

Author(s): Author Not Specified / Language(s): Romanian

Keywords: Reform Priorities in Moldova;

At the time of writing this Report (June), the completion deadlines for 57 actions out of the 69 provided by the Roadmap have expired. Respectively, out of the total of 69 actions, 24 (35%) were carried out without deficiencies; 16 (23%) of the actions were performed with deficiencies; 19 (27%) of the total number of actions are in positive progress and, respectively, 4 (6%) are in negative progress, with serious deficiencies that may prevent the successful completion of the action. The realization of 6 (9%) actions was not initiated. // At the same time, we would like to emphasize the fact that the quantitative results regarding the number or percentage of actions carried out in the Roadmap should be considered as a secondary indicator in relation to the quality of the actions carried out. Some of the actions included in the Roadmap are duplicated1, while others are of a technical and simplistic nature2 and should not have been found in such a document. At the same time, their implementation increases the number or the rate of actions carried out without actually constituting actions that create conditions for the implementation of the necessary reforms or demonstrate the will to reform.

The Bank Recovery and Resolution Law. Bank Recapitalization Regime (bail-in) and State Guarantee

The Bank Recovery and Resolution Law. Bank Recapitalization Regime (bail-in) and State Guarantee

Author(s): Dumitru Pîntea / Language(s): English

Keywords: bail-in;

The bail-in procedure is a relatively new one at global level. Actually, according to Directive 2014/59/UE, up until now no European financial institution was salvaged from bankruptcy through bail-in5. Considering the complexity of the Directive, the existing contraindications between European governments regarding the bail-in procedure, as well as the extremely strong lobby from international financial groups, certain reluctance in implementing the provisions is present in several European countries. However, the recent history notes the use of bail-in in the Cyprus banking crisis, and more specifically, in the recovery of the financial situation in two financial institutions with systemic impact.

What Factors Underpin Bank Disintermediation and How Can We Stimulate the Lending Activity?

What Factors Underpin Bank Disintermediation and How Can We Stimulate the Lending Activity?

Author(s): Dumitru Pîntea / Language(s): English

Keywords: Banking Sector Moldova;

In order to identify the mechanisms/tools that could be used by NBM, banks and Government to overcome this lack of confidence and resume the lending activity, Expert-Grup committed to facilitate the dialogue between commercial banks, NBM, experts and other stakeholders. How we can stimulate the lending activity and bring back trust in the bank-customer relationship study was developed for this purpose1. This document focused on two subject lines. On the one hand, the study aims to identify the actual causes that fuel the bank disintermediation and the constraints that hinder the expansion of bank loans, on the other hand – to present solution how to foster this activity. In addition, in order to explore the actual situation, the Questionnaire for Assessing the Lending Activity was developed and sent to banks. This tool allowed forming a much clearer picture of the constraints affecting the demand and supply by types of loans. In the end, the results were discussed at a round table attended by representatives of commercial banks, Government, top management of NBM and other economic experts. The presence of all the stakeholders around the same table allowed to express the inside vision on this phenomenon and this note comes to synthesize and to totalise the results of the actions conducted by Expert-Grup in order to identify the factors underlying the bank disintermediation and the solutions regarding the stimulation of lending activity.

Long-term financial instruments: how to develop and why we need them?

Long-term financial instruments: how to develop and why we need them?

Author(s): Eugen Ghilețchi / Language(s): English

Keywords: Moldova Banking Sector;

Moldova, like other developing countries, faces a relatively short maturity of financial instruments. The average weighted maturity of state securities in circulation is only 6.5 months. The average weighted maturity of the portfolio of new loans granted throughout the banking sector in 2016 made up 29 months, while the average duration of loans granted to legal entities in developed countries is 58 months. Meanwhile, about 92% of the total new deposits attracted by local banks in 2016 have a term of up to 1 year. Thus, economy of the country is constrained by the lack of long-term credit instruments that would otherwise enable efficient long-term investments: real estate projects, infrastructure projects, etc. // The problem of maturity of financial instruments has two aspects: lack of the supply of instruments with long-term maturity and low demand from the population for such instruments. A basic precondition without which it is impossible to extend the maturity of financing is to ensure stable macroeconomic conditions.

