Download The Program for Stabilization and Economic Rehabilitation of the

REPUBLIC OF MOLDOVA
ECONOMIC STABILIZATION AND RECOVERY PROGRAM
2009-2011
BACKGROUND
The economy of the Republic of Moldova is in deep crisis. The depth of the crisis is proven by
having basically all sectors of the economy stagnating, the aggregate demand for consumption
shrinking, following a drop of remittances, and an entailing decrease in foreign trade, combined
with a significant increase in the budget deficit. Economic shortages lead to even more social
tensions following people’s undermined trust in the financial sustainability of the budget and
Government actions.
The crisis stems abroad – for a country vulnerable to external shocks, as is the case of Moldova,
the shrinking economies of the key partner states played a critical role which, starting in late
2008, triggered the reversal of economic development trends. At the same time, a delay in
implementing crisis control measures has deepened recession, yielding pessimistic forecasts in
the short and medium run.
The framework within which this Program is being carried out in the Republic of Moldova is an
extremely difficult and tension-prone one, as economic shortcomings impact the national public
budget which, in turn, can no longer act as an efficient and effective tool to support vulnerable
groups. Hence, people’s vulnerability is directly proportional to economic stagnation and crisis
depth.
The ruling Government is aware of the depth of economic recession, as well as of how
vulnerable certain groups of people are to the adverse effects of crisis. Despite the worldwide
recession subsiding to the efforts bent by governments around the world, with some first signs
pointing out to the world’s economy recovering in the second half of 2009, the beneficial impact
of these positive world trends upon the economy of the Republic of Moldova will show up later.
Under the given circumstance, the Government should undertake urgent steps towards stabilizing
and upturning the country’s economy, in order to prevent the economic crisis from further
worsening in the Republic of Moldova.
Considering the sluggish model that the previous Government adopted for economy management
in general and for budget in particular, the ruling Government has limited leverage and little
room for maneuver today. Nevertheless, identifying the opportunities and the most efficient
intervention tools is a priority for the Government. Following the investments made, the
Government took a number of reform measures aiming at un-bureaucratizing and
demonopolizing the business environment, at improving the efficiency of public expenditure,
and at bettering the efficacy of public administration. This Program provides for an array of
actions to carry on the efforts that are already being implemented by the Government and which
are to be carried out starting with the fourth quarter of 2009 and running up until the end of 2011.
The tools that the Government is planning to make use of in order to stabilize and recover the
country’s economy vary from measures aiming at stimulating consumption and economy to
measures meant to facilitate the access of business people to more affordable funds, and include
well-accepted measures along with less popular measures of reformative nature yet critical given
the current circumstances. The selection of these tools had a participatory approach, with the
support of the country’s development partners, business environment representatives, academia
and civil society. In order to avoid the country’s insolvency, the Government has to make sure
that the sparse budgets are adequately earmarked and channeled specifically towards the
vulnerable groups and towards working out the burning issues. Therefore, the Government will
make sure not only to push up the pace of economic recovery, but also to significantly increase
the budget support for vulnerable groups. Thus, regardless of the actions taken, it is a certainty
that the Government will start implementing the Program with strengthening public
administration and building efficient, sustainable and reliable state bodies.
The Government will bend efforts to find a socially acceptable tradeoff between sacrifices and
benefits, so that the burden of imperious reforms does not adversely impact upon those who
count on support or who are weakened, whereas those who incur loss today to be repaid in full
once the economy takes an upward-sloping trend. Therefore, all throughout the implementation
of the Economic Stabilization and Recovery Program, the Government relies, first and foremost,
upon its own efforts, but also relies on the understanding and trust of the whole society, along
with the support provided by the country’s development partners, without the support of whom
the envisaged ambitious reforms would have not been possible. In the context of the dialogue
with the general public and aiming at ensuring the full understanding of the message
disseminated by this Program, the Government will develop a communication strategy
explaining in detail the need and impacts of actions included.
The receptivity of the whole society is critical to keeping up the European integration agenda set
by the Government as a top priority in the context of its ruling agenda. The Economic
Stabilization and Recovery Program is not meant to substitute for the ongoing ruling agenda, the
National Development Strategy (NDS), European integration policy agenda or any other public
policy papers, but rather to complement those with concrete and specific actions, aiming at
reaching the goals set within the current strategic framework and in the context of crisis today.
SITUATION ANALYSIS
The current picture of the crisis is grim. Although the first signs of economic stagnation, which
stirred up countless controversial debates, showed up as early as in September-October of 2008,
the evolvement of the economy this year points out at deepening and ramified effects of the
crisis. In this vein, is the first half of year in 2009, the Gross Domestic Product (GDP) dropped
by 7.8 per cent as compared to the same time span last year, whereas the forecasts for the 2009
year-end were changed from negative 5 per cent to negative 9 percent. The shrinking overall
consumption demand, coupled with a decrease by over one-third in the amount of remittances
sent back home in the first seven months of the year, underpinned the economic stagnation that
has been built based upon an unsustainable growth model, which heavily relied on consumption
and imports and to a lesser extent was driven by investments and exports.
The economic downturn was also driven by the involution of the industrial sector, wherein
outputs dropped by 24.3 pe cent during January-September 2009 as compared to the same period
of the previous year, primarily owing to decreasing outputs within the mining industry by 32.4
per cent and within the processing industry by 26.8 per cent. At the same time, although the
agricultural sector reported a better performance than that reported within the industry, and
agriculture outputs went down by 11.8 percent in January – September 2009, the harvesting of
agricultural crops in farms indicates a considerable decrease in the average amount of harvested
crops – by 38 per cent, and agricultural production still is mostly uncompetitive. A significant
decrease was reported in construction industry – a sector that shrank by some 33.7 per cent in the
first half of this year, but the sector reporting the most dramatic drop in outputs was the
transportation industry, where the total output of transported goods dropped by 59.2 per cent in
January – September 2009. When compared across other sectors, this industry was affected the
most by the crisis.
