| Interview |
NIKOLAY GUEORGUIEV:
“MOLDOVA SHOULD DEVELOP ENGINES OF
GROWTH, ALTERNATIVE TO MONEY TRANSFERS.
MONEY TRANSFERS MAY STOP ONE DAY”.
/ 20.04.2011
The 2011 IMF-World Bank
Spring Meetings
took place
in Washington at the
end of the last week. Before that, on
6th of April, the IMF Executive Board
completed the second review of Moldova's
economic performance under the financing
program, and the
Supplementary Memorandum of Economic and
Financial Policies of the Government and
National Bank of Moldova was
coordinated. This, as well as the IMF’s
vision on the further economic
development of the country, was the
topic of the interview for the
InfoMarket Agency given by the IMF
Mission Head for
Moldova - Nikolay Gueorguiev.
InfoMarket: Some economists say that huge financial resources provided to Moldova by the International Monetary Fund were necessary to cover the Moldova's economy disequilibrium which reached a record level. How would you comment on these statements and where, in your opinion, is our country now, after the situation of 2009?
Nikolay Gueorguiev: The year 2009 was very difficult for Moldova. The economy was in recession, the budget had no money, including due to the heavy expenses of the previous years. To support the exchange rate, the National Bank spent one third of foreign exchange reserves. In these conditions, the authorities launched an ambitions program of reducing the financial disequilibrium and rapid enhancement of the economic competitiveness. This program was supported by an agreement with the IMF, stipulating allocation of over $570 million to Moldova for three years. But the events exceeded expectations of most of the observers, including our own. Supported by the stabilization program and external factors, the Moldovan economy rapidly grew in 2010 and recovered everything it had lost during the 2008-2009 economic recession. Inflation was successfully restrained, despite the growth of the global and local prices for energy resources. The fact that exports have been growing in some sectors of economy is the most encouraging, as it may become the second economy boosting driver.
Money transfers, constituting over 20% of the GDP, have been the economy driver over the last decade. However, it cannot last forever, as money transfers can just stop one day. It happens when migrants move to a permanent residence to new countries. That is why, we believe that Moldova should develop an alternative engine of growth, such as export, and not only of agricultural production, but also industry, especially, light industry. We have been watching and encouraging this for the last nine months.
InfoMarket: The press statement regarding the provision of the second tranche of the loan from the IMF says that Moldova needs to reduce the significance of the public sector. What are the exact measures Moldova should take?
Nikolay Gueorguiev: 20 percent of the total working population of the country or 7 percent of Moldova’s total population are engaged in the public sector. These are very high figures, even though they slightly reduced in 2009. The problem, though, is in the education system, which has up to 60 percent of public workers engaged, and the education costs make up 0.5% of the GDP. Meanwhile, since 2000, the number of students has been decreasing all the time, while the number of teachers has remained unchanged. As a result, the limited budget money is used to maintain a huge educational system, both in terms of the number of institutions and the number of employees, instead of being spent for modernizing and improving the education’s quality. In this context, we welcome the Government’s plans to launch the educational system reform with assistance from the World Bank and other donors.
InfoMarket: Given the fact that this year is an electoral one in the country, don’t you think that the authorities might slow down the reform implementation process as the program stipulates closing of schools and dismissals?
Nikolay Gueorguiev: The reform has a medium-term prospect, being planned for three years. There are many possibilities for optimization, and firing people, so that the system is reduced in size. Provision of funds for modernizing education is more important. I mean computers in schools, new and modern textbooks and other useful things. Many countries in the region have implemented such reforms and showed good results.
InfoMarket: At the same time, it looks like the government has problems with the utilization of foreign assistance and it lacks skilled personnel to implement the mentioned programs. How can the quality of the state services be improved?
