Download TURKEY RURAL PUBLIC EXPENDITURE REVIEW

MOLDOVA
PUBLIC EXPENDITURES FOR
AGRICULTURAL DEVELOPMENT
June 2006
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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
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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%
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TOTAL AGRICULTURAL SPENDING
At less than 1% of GDP prior to 2006, agriculture spending in
Moldova is low relative to comparator countries
Comparator country data (approximate figures)
Agriculture as
Share of GDP
Agriculture
Budget share
Agric. spending
As % GDP
Moldova
20%
3%
0.9%
Others
Armenia
Azerbaijan
Kyrgyz Republic
Nicaragua
Poland
Turkey
35%
18%
47%
30%
3%
12%
9%
6%
7%
8%
8%
6%
1.2%
3.1%
1.8%
3.5%
3.5%
1.1%
Source: WB PERs / country studies. Figures are only indicative as different accounting
practices are applied in different countries. Agriculture spending in Poland includes a large
subsidy and pensions element, equivalent to around 2.5% GDP.
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POLICY ISSUES
 Role of government
 Affordability and efficiency
 Balance
between
distributional policies
productive
and
 Coordination, rural
decentralization
development
and
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EXPENDITURE MANAGEMENT
Strengthening required in:
 Planning and budgeting
 Budget execution
 Transparency and accountability
 Impact/ efficiency indicators
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OVERALL SPENDING TREND
Total budget spending in agriculture
increased significantly since 2001
has
% Total Consolidated Budget
% Moldova GDP
1,4%
6,0%
1,2%
5,0%
1,0%
4,0%
0,8%
3,0%
0,6%
0,4%
2,0%
0,2%
1,0%
0,0%
0,0%
1998
1999
2000
2001
2002
2003
2004
2005
2006
plan
1998
1999
2000
2001
2002
2003
2004
2005
2006
plan
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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
1,4%
% GPD Moldova
1,2%
1,0%
0,8%
0,6%
0,4%
0,2%
0,0%
Services Delivery
1998
1999
2000
2001
Farm Subsidies
2002
2003
2004
Total Spending
2005
2006, plan
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FARM CASH SUBSIDIES (1)
0.80%
% GDP Moldova
Expenditures on
subsidies have
been growing in
recent years
0.70%
0.60%
0.50%
0.40%
0.30%
0.20%
0.10%
0.00%
1998
1999
2000
2001
2002
MAFI budget
2003
2004
2005
2006
plan
other funds
 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)
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FARM CASH SUBSIDIES (2)
Efficiency and targeting of farm subsidies is a
main issue
Distribution of vineyard plantation subsidies (2004)
Funds outside MAFI
MDL thousand current prices
120,000
40%
35%
100,000
30%
80,000
25%
Planned
60,000
Actual
40,000
% applications
20%
% area
15%
10%
5%
20,000
0%
0
5-10 ha 10-15 ha 15-20 ha 20-30 ha 30-50 ha
2001
2002
2003
2004
2005
2006
50-100
ha
above
100 ha
 Frequent modifications and amendments during the year – low
predictability
 Since 2004, trend towards concentration on subsidies benefiting
medium to large operators – additionality debatable
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FARM CASH SUBSIDIES (3)
350,000
MDL thousand (current prices)
300,000
VAT refunds & domestic sales
250,000
others (land, walnut, plowing)
livestock
200,000
tobacco and sugarbeet
risk insurance subsidy
machinery (MTS)
150,000
credit incentives
orchards
100,000
viticulture
50,000
0
2002
2003
2004
2005
2006 plan
 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
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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
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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
0,60%
% GDP Moldova
0,50%
Others
0,40%
Irrigation
Crops
0,30%
Livestock
Research
0,20%
Education
0,10%
0,00%
1998
1999
2000
2001
2002
2003
2004
2005
2006
plan
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PUBLIC SERVICES & INVESTMENT (3)
Delivery of services need
strengthened and rationalized:
to
be
 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
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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.
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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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