A 1.7-time increase in payroll arrears was reported during a cut by 34.5 per cent of remittances
sent back home during January-July, as compared to the same time interval last year, and amidst
growing fears of uncertainty about their future among population, leading to a 10.4 per cent
reduction of consumption in the first half of 2009. The shrinking overall demand for
consumption by 38.3 per cent during January-July resulted in a decrease of imports that enjoyed
an amazing high pace of growth over the last years, as well as a decrease by 24.2 per cent in
exports. The negative expectations of the economic development prospects in the short run also
led to fewer foreign direct investments (FDI). Thus, in the first half of 2009, the foreign direct
investments made within the national economy (net value) amounted to merely USD 34.6
million - an 8.9-time reduction as compared to the same time span during 2008.
The negative economic trends in the first 9 months of 2009 have also impacted upon the
consumer price index. Thus, since the beginning of the year, a slowdown in the pace of growth
of the key sectors of the economy resulted in a 2.9 per cent decrease in average consumer prices,
while in September the prices went up by 0.6 per cent as compared to August CPI. While
contributing to a raise in people’s purchasing power in the short-term, deflation may have a longterm negative effect on the country’s economy in general and on businesses in particular.
The crisis has also affected the budget revenues, which dropped by 6.9 per cent during JanuaryAugust, causing an unprecedented budget deficit amounting to over MDL 2.5 billion. This
budget deficit is 8.6% greater than that incurred during the same period of 2008. The reduction
of revenues pouring into the national public budget was caused by a decrease in collected VAT
for imported goods and in taxes on foreign trade and on international operations. At the same
time, the increase in national public budget expenditures was owing to the former Government’s
observance of its social obligations, which did not match the amount of funds available for
payout. Keeping its social payments up, coupled with a significant drop in budget revenues, has
resulted in an increase by 33.6 per cent of its internal state debt, as compared to 31 August 2008.
Its limited internal leverage to control crisis is further proven by a decrease by 26.6 per cent in its
official reserve assets during January-August this year, as compared to the same time span last
year.
The deepening crisis was accompanied by a growing reticence of the banking sector in granting
loans to the private sector. Thus, during the January-August interval in 2009, the amount of loans
granted within the economy dropped by 3.7 per cent, as compared to the same time interval last
year, and the amount of non-performing loans reached 12.8 per cent of total loans versus 5.9 per
cent at the year-end in 2008. The National Bank’s decision to cut the basic rate from 12.5 per
cent to 5 per cent and the mandatory reserves for commercial banks from 17.5 per cent to 8 per
cent did not result in an expected drop in interest rates on loans for the time being. The interest
rate on loans granted in national currency dropped by about 5.2 percentage points, as compared
to August 2008, whereas the interest rate on loans given in foreign currency increased by 0.31
percentage points. The overall amount of deposits reported a more significant decrease than that
reported for loans – by 8.9 per cent, as compared to August 2008 versus an 8.6 per cent drop as
of the beginning of this year. The dropping number of deposits is indicative of slower regaining
of people’s trust in the banking sector. The decrease of deposits in national currency is a key
factor in having a 7.6 per cent drop of its monetary pool (M3) during January-August, as
compared to the same time span last year.
The economic crisis that quickly took up the country’s entire economy could not but exert
adverse effects on the population. During the January-August timeframe, the number of the
formerly reported unemployed increased 1.7 times, whereas 25.7 per cent fewer unemployed
managed to get a job, as compared to the last year. The upsurge of unemployment emphasizes a
problem not only in Moldova, but in other countries as well - where Moldovan migrants work –
with some of them having already come back home. This builds up the burden on both the state
budget (i.e., more unemployed translates into more unemployment payments being made) and on
the real economy, unable to take up the unemployed, including those getting back home from
jobs abroad.
For the first time in the last three years there was an increase in the poverty level reported in the
Republic of Moldova in 2008. Hence, the absolute poverty rate increased by 0.6 percentage
points, as compared to 2007, whereas the extreme poverty rate went up by 0.4 percentage points.
These trends may as well continue down the road, as the policy impact upon consumption and
poverty is not felt right away.
GOVERNMENT VISION
Regaining people’s trust in Government actions and in working and living opportunities in the
Republic of Moldova and bringing the country’s economy back on trails to accomplish growth as
well as strengthening the premise for developing a steady economy are among the Government’s
prerogatives in the context of this Program.
The actions to be implemented within the framework of the given Program aim to resuscitate the
economy, so as to accomplish upward trends within the country’s economy already by 2010.
Economic recovery will come along with enlivenment of the investment process, including direct
foreign investments, an upsurge of outputs within industry, agriculture and services, revival of
foreign trade, waning budget deficit and a drop in unemployment.
The Program sets the foundation for the medium-term and long-term actions to underpin a
competitive economy, driven by knowledge, high technologies, free of any obstacles for growth
and prosperity and will back the setting up of a modern society, sharing contemporary values and
upholding advanced living standards. The Government will strive for Republic of Moldova to
become a country of law where the freedoms and rights of citizens are observed as well as
ownership rights and the right to a decent living.
PRIORITIES UNDER THE PROGRAM
The Economic Stabilization and Recovery Program aims at three priorities, as follows:
1. Stabilization and streamlining of public finance;
2. Economic recovery; and
3. Securing an efficient and fair social protection.
The three priorities that the Government set to withstand the devastating effects of the economic
crisis and to prevent an even worse financial and social crisis are cross linked. At the same time,
the depth of crisis makes it necessary to implement certain “conflicting” actions – to widen the
tax base in order to collect budget revenues and to cut down spending on certain non-priority
sectors and less-vulnerable groups of population, as well as to take measures to ease the tax
burden, stimulate economy and support those affected by crisis.
One may not ensure a tradeoff between these burning yet somewhat competitive needs without
securing a number of indispensable conditions. In this vein, the goals set within the above
priorities may be reached only if the following preconditions are ensured: i) getting a stable
political situation in the country; ii) donor support to finance the key projects and actions of
major importance, for which there is no Government funding available; and iii) Government and
society partnership in accomplishing the above goals. Although the three above pre-conditions
are equally important, the chance of fulfilling this ambitious yet much-needed Program will be
close to none without having secured this partnership.