Nikolay Gueorguiev: The intake potential is determined by the efficiency of business processes in state institutions, such as public purchases and use of the budgets. We see
for
improvement. Foreign investors indeed
consider the shortage of skilled
personnel, as an obstacle to their
development in Moldova. Again, education
reforms are needed here. Other
efficiency levels may be achieved by
reforming the state service through
introduction of remuneration of labor as
per work productivity, and through the
introduction of new technologies, such
as electronic registers. The increased
labor productivity will enable to raise
salaries without budget being
destabilized. In addition, the
administrative reform will allow cutting
functions duplication and costs. For
example, does Moldova really need 932
local councils?...
InfoMarket: Mr. John Lipsky, IMF First Deputy Managing Director and Acting Chair said Moldova’s energy sector needs foreign investments. Is there any sector restructuring schedule? Are there any regional factors, favoring privatization?
Nikolay Gueorguiev: The energy system needs serious restructuring to become sustainable from the financial point of view. The government together with the World Bank has elaborated a restructuring schedule. Privatization might be one of the solutions of these problems, like in other countries of the region. It is not the only option, but it is one of the accessible opportunities.
InfoMarket: Are both Banca de Economii and Moldtelecom, as well as other public companies included in the privatization plan?
Nikolay Gueorguiev: Investors’ interest in the developing markets has increased considerably. This process should go together with improvement of the normative-legal basis to ensure competitive prices and investment opportunities in the post-privatization period. The government is still considering different options, and it may totally count on the International Financial Corporation’s support here. As for the Banca de Economii, we expect that the privatization process will be resumed in the near future.
InfoMarket: Last Saturday (16th of April, 2011) in Washington you met the Moldovan delegation during the annual IMF meeting. Did you discuss the ways of overcoming the situation connected with Banca de Economii and the Investprivatbank’s debts to it?
Nikolay Gueorguiev: The authorities – the government, the National Bank and commercial banks – are still negotiating how to remove the burden from the Banca de Economii after it had paid the Investprivatbank’s deposits. As far as I know, there is no final decision here yet.
InfoMarket: The Finance Ministry is continuing to borrow money from local banks and not cheap, while these funds could be used to lend business. How do you think, is Moldova ready to borrow cheaper money in the international market?
Nikolay Gueorguiev: The country will be ready to borrow in the international markets when the tax reform is completed and macroeconomic stability is strengthened. Thanks to the support from the international finance institutions, funding the budget by means of grants and loans, the internal loans have been reduced. The internal debt is at the level of 7 percent of the GDP and this is relatively low in comparison with the international standards and further development of the internal market both for the corporate debt and for the state debt is recommended. It may help reduce the risks connected with the interest rates and the exchange rate, on the one hand, and provision of investment resources, on the other. The World Bank and the IMF are assisting Moldova in these areas.
InfoMarket: Some economists say that huge financial resources provided to Moldova by the International Monetary Fund were necessary to cover the Moldova's economy disequilibrium which reached a record level. How would you comment on these statements and where, in your opinion, is our country now, after the situation of 2009?
Nikolay Gueorguiev: The year 2009 was very difficult for Moldova. The economy was in recession, the budget had no money, including due to the heavy expenses of the previous years. To support the exchange rate, the National Bank spent one third of foreign exchange reserves. In these conditions, the authorities launched an ambitions program of reducing the financial disequilibrium and rapid enhancement of the economic competitiveness. This program was supported by an agreement with the IMF, stipulating allocation of over $570 million to Moldova for three years. But the events exceeded expectations of most of the observers, including our own. Supported by the stabilization program and external factors, the Moldovan economy rapidly grew in 2010 and recovered everything it had lost during the 2008-2009 economic recession. Inflation was successfully restrained, despite the growth of the global and local prices for energy resources. The fact that exports have been growing in some sectors of economy is the most encouraging, as it may become the second economy boosting driver.
Money transfers, constituting over 20% of the GDP, have been the economy driver over the last decade. However, it cannot last forever, as money transfers can just stop one day. It happens when migrants move to a permanent residence to new countries. That is why, we believe that Moldova should develop an alternative engine of growth, such as export, and not only of agricultural production, but also industry, especially, light industry. We have been watching and encouraging this for the last nine months.