KROLL Investigation: Between Expectations and Reality

KROLL Investigation: Between Expectations and Reality

Author(s): Eugen Ghilețchi / Language(s): English

Keywords: banking fraud in Moldova;

In 2014, the domestic banking system was shaken by one of the biggest internal crises in our country's history. The bank fraud that resulted in the theft accounting for 12 per cent of the GDP was the consequence of flawed corporate governance in some banks, of dysfunctions and lack of coordination among state institutions, including the ones in charge of ensuring financial stability, as well as the consequence of ill-intentioned decision-makers in state institutions and banks1. In almost 3 years after the crisis, the authorities recovered around MDL 963 million from selling the assets of the three banks, while Kroll Company, contracted to conduct an investigation and support the authorities in recovering the stolen money, detected committed crimes that together add up to around USD 600 million2. // Currently, the only solution that could actually lessen the burden on citizens is to follow the missing money and to recover it to the possible extent. Taking into account the complexity of schemes used by crooks in bank frauds, the full recovery of the assets is virtually impossible in such situations. International experts believe that retrieving even 50 per cent of the lost money in such cases is an achievement.

Draft Law on Anti-Money Laundering and Countering Financing of Terrorism – Source of Economic Stability or Instability?

Draft Law on Anti-Money Laundering and Countering Financing of Terrorism – Source of Economic Stability or Instability?

Author(s): Sergiu Gaibu / Language(s): English

Keywords: Money Laundering;

The aim of this note is to provide recommendations on improvement of the draft law as well as of the certain elements of mechanisms present in Moldova on preventing and combating money laundering, so that to protect the fundamental rights, proper functioning of the business environment and to preserve a rational approach to prevention and combating the money laundering phenomenon. It is vitally important to understand the general context and the role of prevention and combating money laundering in such context. The primary goal of modern societies and states is to eradicate organized crime, drug trafficking, human trafficking, organ trafficking and illegal arms trafficking. In this context the international community developed services to identify and fight these crimes. Once the technologies were developed and the financial flows enhanced, it became obvious that the criminals’ ultimate goal is to bring the enormous income back into the legal ‘white’ circulation. And after realizing this fact, the combating of money laundering was organized and the money laundering activity was incriminated to attack the results of illegal activity.

Moldovan dairy: the difficult way towards the EU market

Moldovan dairy: the difficult way towards the EU market

Author(s): Valeriu Prohniţchi / Language(s): English

Keywords: dairy industry in Moldova;

As part of the EU-Republic of Moldova Association Agreement, the Republic of Moldova committed to approximate its sanitary and phytosanitary and animal welfare law to that of the European Union. However, approximating the EU legislation is not going to be an easy process. The Decision no.1/2016 of the EU-Moldova Sanitary and Phytosanitary Sub-Committee modifying Annex XXIV-B to the Association Agreement [2016/1074] adopts the full list of the EU legislation to be approximated by the Republic of Moldova and can be regarded as official Moldova SPS Strategy. The SPS Strategy refers to around 240 directives and regulations including general aspects, veterinary legislation, placing on the market of food, feed and animal by-products, food safety rules, specific rules for feed, phytosanitary legislation, genetically modified organisms and veterinary medical products. Deadlines for approximation cover the time period 2016-2020. It should be mentioned that around 10 pieces of EU legislation are directly relevant for the Moldovan dairy sector, which is the subject of this paper. Unfortunately, we do not have any evidence on the effective degree of approximation of the pieces of legislation due to be approximated in the period 2016-mid 2017.

Solutions for the mobilization of internal resources for Infrastructure Projects and the Development of the Country: State Securities Market

Soluții pentru mobilizarea resurselor interne pentru proiecte infrastructurale și dezvoltarea țării: Piața Valorilor Mobiliare de Stat

Author(s): Dumitru Pîntea,Eugen Ghilețchi,Sergiu Gaibu / Language(s): Romanian

The concept of development and liberalization of the state securities market derives from the need to boost the development process of the capital market and the national financial system as a whole. As a result of the frauds registered in the banking sector, the reformation of the financial system becomes imminent, and the rehabilitation and recovery process is announced to be long and will gradually include all its components and sectors. Thus, although at the moment the reform process is focused especially on the banking environment, special attention and a sustained involvement of efforts must also be given to the capital market, or there are solid premises for this sector to become an important element of the financial intermediation mechanism, but also a factor for diluting the risks and vulnerabilities present and revealed by the banking sector.