I. Stabilization and streamlining of public finance
Economic stagnation and the shrinking foreign trade have led to eroding the tax base and, as
such, to a considerable reduction of tax revenues. The dropping public revenues in 2009, coupled
with huge social payouts, have inevitably resulted in growing budget deficit. Budget funds can
no longer cover the current needs in terms of maintenance and social needs today, let alone the
investment programs and structural reforms, which imply additional costs. Under this
circumstance, should there be no actions taken to stabilize public finance, the budget deficit may
go over 15 per cent of GDP. In order to prevent the Government from becoming insolvent, amid
a growing vulnerability of the country’s economy and population in general, the Government
will have to streamline the budget spending, while at the same time widening the tax base and
identifying sources from outside to temporarily finance the key important economic and social
programs, as well as cover the budget deficit. Hence, the following objectives and short-term and
medium-term actions are set within the context of public finance stabilization:
Objective 1 Identify potential sources for building up the public revenues and decreasing
the budget deficit
Immediate actions (2009):
1. Negotiate with the International Monetary Fund a new economic and financial policy
program;
2. Start up negotiations with the European Commission, the World Bank and with other
external development partners of the country, in view of getting budget support,
including the strengthening of efforts to disburse the pending installments of ongoing
projects and programs that are being implemented; and
3. Improve the customs and tax administration systems (prevent under-assessment in
customs, transfer of profits etc.);
4. Restart the privatization of state assets in liberalized areas based on open, publicized and
transparent tendering;
5. Modifying current legislation in order to:
I. increase 2 times the maximum rate of the fee for territory development
starting with 2010;
II. increase by 50% the maximum rate of the fee for commercial units and/or
social services provisions starting with 2010;
III. starting with 2010 raise excise taxes on luxury cars, cigarettes and cigars,
filter cigarettes, bear, strong and light alcoholic beverages, gasoline and
petroleum products, perfumes, eau de cologne and jewelry goods;
IV. starting with 2010 set excise taxes on crystal goods and excise taxes on
jewelry goods without justifying papers;
V. starting with 2010 increase by 30 per cent the road taxes for the cars with
car plates from the Republic of Moldova using diesel fuel;
VI. raise the rate of the tax for using roads by motor vehicles registered in
Republic of Moldova proportionately to the impact on the road
infrastructure;
VII. Increase the income tax rate on earnings obtained from gambling up to
18% (art.90¹ par.3³ of the Fiscal Code);
VIII. starting with 2010, double the tax for issuing gambling licenses.
Medium-term actions (2010-2011):
1. Define “reinvested income” to improve the tool to enforce the tax facilities granted to
legal entities when paying income taxes.
2. Set clear-cut principles for the re-channeling of state budget revenues to the budgets of
administrative-territorial units, including by ways of promoting a new law on local public
finance;
3. Speed up the implementation of a new real estate taxing system: i) phase IV – living real
estate – individual homes (including, homes and luxury mansions) – in 2010; ii) phase III
– farming lands and buildings located on them – in 2011. When setting the taxing rates
one should make allowance for the location and land surface of the real estate, as well as
for the number of tenants living therein.
Objective 2 Cut non-priority costs and re-channel the public spending to better efficiency
and reduce the budget deficit
Immediate actions (2009):
1. Streamline the running costs of central and local public authorities, including by
cutting down capital costs at least by 50% , costs for purchasing goods and services
and funds earmarked for subsidies, while keeping an adequate level of social costs;
2. Apply the new system to group and grade public servants to underpin a new system
for the payroll of public servants;
3. Develop a new Regulation on the payroll of the management of state enterprises, joint
ventures in which state holds a majority of assets and the monopolist enterprises
outlined by the Government.
Medium-term actions (2010-2011):
Public finance management:
1. Review the methodology to draft and carry into effect the budget;

2. Develop the new Financial Management Information System;
Public administration:
1. Restructure ministries, agencies and other institutions subordinated to the
Government aiming at liquidating low efficiency public authorities, streamlining
functional activities and reducing administrative expenditures;
2. Freeze the employment in the public sector and gradually decreasing the number
of permanent vacancies within central specialized public bodies of public
administration;
3. Streamline the structure of highest public authorities of the country (Presidency,
Parliament, General Prosecutor’s Office, Court of Audit offices, etc.)
4. Reorganize the facilities subordinate to specialized central authorities and streamline
the number of public servants from the facilities subordinate to ministries;
5. Reorganize the State Security Service of the Ministry of Internal Affairs
(MIA)into a state enterprise and demonopolize security services for high
importance facilities by improving the legal framework;
6. Implement the Law on public function and the status of a public servant;
7. Develop and implement the new payroll system for public servants;
8. Improve the mechanism of granting sack indemnities when calling off a public
authority, downsizing the staff, or changing the staffing, for the public servants that
are not subject to work-related transfers;
9. Postpone the measures aiming to raise salaries of public servants, army and workers
of national defence, state security and public order, set for 1 October 2009, to 2010;
10. Revise the existing legal framework in order to outsource some of the services of
specialized central bodies of the public administration by opening the possibility of
these services to be provided by the private sector (outsourcing);