InfoMarket: The press statement regarding the provision of the second tranche of the loan from the IMF says that Moldova needs to reduce the significance of the public sector. What are the exact measures Moldova should take?
Nikolay Gueorguiev: 20 percent of the total working population of the country or 7 percent of Moldova’s total population are engaged in the public sector. These are very high figures, even though they slightly reduced in 2009. The problem, though, is in the education system, which has up to 60 percent of public workers engaged, and the education costs make up 0.5% of the GDP. Meanwhile, since 2000, the number of students has been decreasing all the time, while the number of teachers has remained unchanged. As a result, the limited budget money is used to maintain a huge educational system, both in terms of the number of institutions and the number of employees, instead of being spent for modernizing and improving the education’s quality. In this context, we welcome the Government’s plans to launch the educational system reform with assistance from the World Bank and other donors.
InfoMarket: Given the fact that this year is an electoral one in the country, don’t you think that the authorities might slow down the reform implementation process as the program stipulates closing of schools and dismissals?
Nikolay Gueorguiev: The reform has a medium-term prospect, being planned for three years. There are many possibilities for optimization, and firing people, so that the system is reduced in size. Provision of funds for modernizing education is more important. I mean computers in schools, new and modern textbooks and other useful things. Many countries in the region have implemented such reforms and showed good results.
InfoMarket: At the same time, it looks like the government has problems with the utilization of foreign assistance and it lacks skilled personnel to implement the mentioned programs. How can the quality of the state services be improved?
Nikolay Gueorguiev: The intake potential is determined by the efficiency of business processes in state institutions, such as public purchases and use of the budgets. We see
InfoMarket: Mr. John Lipsky, IMF First Deputy Managing Director and Acting Chair said Moldova’s energy sector needs foreign investments. Is there any sector restructuring schedule? Are there any regional factors, favoring privatization?
Nikolay Gueorguiev: The energy system needs serious restructuring to become sustainable from the financial point of view. The government together with the World Bank has elaborated a restructuring schedule. Privatization might be one of the solutions of these problems, like in other countries of the region. It is not the only option, but it is one of the accessible opportunities.
InfoMarket: Are both Banca de Economii and Moldtelecom, as well as other public companies included in the privatization plan?
Nikolay Gueorguiev: Investors’ interest in the developing markets has increased considerably. This process should go together with improvement of the normative-legal basis to ensure competitive prices and investment opportunities in the post-privatization period. The government is still considering different options, and it may totally count on the International Financial Corporation’s support here. As for the Banca de Economii, we expect that the privatization process will be resumed in the near future.
InfoMarket: Last Saturday (16th of April, 2011) in Washington you met the Moldovan delegation during the annual IMF meeting. Did you discuss the ways of overcoming the situation connected with Banca de Economii and the Investprivatbank’s debts to it?
Nikolay Gueorguiev: The authorities – the government, the National Bank and commercial banks – are still negotiating how to remove the burden from the Banca de Economii after it had paid the Investprivatbank’s deposits. As far as I know, there is no final decision here yet.
InfoMarket: The Finance Ministry is continuing to borrow money from local banks and not cheap, while these funds could be used to lend business. How do you think, is Moldova ready to borrow cheaper money in the international market?
Nikolay Gueorguiev: The country will be ready to borrow in the international markets when the tax reform is completed and macroeconomic stability is strengthened. Thanks to the support from the international finance institutions, funding the budget by means of grants and loans, the internal loans have been reduced. The internal debt is at the level of 7 percent of the GDP and this is relatively low in comparison with the international standards and further development of the internal market both for the corporate debt and for the state debt is recommended. It may help reduce the risks connected with the interest rates and the exchange rate, on the one hand, and provision of investment resources, on the other. The World Bank and the IMF are assisting Moldova in these areas.