Preventing and combating money laundering: Roadmap for adapting the regulatory framework to the context of the Republic of Moldova

Prevenirea și combaterea spălării banilor: Foaie de parcurs pentru adaptarea cadrului regulator la contextul Republicii Moldova

Author(s): Sergiu Gaibu / Language(s): Romanian

Keywords: money-laundering; criminal financing;

As a result of the analysis of the situation of the Republic of Moldova, based on the vulnerabilities of the private sector but also of the state institutions, 13 principles to be followed were developed for the realization of a balanced and rational system for preventing and combating money laundering and terrorist financing. The established principles take into account the requirements of EU Directive 2015/849, the money laundering risks specific to the environment in the Republic of Moldova, as well as the limited resources of the business environment and those of public authorities. Also, these principles focus on the critical risks of money laundering and elimination of vulnerabilities within state institutions, the risks of abusive applicability and susceptibility to corruption.

Monitoring report on the implementation of the Priority Reform Action Roadmap (5th July – 22nd November 2017)

Monitoring report on the implementation of the Priority Reform Action Roadmap (5th July – 22nd November 2017)

Author(s): Author Not Specified / Language(s): English

Keywords: reform priorities in Moldova;

This report provides an independent evaluation of the implementation of Roadmap provisions for June - November 2017. The document covers eight policy areas, with a summary of developments for each of the actions, comments on the main achievements, and a list of relevant policy recommendations. Evaluation of the implementation of provisions of the Priority Reform Action Roadmap was based on a methodology focused both on the evaluation of the implementation in terms of the established timelines and in terms of the quality of the implemented actions. Given that timelines for several actions included in the Roadmap were rather tight, and therefore were often missed, the evaluation of progress was focused on the quality of acts adopted/measures taken and their potential impact (Annex 1).

About how public money is lost: Synthesis of the reports of the Court of Accounts, Semester I 2017

Despre cum se pierd banii publici: Sinteza rapoartelor Curții de Conturi, Semestrul I 2017

Author(s): Tatiana Savva / Language(s): Romanian

Two decisions out of the 10 published, concerned the way in which the institutions previously referred to in the audit reports implemented the recommendations submitted: the Agency for Interventions and Payments in Agriculture on the subject of the subsidies granted and the Ministry of Internal Affairs on the subject of real progress and prospects for the automation of processes in the field internal affairs. // This study, in turn, comes to present the synthesis of the main findings from the reports of the Court of Accounts on four themes: the way in which the money from the Mandatory Medical Assistance Insurance Funds is spent, how correctly the money from this fund was spent by the National House of Social Security, how the money was spent to restructure the wine sector and how well the National Food Safety Agency and its subordinate institutions manage the financial resources and assets under management.

The efficiency and transparency of the healthcare system in the Republic of Moldova

Eficiența și transparența sistemului de sănătate din Republica Moldova

Author(s): Dumitru Budianschi,Dumitru Pîntea,Mihail Ciocanu,Silvia Morgoci,Tatiana Savva / Language(s): Romanian

Keywords: health-care system in Moldova;

Each country, depending on its historical course, state concept and economic development, has developed its own health system. Despite the fact that health systems are so diverse, they also have a lot in common, because they essentially perform the same functions and have the same goals. Thus, under certain conditions the exchange of experience between countries on solving similar problems or how to respond to common challenges are very useful. For the Republic of Moldova – a state in transition from a society based on state ownership and a centralized economy, the experience of other states on this subject is even more important because it can be used in the process of reforming the health system. // The purpose of this study is to contribute to the openness of the health system by providing an integrative view of the transparency of the health system and highlight the results and the way the system is financed and managed. Thus, the study addresses topics related to the functionality of the system as a whole, and less the specific areas of the health system. The study contains 5 basic chapters, the introduction and a chapter of conclusions and general recommendations. Each core chapter contains in turn a subchapter of specific conclusions and recommendations.