11. Build capacities for transparent and accurate public procurements.
Education:
1. Speed up the streamlining of the network of schools and free up resources to
improve the quality of education by means of: (i) reorganizing about 130 general
education facilities by changing their current status; (ii) create about 50
circumscribing schools and attribute about 60 schools to them; (iii) develop the
infrastructure to access the circumscribing facilities (building or refurbishing of
roads, ensuring their operation during harsh weather); and (iv) purchase of circa
80 transportation units to transport students to and from school (sub-actions iii)
and iv) do not have financial coverage);
2. Streamline the average number of non-teaching staff units versus the number of
teaching staff (to stay below 25 per cent in urban areas and below 35 per cent in
rural areas);
3. Restructure the salary increase of education sector staff and implement this
increase gradually during 2009-2010;
4. Change the methodology of setting up the student dormitory tax rate in
specialized secondary vocational and higher education facilities based on real
expenditure adjusted to current prices and tarrifs;
5. Level off the terms of stipend payments by calling off the coefficient applied for
students and graduates of higher education and specialized secondary education
facilities;
6. Decrease by 20 per cent the ceiling for the stipend holders in higher education
(second cycle) (from 70 per cent down to 50 per cent);
7. Full implementation of the reform strategy for the child care residential system;
8. Phase in the implementation during 2009-2011 of the new way to pay the wages
of teaching staff, as per the provisions of the Law on salary payroll in the public
sector, no.355-XVI, from 23 December 2005;
9. Adjust the legal framework for the number of students in a class; increase the
number of students per class and decrease the number of classes;
10. Streamline the network of secondary vocational and specialized secondary
education institutions;
11. Streamline the network of higher education institutions by: i) refining and
applying norms for the autonomy of universities and compliance with European
standards (increasing the number of contract students); ii) developing the legal
and normative framework to insure the financial autonomy of higher education
institutions; iii) developing criteria that would allow determining the enrolment
capacity of each higher education institution individually;
12. Revise the curriculum for primary, upper and lower secondary education by: i)
considering the integration of some school subjects by curricular areas/topics; ii)
revising the framework Plan in order to decrease the number of academic hours;
13.
Reorganize the Academy of Public Administration under the aegis of the
President of the Republic of Moldova, including by transferring the Academy
under the aegis of the Government and modifying the financing design.
Healthcare:
1. Strengthen and restructure the hospitals pursuant to the national master plan for the
hospital sector and setting up the Hospital Registry;
2. Enhance the procurement capacity of the National Health Insurance Company;
3. Gradual increase of the mandatory health insurance premium up to 7.2% (3.6% for
employers and 3.6% for employees) in 2010;
4. Implement the mechanism for additional financing of medical services provided at
the secondary and tertiary level through co-payments applied in differentiated manner
depending on the degree of vulnerability of the individual.
Agriculture:
1. Ensure efficient use of subsidies granted in agriculture by channeling those towards
the high-value areas with potentially high yields in order to improve the output
capacity of agriculture and the competitiveness of farming products;
2. Establishing a Payment Agency subordinated to the Ministry of Agriculture and Food
Industry;
3. Cut by at least 6 per cent in 2010 and 2011 of overall funds earmarked from the state
budget (basic spending, special funds and means) for agriculture;
4. A total cut in 2010 and 2011 of the state budget allocations (basic spending, special
funds and means) earmarked for planting vineyard plantations;
5. Call off in 2010 and 2011 the state budget allocations earmarked for the planting of
new forests, while fully keeping the planted plantations (the increase of the surface
area covered by forest is to be covered from the assistance provided by development
partners);
Public Security:
1. Call off the entitlement of a contract army soldier to: (i) cash compensation in
exchange for food parcel; (ii) cash compensation in exchange for uniform; (iii) cash
indemnity for health; and (iv) free-of-charge pass to balneotherapeutic treatment;
2. Call off the Government-paid entitlements to care and treatment in health care
facilities and balneotherapeutic treatment for the spouses and children of employees
of structures with military and special status;
3. Lower the monthly allowance paid based upon the overall work of the unit they are
employed with for the contract military, contract troops, and contract commandment;
4. Unify the way a leave indemnity is calculated for the employees with military and
special status, as well as for judges and prosecutors;
5. Streamline the spending in order enforcement structures by cutting down the number
of permanently vacant jobs;
6. Transfer the units responsible for the calculation of salaries of military staff to NHSI.
Research:
1. Cut by 25 per cent during 2010-2011 as compared to 2009 the spending on research
and innovations, promoting applied research and training of research staff in research
and innovation organizations, including universities;
2. Improve the correlation between public policies implemented by the Government and
research and innovation products provided by the research sector;
3. Extend access to budget funds earmarked for research and development projects by
improving the system of accreditation of eligible institutions;
4. Cancel, starting with January 1, 2010, of vacant positions in research and
development institutions and auxiliary units of the Academy of Sciences of Moldova.
Road infrastructure:
1. Ensure an adequate and uninterrupted inflow of means to the road fund by separating
the state budget funding earmarked for roads by improving the road works financing;
2. Scale down through merging the road maintenance companies (from 39 down to 12);
3. Refining the mechanism of issuing permits for international transport services.
II. Economic Recovery
The shrinking of aggregate demand for consumption, coupled with a growing administrative
burden on business people, resulted in lower outputs of industrial goods, of services, especially
within the transportation sector, of exports and demoralized the current and potential business
people. The banking sector having reserve in granting loans to the private sector, as well as the
still high interest rates on loans, make up another obstacle to starting up and carrying out
business in Moldova. The economic growth in recent years, driven mostly by consumption and
imports, is no longer feasible as an economic development model for the country, as it may no
longer be secured, even more because of a significant drop of remittances starting this year. The
economic crisis has once again proven that the current model of economic growth in the
Republic of Moldova is not sustainable. Therefore, today the Government has the task not
merely to safeguard those sectors and companies that have felt the devastating ripple effects of
the crisis, but also to provide for the conditions that are adequate to operating and scaling up, as
well as to the founding a new model of economic growth, based upon investments, enhanced
productivity and higher competitiveness. In this context, the following objectives and actions
have been set:
Objective 1
Reduce the administrative and fiscal burden on doing business
Immediate actions (2009):
Ease of administrative burden:
1. Implement a one-stop shop system at the State Registration Chamber (SRC) with
cross-access of the National Bureau of Statistics, the National Social Insurance House
(NSIH), the National Healthcare Insurance Company (NHIC) and MSFI to the State
Registry of Legal Entities to cancel the redundant registration procedures with the
NBS, NSIH, NHIC and MSFI;
2. Develop a consolidated draft law on simplifying and streamlining of procedures,
terms and costs to start up, carry out and acceptance of works in designing and
constructions and quality control in constructions;
3. Reduce the number of types of business subject to licensure and simplify the
licensure procedures;
4. Improve and simplify the way that one may be issued a sanitary and sanitaryveterinary certificate, by clearly defining the operational attributes of the relevant
government facilities and by curbing the certification related costs;
5. Publish on the official webpage of the Main State Fiscal Inspectorate the list of
economic agents to be subjected to a planned inspections by the relevant tax
authorities;
6. Improve the way the system of customs brokers operate, by cutting down on the
running costs and the costs of servicing one’s related pledges;
7. Demonopolize the import of meat and meat products by amending the Government
Decision no.1363, as of 29 November 2006, on the way to issue import certificates
for certain products;
8.
