ORDER OF THE GOVERNMENT OF THE REPUBLIC OF MOLDOVA

of February 22, 2023 No. 71

About approval of the Strategy of development of management of public finance for 2023-2030

Based on Item f) Article 4 and Item and) article 5 of the Law No. 136/2017 on the Government (The official monitor of the Republic of Moldova, 2017, No. 252, the Art. 412), with subsequent changes, and also for execution of provisions of the National development strategy "The European Moldova — 2030" approved by the Law No. 315/2022 Government DECIDES:

1. Approve the Strategy of development of management of public finance for 2023-2030 it (is applied).

2. To the Ministry of Finance to develop:

1) at the end of 2026 the valuation report of impact of implementation the Strategy of development of management of public finance for 2023-2030;

2) at the end of 2030 the final report about assessment of the specified Strategy.

3. To impose control over the implementation of this resolution on the Ministry of Finance.

4. This resolution becomes effective from the date of publication in the Official monitor of the Republic of Moldova.

Approved by the Order of the Government of the Republic of Moldova of February 22, 2023 No. 71

The strategy of development of management of public finance for 2023-2030

I. Introduction

General context

The government according to the mandate aims at achievement of high standards of accountability and transparency in public sector as necessary conditions for provision of available and high-quality state services.

Effective, reasonable, transparent and correct management of public finances, ensuring budget and tax stability, distribution of public financial resources and access to the external help in close interrelation with priorities of state policy are, thus, important tools for goal achievement of sustainable development (TsUR).

Proceeding from the integral responsibility of government for the sphere of public finance, and also for the tax and customs relations, development of comprehensive strategy is indispensable condition for possibility of representation of the current situation in the sphere of public finance and for determination of the purposes of the highest level as from the point of view of medium-term actions, and long-term aspirations for implementation of international standards and the practician, in particular the European Union level.

The Strategy of development of management of public finance approved in the middle of 2013 covering the period of 2013-2022 became the first document of state policy in which the complex, consecutive and reliable basis for increase in efficiency and effectiveness of the public expenditures, fiscal discipline, stability of debt and public finance in general was provided.

The strategy of development of management of public finance for 2023-2030 (further - Strategy) is the strategic document of development of management system by public finance which integrates the existing strategic format characteristic to components of management of public finance, and continues the logical line of the reforms realized or begun recently.

This Strategy, as well as previous, includes all stages of the budget cycle, responsibility for which is conferred on the Government. Within the next eight years Strategy will be basis for further progress and upgrade in the field of management of public finance. Strategy emphasizes the lessons learned during realization of the previous strategy and need of continuation of reforms for this area, and is based on the careful analysis of the current situation which is carried out at the level of the Ministry of Finance and also on conclusions of mission for assessment of public expenses and the financial responsibility of 2021, recommendations of experts of the International Monetary Fund - Department on budgetary questions, the World Bank, assessment of Organization for Economic Cooperation and Development (OECD) - the Program of support of enhancement of management and management (SIGMA), and also on the basis of others external diagnostic estimates on separate components of management of public finance.

This Strategy is developed for the purpose of the solution of the main problems in the existing system and orientation of policy in the sphere of public finance on macroeconomic stability. Management of public finance covers very wide and various range of subject domains which interact in many respects and at the different levels. The used model traces coordination of reforms, and also interdependence of elements in system of management of public finance for exact determination of influence of each element on overall effectiveness of management of public finance.

This Strategy provides number of improvements in management of the public finance serving as support for realization of the purposes and directions of the National development strategy "European Moldova 2030" (NSR).

Similarly, this Strategy is aimed at providing goal achievement of the national agenda in the field of sustainable development so that results of reform of management of public finance were according to the national purposes.

Reforms of public finance are directed to enhancement of the taxation system, planning process consolidation, execution and the reporting under public finance, increase in collection of the income, strengthening of system of public procurements and improvement of internal control, including due to increase in transparency and accountability. This directions are the key purposes of the Government which, as a result, shall provide accelerated and sustained economic growth, to raise level of living and to improve quality of life of citizens.

The relations between the Republic of Moldova and the European Union acquired new measurement in June, 2022 after the Conclusion of the Council of the European Union about provision to the Republic of Moldova of the status of the candidate country to the European Union (EU).