Updating the budget transparency framework of the Republic of Moldova

Actualizarea cadrului de transparență bugetară din Republica Moldova

Author(s): Dumitru Budianschi,Tatiana Savva / Language(s): Romanian

Keywords: public finances in Moldova;

In the last period, society has noticed an increase in interest towards the activity of the authorities, in particular, towards the way in which they allocate and spend public money. In order to ensure budget transparency, it is crucial to have a regulatory framework that covers all stages of the budget cycle, as well as all the institutions involved. In the Republic of Moldova, there is a rather dense framework regarding transparency and access to information, which in the meantime has undergone multiple changes. The purpose of this study is to analyze the existing regulatory framework to identify the main gaps in ensuring budget transparency. // To accomplish this task, the description of the concept of budget transparency and its relation to other concepts and notions, as well as good practices on this subject, will be presented. Afterwards, the structure of the National Public Budget and the stages of the budget process will be briefly presented. The description of the regulatory framework for ensuring budget transparency will follow, in which the laws, government decisions and, as appropriate, other regulatory acts will be presented. The description of the meaning of budget transparency will be carried out in accordance with the current best practices promoted by the International Budget Partnership and other international organizations. Thus, as a result of the disclosure of the meaning of the concept of budget transparency, the transparency criteria will be identified, which will be used later in the evaluation of the regulatory framework in order to identify the gaps in the budget transparency regulation. // The study primarily analyzes the transparency of the budget process of the BS. At the same time, taking into account the importance and relations of this document with all the components of the budget system of the Republic of Moldova, the BPN will also be discussed, and, as the case may be, other components of the budget system.

Final Monitoring Report on the Implementation of the Priority Reform Action Roadmap (5 July - 31 December 2017)

Final Monitoring Report on the Implementation of the Priority Reform Action Roadmap (5 July - 31 December 2017)

Author(s): Author Not Specified / Language(s): English

Keywords: political reform in Moldova;

The Final Report on the Implementation of the Roadmap provides an independent evaluation of the implementation of Roadmap provisions for the entire period set in the document, 5 July – 31 December 2017. The document covers eight policy areas, with a summary of developments for each of the actions, comments on the main concerns and achievements, and a list of relevant policy recommendations. // The implementation of the Priority Reform Action Roadmap was evaluated on the basis of a methodology focused both on the assessment of timeline and quality of the implemented actions. Given that deadlines for a number of actions included in the Roadmap were rather tight, and therefore were often missed, the evaluation of progress was focused on the quality of acts adopted/measures taken and their potential impact (Annex). // This document represents the final assessment report on the Roadmap implementation, which is based on updating the interim assessment report published on 1 December 2017.

Transparency of the expenses of the institution of the President of the Republic of Moldova

Transparența cheltuielilor instituției Președintelui Republicii Moldova

Author(s): Dumitru Budianschi,Tatiana Savva / Language(s): Romanian

Keywords: Presidential budget in Moldova;

The results of the analysis highlighted major deficiencies regarding the allocation and transparency of expenses intended for the President's institution. The current way of recording expenses for this institution does not reveal all expenses. Part of the expenses are carried out by other institutions and are not included in the expenses intended for the Presidency. Also, the activity of the President is not sufficiently transparent compared to the practices of other Presidencies and does not fully respect the transparency requirements established by the domestic legal framework. Another topic, which does not directly relate to the President's expenses, but Belangs to his competence, is the awarding of decorations for special merits towards the state. And on this subject, the Republic of Moldova has great deficiencies not only in the transparency of the process, but also in the way of regulation.

Republic of Moldova - case study of new money laundering schemes. Lessons to be learned and consequences for the EU

Republica Moldova - studiu de caz al noilor scheme de spălare a banilor. Lecții de învățat și consecinţe pentru UE

Author(s): Sergiu Gaibu,Andres Knobel / Language(s): Romanian

Keywords: criminal financing;

The evolution and proliferation of new forms of terrorism, organized crime, intrusion and information warfare generate new money laundering schemes to finance these types of activities. Their purpose is to avoid anti-money laundering mechanisms created through a joint international effort. Money laundering is essentially an international phenomenon, so it is extremely important that regulations and prevention measures are developed and implemented in all countries. This approach is particularly relevant for the European Union (EU), where all new developments, including the fifth Anti-Money Laundering Directive and the legislative framework for the automatic exchange of information, can be undermined if neighboring countries fall behind.