Cancel the State’s marking system for selling mineral water and alcohol drinks;
9. Cancel the mandatory nature of certifying export-bound alcohol drinks at the unified
laboratory - S.E. “National Center for the Quality Control of Alcohol Products”;
10.
Modify current legislation in order to facilitate the import of inputs (chemicals and
biological products for agriculture, fertilizers, soil treatment products and goods
imported for the promotion of trade) starting with 2010, including by harmonizing
local legislation to Communitarian provisions for the procedure of placing these
products on the market;
11. Remove barriers to exports, simplify the certification procedure, as well as cut the
number and costs of certificates and other required papers when exporting goods,
including the calling off the requirement to have each export-bound lot of wine
individually certified;
12. Cut the mandatory conformity certification related costs imposed on economic agents
by reviewing the roster of products (services) and raw material subject to
certification;
13. Demonopolize the business of selling wastes and leftovers of ferrous and nonferrous
metals, batteries, used-up accumulators, including those processed, to the economic
agents located in the Republic of Moldova and which are not tax related to its budget
system, as well as the export of the former;
14. Simplifying and streamlining the mechanism for placing goods for active customs
clearance, “zero” VAT taxation, and the way the given tax-break is managed;
15. Amend the Law no.803-XIV, dated 11.02.2000, on the industrial safety of dangerous
industrial objects by bringing it in line with the EU practices and by simplifying the
industry equipment verification procedures; and
16. Draft a Regulation on the issuance and use of certificates (unilaterally) for the
international road transports; remove administrative barriers in granting the given
certificate.
Ease of tax burden:
1. Cut down the dues for customs clearance, set in Annex no.2 to the Law on the
customs dues, regarding the operation of free economic zones, bounded wharehouses
and other suspending customs regimens;
2. Repay the debts owed to VAT repayments to unlock one’s economic operations;
3. Postpone the date of taxing revenues from bank interests and corporate securities of
legal and physical entities from January 1, 2010 to January 1, 2012;
4. Amend Title IX of the Tax Code in view of paying road taxes in two installments for
all transport agents in the country, therefore easing the tax burden on the transporters
at the beginning of the year, when one’s revenues are smaller.
Medium term actions (2010-2011):
Ease of administrative burden:
1. Perform under the central public administration reform a vast analysis of chargeable
public services provided by public institutions and reforming them, including by
applying a new methodology for equitable and transparent pricing of these services
(Guillotine III);
2. Simplify the procedures set by the law regarding the close-up of a business (amend
the Civil Code, Law on notary etc.);
3. Revise the procedure for certifying the goods for those goods that have already been
certified in line with the standards of other countries, with which the Republic of
Moldova has international agreements for mutual acknowledgement of certificates;
4. Simplify the certification system for the goods imported and put out on domestic
markets by curtailing the number of permits and certificates;
5. Define the attributions of the sanitary and sanitary-veterinary services concerning the
certification and safety of products, services, and related costs;
6. Simplify the customs clearance procedures by: (i) endorsing a single integrated
customs due and by outlining the list of required papers (certificates, licensure,
permits etc.) to submit to the customs entity at the time of customs clearance; and (ii)
by introducing a simplified in-house customs clearance procedure for the economic
agents with a high degree of credibility;
7. Finalize the preparatory works to implement the information system “Border”, which
secures the online sharing of information across the one-stop shop authorities, and
which are vested with powers to check goods and transport means at the border;
8. Develop an optimal and simplified mechanism for ceding / delegating one’s import
entitlements paid in advance, from the accounts of customs brokers to the accounts of
economic agents involved in foreign trade;
9. Cut the number of transport categories that have to be declared through specific
actions taken (having those registered in the information system of the customs
entity);
10. Develop detailed procedures for passing the customs check, by outlining the
maximum admissible time limits for each procedure, minimizing the contacts
between the customs worker and the economic agent, and by reducing human errors
and bias;
11. Improve the system for making the environment payments for the emission by the
cars of air pollutants to the atmosphere;
12. Revise the areas and objectives of public health state surveillance, following a review
of the regulatory impact of the Law no.10, as of 03 February 2009;
13. Completely reform the patrimonial principles of the consumption cooperation system
with direct involvement of cooperator members by drawing investments, including
direct foreign investments for the development of commercial infrastructure and
production in rural areas;
14. Extending access of alternative operators to the support infrastructure (railroads, air
transport, quality infrastructure, communications etc.) by removing existing obstacles
and restructuring, if necessary, of companies holding dominant positions
(monopolists) in the area following a review of constraints for the business
environment;
15. Liberalize and develop competitiveness on the market of railroad transport services;
16. Insure free access and protection of competition on the air services market;
17. Decentralize and simplify the procedure of excluding land plots from agricultural use,
including by removing the limitations set under the Government Decision no.1451,
from 24 December 2007, on the construction of production sites on the farming lands
on the outskirts of communities.
Ease of tax burden:
1. Simplify the tax reporting procedures by: (i) implementing the e-declarations; (ii)
automating the filling out of tax reports; and by (iii) a code bar based processing of
reports;
2. Abrogate the normative provisions allowing for sanctions to be applied to economic
agents even if no damage has been inflicted to the state budget and budget funds, as
well as amend the provisions of art.188 under the Tax Code, making it possible for
the economic agents to amend for the errors committed in the financial statements, at
any time before a check is run on them;
3. Revise the tariff policy by cutting as much as possible the customs dues when
importing raw materials, ancillary materials and technological equipment, while
setting it the highest for finite goods, which are directly competitive to the domestic
ones;
4. Remove discriminations applied when paying the environment tax on plastic or tetrapack containers when importing pre-wrapped goods;
1. Adjust on a yearly basis the basic tariffs for the rent services rendered by the state
enterprises and by joint ventures in which the State holds the majority of assets, by
considering the existing market price.