As the candidate country Republic of Moldova shall perform number of operations on achievement of compliance to criteria of the accession to the EU. In this relation directed efforts are necessary for promotion on the way of the accession to the EU and, in particular, complete implementation of effective management of public finance, and also closer cooperation with the EU, including in the sphere of public finances.

The parliamentary commission on economy, finance and the budget and the supreme body of audit (Audit Chamber of the Republic of Moldova (further - SChRM)) play essential institutional role will allow to consolidate the Strategy of development of management of public finance in system of supervision and responsibility for management of public finance, and their contribution as from the point of view of process, and quality of the provided public services.

Approval of the document on development of management of public finance and specific reforms in management of public finances also is precondition for industry budget support from the EU and one of basic cores for the accession to the EU. Enhancement of management of public finance is one of the most urgent priorities of the government of the Republic of Moldova in the course of the accession to the EU.

At the same time the Government intends to involve the mechanism of the budget support in various industries. Thus, Strategy will serve as reference point in case of accomplishment of obligations of the Republic of Moldova on providing the accountable governance and effective financial management.

Macrobudget basis

After the considerable deterioration in situation in 2014-2015 caused by bank fraud, the national economy was recovered and endured considerable rise, having fixed cumulative growth about 17,5 in the next four years (2016-2019). In 2020 the global pandemic of koronavirusny infection and severe drought in Moldova seriously influenced national economy that entailed decrease in the gross domestic product (GDP) on % 8,3 in comparison with 2019.

During 2020 the rate of inflation had the pronounced descending trajectory which is generally supported by the disinflationary aggregate demand connected with influence of pandemic, reduction of prices of energy carriers at the international and regional level with consequences for internal prices on fuel and also with adjustment of some rates included in regulated prices. The annual average rate of inflation made % 3,8, being positioned at the lower bound of the range of change of target indicator (https://bnm.md/ro).

The financial situation in 2020 significantly worsened. As a result budget deficit reached the level record over the last ten years - 5,3 of % of GDP (https://mf.gov.md/ro).

In 2021 in the Republic of Moldova the highest economic growth for the last 3 decades is fixed. GDP constituted 242,1 of one billion lei and registered actual growth on % 13,9 in comparison with previous year (https://me.gov.md).

The annual average rate of inflation in 2021 made % 5,1 that on 1,3 of percent point above, than in 2020, with the pronounced ascending trajectory caused by growth of the world prices.

Income of the national public budget in 2021 constituted 32% of GDP, and expenses - at the 33,9 level of % of GDP, fixing deficit in the amount of 1,9 of % of GDP.

After the economic downturn caused by pandemic of koronavirusny infection of COVID-19, economy of the Republic of Moldova could not gain steam, having faced new challenges in 2022. Energy crisis, rampant inflation, the war in the neighboring country, difficult and unstable external situation - set of the factors which deeply slowed down development of the national economy. At the same time excessive price increase, especially on energy resources, caused chain reaction of increase in prices in all spheres and led to growth of inflation which level reached % 30,2 at the end of 2022, and created new problems for the government and business environment. Besides, 2022 was celebrated by severe drought which was reflected in considerable part of crop production that indirectly affected livestock production, consumer prices, export, supply of raw materials for the food industry etc.

In the second half of 2022 statistical data on all indicators (industrial production, domestic trade in goods and services, money transfers, crediting, the budget indicators, the foreign trade balance, etc.) demonstrated that the national economy entered recession, having registered decrease in GDP about 3% in real terms and in the amount of 278,2 of one billion lei for 2022.

The macroeconomic forecast for 2023 provides that GDP in real terms will increase by % 2,0 in comparison with 2022, and in nominal terms will reach amount of 308,8 of one billion lei. The main assumption of this scenario of the forecast assumes that the negative impact of adverse conditions will remain at least to the first half of 2023 and only partial economic revival will allow. Insignificant recovery is expected from the second half of 2023 against the background of improvement of external environment, decrease in inflationary pressure and mitigation of financial conditions.

According to preliminary estimates in 2023 the income of the national public budget will increase by % 10,6 in comparison with amount of 2022, respectively, expenses will grow by % 12,9, and budget deficit will reach the 6,0 level of % of GDP.

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