Financial Autonomy in the Republic of Moldova: the evolution of local budget revenues

Autonomia financiară în Republica Moldova: evoluția veniturilor bugetelor locale

Author(s): Dumitru Budianschi / Language(s): Romanian

Keywords: budgeting system in Moldova;

Currently, with reference to Local Budgets, in the Republic of Moldova there are practically 2 budget systems. One system works in Gagauzia and another for the rest of the country. The local authorities of Găgăuzia do not participate in the formation system of the Financial Support Fund of administrative-territorial units (FSF), instead Găgăuzia retains practically all taxes and state fees collected on its territory. Also, the authorities of Gagauzia benefit without restrictions from all the spending programs in the BS, having the same rights as LPAs in the rest of the country. The rest of the authorities, although they are covered by the same concept of budget formation, however, due to regulatory peculiarities, there are major differences in the structure of revenue formation for two other groups of local authorities: (i) for districts, and (ii) Balti and Chisinau municipalities.

Economic Models of Aid Effectiveness in Moldova

Economic Models of Aid Effectiveness in Moldova

Author(s): Theocharis Grigoriadis,Sergiu Gaibu / Language(s): English

Keywords: EU development aid to Moldova;

In this paper, we provide an overview of the objectives and challenges to be met in the delivery of EU development aid to Moldova. Our analysis, carried out with pooled OLS, suggests that aid commitments and the number of aid projects are conducive to higher levels of socio-economic development; while the results for aid disbursements are in the same direction, they are less robust. EU development aid is effective when we introduce the three-year lag and the outcome variable is long-term investment, meaning that the impact of EU development aid can be observed in the medium and long-run, which points on positive and sustainable impact on the development of the country. Giving Central European bilateral donors such as Austria, Slovakia, and Romania a share in the programs does tend to generate higher levels of socio-economic performance. The same observation holds for transport, health, and water projects. The authors found that aid disbursements are much lower compared to aid commitments, revealing a large unexplored potential of EU development aid in Moldova, which is mostly due to governance issues in Moldova. In order to bridge the gap between aid commitments and aid disbursements, it is important for the European Union to bolster transnational sovereignty partnerships that bypass central government budgets and foster the implementation of local-scale projects with the participation of subnational bureaucracies and local civil society.

Can a Free Trade Agreement with China be opportune for Moldova?

Poate fi un Acord de comerț liber cu China oportun pentru Moldova?

Author(s): Vadim Gumene / Language(s): Romanian

Keywords: China-Moldova relationship;

During the meeting of the Republic of Moldova-China Economic Cooperation and Trade Committee, which took place in December 2016, the two sides reached a broad understanding regarding the need to initiate negotiations on a free trade agreement between them. It was assumed that the signing of such a document will constitute an important step forward for the intensification of economic relations and the increase of trade between the Republic of Moldova and China. The discussions ended with the signing of a Memorandum of Understanding aimed at preparing the foundation for the initiation of the given discussions.

Testing Policy Options to FightTax Evasion using Behavioural Insights

Testing Policy Options to FightTax Evasion using Behavioural Insights

Author(s): Adrian Lupuşor,Rustam Romaniuc,Vadim Gumene / Language(s): English

Keywords: fighting tax evasion;

The shadow economy in Moldova has reached the point where it has a very strong and persistent negative impact on the tax revenues, but especially on the economic growth. It placed Moldova among the countries with the highest level of shadow economy in the region. In recent years, the shadow economy in Moldova has been steadily growing and spreading, affecting increasingly the development of the economy. The immediate effects of tax evasion are related to forgone losses to the state budget (fiscal discrepancy). The large size of the shadow economy is mainly due to weak institutions, characterized by limited administrative abilities in the public sector to coordinate and manage the economic system and the relationships that characterize it. In addition, it is caused by perceptions about high fiscal pressure, complexity and instability of fiscal regulations, weakness of the tax administration, moral hazards and contagion (when some individuals observe the behaviour of other individuals and try to replicate for financial gains). In order to properly address this issue in a sustainable way, the policies, so far did not take into account the behavioral insights – the social norms and psychological factors that explain tax evasion in Moldova. This study comes to fill this gap by providing the necessary analytical framework that explains the tax evasion from the behavioral point of view and provides policy recommendations in this regard.