Objective 2 Facilitate the access of businesses to financial means for launching,
developing or recovering businesses
Immediate actions (2009):
1. The National Bank of Moldova to conduct an assessment of the banking system to
identify problematic banks that need support, by setting the normative criteria and by
working out adequate solutions to overcome those;
2. Intensify the process of granting loans under Component II of the National Program
for the Economic Empowerment of Youth (NPEEY) – funding for private projects of
young beneficiaries with a grant component. .
1. Intensify the efforts of implementing foreign assistance projects and capitalizing
credit lines to stimulate competitiveness, specifically that of exporters.
Medium term actions (2010-2011):
1. The National Bank of Moldova will ensure an adequate level of national currency
issuance and population-to-banking-unit rate in the economy by providing for
favorable monetary conditions to spur economic growth;
2. Approve of the draft Law on the amending of certain legal acts on loans in general
and on pledge recovery in particular;
3. Cover in part the interest rate on loans granted to economic agents, subject to the
priorities of the national economy and the performance criteria of beneficiaries;
4. Provide for an increase in the annual allocations to the special Fund for Securing
Loans (FSL) from MDL 1.5 million up to MDL 100 million and remove
administrative hurdles in guaranteeing credits, alongside with an increase in the
guaranteed threshold for active companies from MDL 300 thousand up to MDL 700
thousand and from MDL 100 thousand up to MDL 300 thousand for start-ups in
2009;
5. Provide additional funding for Component II of the NPEEY – funding the private
projects of young beneficiaries with a grant component, pursuant to the goal of
funding approximately 400 private projects ;
6. Draw financial resources to purchase by the SME subjects of equipment meant to
develop small industries from the rural sector (pursuant to the mechanism used by the
Implementation Unit of the grant provided by the Government of Japan);
7. Launch the Program (PARE 1+1) – investment of remittances in order to develop the
rural sector and set up new businesses. –;
8. Set up a network of business incubators and strengthen the existing ones, in order to
provide for some of the SME support infrastructure, SME viability and more
innovation activities, the introduction of new technologies and the know-how and, as
such, to result in growing budget revenues;
9. Draw foreign assistance to provide indirect financial support (technical assistance and
consultancy, staff training) to companies in the regions, mostly to those from rural
areas;
10. Use innovative infrastructure in order to create SMEs, attract investments and
modernize the economy through innovation and technology transfer.
Objective 3
Stimulate public and private investments
Immediate actions (2009):
1. Draw strategic investments to the country’s economy by securing direct negotiations
between the Government and strategic foreign investors, as well as ensure the support
of the way their investment projects are carried out;
2. Call on the meeting of the Advisory Board of donors in order to raise the financing of
projects contributing to economic boost;
3. Ensure the efficient operability of the Public-Private Partnership Unit within the
framework of the Public Property Agency. Submission of suggestions on how to align
the normative framework to the provisions of the Law on the public-private
partnership, in coordination with the opinion of development partners;

.
Medium term actions (2010-2011):
Corruption and justice:
1. Draft and endorse an effective program to prevent and control corruption within
public bodies and court entities;
2. Random distribution of cases to courts of law ;
3. Making the retribution of judges harsher when the law is violated.
Better investment climate:
1. Review the normative and legal framework in view of removing the excessive
administrative hurdles obstructing the inflow of investments;
2. Review the work of companies – natural monopolists to cut on the production and
non-production costs, as well as to provide for optimal price-setting for the goods put
out and services rendered by the given enterprises;
3. Control over the situation in terms of competitiveness on the most important markets
of goods and take measures to ensure the liberty of business activity;
4. Organize extensive consultations with the private sector and foreign donors in view of
identifying and taking urgent measures towards stimulating the consumption of
domestic goods (other than those subsidized) and of drawing direct foreign
investments to the country’s production sector;
5. Continue to develop the concept of industrial parks by setting up a new unit, as well
as by reviewing the opportunities to scale up the benefits for the residents of the
above parks;
6. Draw foreign assistance to develop a quality infrastructure in the Republic of
Moldova, including for the setting up and providing with technical equipment of
testing laboratories in order to assess the conformity of goods;
7. Establish a Development Fund and its capitalization, including using proceeds
received as a result of public assets privatization and external resources for supporting
the implementation of social infrastructure and innovation projects;
8. Establish regional development agencies and ensuring the operation of all institutions
in the development regions of North, Center and South which will have the goal, inter
alia, to foster and attract investments to development regions, including by creating
capacities for the capitalization of opportunities provided to Republic of Moldova
through participation to cross-border cooperation programs;
9. Support for domestic producers by creating a trade center or a standing exhibition at
the CIE “Moldexpo”, in the municipality of Chisinau, and sales of domestic goods.
Management and de-nationalization of public assets:
1. Review the roster of assets – state property – subject to privatization in order to
identify specific ways and optimal time frames for de-nationalization;
2. Develop on the basis of a continuing analysis of the operation of state enterprises and
trade companies with a majority state-owned capital development programs,
including investment programs, restructuring, etc. programs;
3. Enter and keep up-to-date on a quarterly basis the database on the state enterprises
and trade companies in which the State holds assets, state property real estate and
incomplete constructions sites;
4. Speed up the de-nationalization of state assets through a competitive and transparent
process. Take measures, as per the legal provisions, towards preparing and taking
over the privatization of 214 economic agents from the roster of state property assets
subject to privatization;
5. Continue the selling of relevant lands and assets not used in the specific work of
central and local public facilities.
Energy:
Drawing private investments to the energy sector by:
1. Developing investment programs to upgrade their power-generating
capabilities (JSC “CHPP-1”, JSC “CHPP-2”, JSC “CHPP-Nord”), including
by applying the principle of public-private partnership;
2. Carry out an energy audit to develop an agenda for the heating renovation and
refurbishment of buildings (apartment blocks), including those of social and
cultural use, aiming at the following objectives: i) better the hygiene
conditions and the heating comfort; ii) minimize the loss of heat and power
consumption; iii) scale down the maintenance costs incurred on heating and
user-consumed hot water; iv) reduce the pollution with emissions generated
for power production, transportation and consumption;
3. Add on and amend the existing legal and normative framework in order to: i)
better the power efficiency and scale up the use of renewable energy sources;
ii) reorganize the National Energy Conservation Agency (NECA) into an
Energy Efficiency Agency (EEA);
4. Get foreign assistance to support the energy efficiency Fund, which is ought
to be created pursuant to the provisions of the Law on renewable energy;
5. Modify current legislation in order to depoliticize the process of setting up
tariffs for heating by transferring this competence to the National Agency for
Energy Regulation (NAER). Transfer to the Parliament the authority of
approving the budget and appointing the members of Administrative Board of
NAER.
Infrastructure:
1. Mobilize foreign funds to renovate and maintain the roads and related infrastructure,
engineering networks for water supply and sewage, gas supply networks;
2. Purchase works for the renovation of roads in full compliance with the appropriate
applicable procurement rules;
3. Implement a truck axle weight limits control system to prevent the heavily loaded and
overweight trucks from further deteriorating the national roads;
4. Remove existing barriers to implementing the projects financed by: i) the Arab
Economic Development Fund from Kuwait (USD 6.5 million) for water and sewer
supply works in 6 locations; ii) World Bank in the amount of USD 12 million to build
aqueducts in different communities around the country;
5. Support (including administrative support) the implementation of the investment
program of the JSC “Moldovagaz” in the efforts of the latter to supply gas within
communities, as well as make it get more involved it in the cross-village gas supply;
6. Develop feasibility studies on storing natural gas and on alternative cross-links with
neighboring countries; and
7. Improve the infrastructure adjacent to the international, national and local roads
(building up technical servicing stations for the transport means, hotels, camping
sites, restaurants etc. on farming lands in order to draw investments and collect
financial means from taking those lands out of farming use.
Agriculture:
1. Provide for a favorable environment to develop business and stimulate investments
along the agriculture-food chain;
2. Remove the non-tariff hurdles that limit the export of farming goods;
3. Develop a food safety strategy; and
4. Entitle resident companies with foreign capital to purchasing farming lands;
5. Stimulate the development of market infrastructure by establishing agri-food product
centers (terminals) at national level and agri-food markets at local level.
Constructions:
1. Develop a mortgage lending system for purchasing housing by attracting external
credit lines;
2. Implement the mechanisms of long-term lending to the construction sector to finalize
incomplete apartment blocks, including with the support of development partners of
the country.
Communication and information technologies:
1. Implement the electronic governance software applications (“e-governance”) through
open competitive bidding in an attempt to increase the participation of local IT
companies;
2. Update the Strategy for electronic society edification strategy “Electronic Moldova”
based upon the best available international experience;
3. Demonopolize the process of digital transitioning and purchasing by applying he Law
on electronic documents and digital signature;
4. Support the electronic communication infrastructure by implementing the concept of
extending Internet access through broadband electronic communication
5. Liberalize the access to electronic communication infrastructure, ensure under fair
conditions for cross-connectivity and access to local loops, by demonopolizing the
communication market, including the restructuring of “Moldtelecom” JSC.
6. Ensure the functional and financial independence of NARECIT;
7. Simplify the legal framework for VAT administration on transactions made through
the program, including clear definition in the Fiscal Code of the status of software
products.
III. Ensuring an efficient and fair social protection
The economic crisis has had adverse effects not only on the country’s economy, but also on the
groups of people at risk even before the crisis hit, or who turned vulnerable once the recession
stroke. The country’s shrinking economy led to an increase in the unemployment rate, including
because of emigrants getting back home, creating a limited number of jobs, payroll cuts or fewer
working hours imposed by employers, amid sparse leverage that the Government could make use
of to support the affected. The drop of remittances which previously used to provide for decent
living conditions for the people and made it possible to avoid poverty, is the critical challenge
factoring in making the population vulnerable today. The Government will bend efforts to find a
balance between the first two priorities of the Plan and this priority, to establish an economic
development model which not merely contributes to collecting public and private revenues but
rather channels adequate amounts of public spending to the truly needy, as to avoid social
exclusion and diminish the poverty risk. Under this circumstance, below one may find the
following objectives and actions for this priority:
Objective 1 Support vulnerable groups through more efficient channeling of social assistance
and prevention of social exclusion.
Immediate actions (2009):
1. Remove the possibility for multiple reappraisals of pensions and reappraisal of
pensions based upon monthly payment increases;
2. Carry out a strict control over how the setting of the commercial add-on is observed
by the economic operators when selling goods of social importance (the commercial
add-on must not exceed the ceiling set by the law);
3. Carry on the implementation of measures to fight the monopolistic arrangements
within economy, and which keep the prices at socially inadmissible high levels;
4. Provide for a minimum guaranteed monthly income for disadvantaged families by
providing them with social support following an overall monthly means-test for the
family and after the premises are in place to substitute the social assistance for the
nominative compensations;
5. Carry out the projects from external credits for the social destination objects: districtlevel hospitals, health centers, kindergartens, schools, high schools etc. and intensify
the negotiations with donors to finance the projects aiming at supporting the
vulnerable groups, including social infrastructure rehabilitation projects;
6. Increase the tax waive and tax-break for dependents when computing the income tax
for natural persons starting with 2010.
Social care:
1. Gradually substitute the social care system for the nominative compensation system,
to be rendered to disadvantaged families based on the means-testing, by freezing the
nominative compensation rates and by calling off the entitlements to nominative
compensations, starting on 1 January 2010;
2. Increase the amount of the monthly minimum guaranteed income, as set out in the
Law on the State Budget;
3. Increase the amount of the one-off indemnity payable at the first childbirth and for
each of the following child by MDL 300 to the uninsured in 2010;
4. Increase the monthly allowance payable for childcare until 1.5 years-old by MDL 100
for the uninsured in 2010;
5. Increase the amount of death allowance with 100 lei per year (from 800 lei to 900
lei);
6. Cover expenditures for sanatorium treatment of veterans from state budget;
7. Approve the draft Strategy on social inclusion of people with disabilities;
8. Set an integrated system for social services;
9. Create an Automated Information System for “Social Assistance”;
10. Implement the Strategy of the National Reference System for the protection and
assistance of victims and potential victims of human trafficking and the Action Plan
for 2009-2011;
11. Develop the National Information System “State Registry for Cases of Family
Violence”.
Social insurance:
1. Extend the obligation to pay for one’s mandatory state social insurance to all those
working in the Republic of Moldova;
2. Suspend payment of that part of one’s pension that is paid from the state budget for
the privileged groups of pensioners who continue to work in the same position that
entitled them to getting their advantageous pensions;
3. Adapt the indexation of social insurance benefits to the current economic conditions;
4. Unify the retirement age and the way pensions are calculated for all groups of
pensioners;
5. Increase the accountability of employees and employers to minimize spending when
paying one’s allowance for temporary loss of work capacity owing to common health
conditions or to work-unrelated accidents by changing the source of funding and the
amount of payable indemnity;
6. Starting in 2010, compensate from the state budget 6 per cent of the amount of the
mandatory state social insurance premiums for the employees working in the farming
sector and further streamline the compensation mechanism;
7. Review the opportunity to develop a model of pensions made up of two components –
base pension, and insured pension.

8. Increase the amount of the one-off indemnity payable at the first childbirth and for
each of the following child by MDL 300 in 2010;
9. Increase in 2010 by 5 percentage points the baseline for computations in view of
setting the indemnity for raising the first child until 3 years-old and by MDL 50 – the
minimum guaranteed amount of the respective allowance provided to the insured,
with further streamlining of their indexation mechanism;
10.
Starting on 1 January 2010, pay the lifelong indemnities and pensions to
prosecutors and judges as follows: 50 per cent from the state budget, and 50 per cent
– from the state social insurance budget;
1. Increase the amount of annual death indemnity by MDL 100 .
Health:
1. Extend the coverage of population subject to mandatory healthcare insurance;
2. Extend the obligation of paying mandatory insurance contributions for healthcare
assistance for all people that work on the territory of Republic of Moldova;
3. Revise the relationship between the state budget and mandatory healthcare insurance
funds to ensure financial protection and access of the whole population, especially,
vulnerable population and groups of population with socially conditioned illnesses
with a major impact on public health, to a package of key healthcare services, at the
same time as streamlining the content of the Unique Program;
4. Streamline the primary health care facilities and ensure the availability of basic
medical equipment in all centers;
5. Encourage the involvement of private sector in the additional financing and health
service provision by developing private-public partnerships;
6. Extend the group of beneficiaries of compensated medicines to children under 14
years of age;
7. Implement the mechanism of decreasing retail prices for a list of 5-10 basic
medicines used to treat the most common illnesses in children and senior people;
8. Attract additional financial resources from the donor community to cover the deficit
in the essential Programs in the public health sector, i.e. immunization, tuberculosis,
HIS/AIDS, mental health, cancer and other programs with a major impact on public
health.
Objective 2
migrants.
Provide for employment for the unemployed and for returning
Immediate actions (2009)
1. Scale up the means of informing the population about labor market demand and
supply, including for migrants getting back home after having lost their jobs abroad;
and
2. Scale up re-training courses for the unemployed and for returning emigrants;
3. Involving unemployed into short-term public works (repairs of engineering networks
damaged by breakdowns, fires, natural calamities, etc.) organized and monitored by
local authorities.
Medium-term actions (2010-2011)
1. Expand the base of unemployment allowance beneficiaries to include agricultural
workers and migrants;
2. Change the way the unemployment payment is provided by motivating the
unemployed to search for a job and get integrated in work environment, in order to
efficiently use the available funds, including by cutting the amount of unemployment
payment by 15 per cent after having benefited from it for 3 months in a row and by
further 15 per cent for the next 3 months;
3. Increase the number of people enrolled to professional training courses;
4. Scale up temporary employment opportunities for the unemployed by taking
measures to stimulate their involvement in public works of community interest;
5. Increase the number of recipients benefiting from the professional integration or
reintegration allowances;
6. Support the youth by carrying on to implement the National Program for Social
Support to Young Families “Jobs for Youth”, and this should be extended to other
citizens, too, getting back home; and
7. Develop a labor market information system, including the labor force migration
component, keeping them in the lucrative area (procurements, refurbishment,
consumables, Internet, telephony etc.)
PROGRAM COSTS
Total costs are disaggregated by priority and source of coverage (national public budget,
technical assistance, or uncovered policy costs that will be discussed with donors).
PROGRAM MONITORING AND EVALUATION
The implementation of the Program will be constantly monitored aiming at tracking the
performance of proposed actions and results achieved so that, if necessary, adequate
modifications can be made to public policies promoted by the Government in the context of this
Program. Every quarter, on the basis of the inputs of responsible public authorities, the State
Chancellery will develop monitoring reports where it will analyze the progress of implementing
the Program, indicate difficulties and make recommendations for removing constraints occurring
in the process.
Every semester, the State Chancellery, together with responsible central public administration
authorities, will develop semiannual monitoring reports. The outcomes of implementing the
Program, outlined in these reports, will be presented every six month at the sessions of the
Government and the Economic Stabilization and Recovery Program Monitoring Board lead by
the Deputy Prime Minister, Minister of Economy and consisting of representatives of the
Government, civil society and development partners. Responsible public authorities will be in
charge of monitoring the implementation of Program actions based on a set of quantitative and
qualitative monitoring indicators established for each action included in the Program.
The evaluation of the Program is a one-time procedure carried out at the end of the Program. The
Evaluation Report, developed by the State Chancellery based on the inputs of responsible public
authorities will contain both an analysis of the performance of implementing Program actions
and the impact of these actions on the economy, the budget, population, in general, and
vulnerable population, in particular. Both during the monitoring process and during evaluation,
the Ministry of Finance will provide its advisory support to the State Chancellery and to other
public administration authorities on estimating the impact of the Program on the budget, certain
economic sectors and vulnerable categories of population.