Public Capital Budgeting and Management Process in Moldova

Introduction

The theoretical literature on public capital investment emphasizes the importance of capital projects for state economic progress and the overall well-being of the population. Studies suggest that to achieve sustained growth, low-income countries should increase their investments in infrastructure such as transportation, communication, and energy (Dabla-Norris, Brumby, Kyobe, Mills, & Papageorgiou, 2013; Srithorgung, Yusuf, & Kriz, 2019). However, empirical analysis of the public capital decisions of developing countries sometimes provides inconsistent results (Dabla-Norris et al., 2013). In many low-income countries, public capital investments are not productive, and the quality and efficiency of capital projects are often not achieved because of corruption, weak technical expertise, limited information, and capital investment mismanagement (Dabla-Norris et al., 2013; Pritchett, 2000).

Moldova is an example of a low-income country that is currently attempting to increase effectiveness of public investments in the capital infrastructure through the creation of relevant administrative procedures. The reform of capital investment management in Moldova was supported by the World Bank and by the European Union through the Technical Assistance Project for Improving Public Finance Management Reform. The international organizations offered their expertise to assist the Moldovan government in developing favorable, legal and administrative frameworks. Undeniably, as a newly formed independent country, Moldova needs assistance from other states that already have experience in making such normative arrangements and that can offer generalized solutions (Morozov, 2014).

After a few decades of reforms and foreign assistance, the capital management and budgeting processes in Moldova fall short of successful practices. The analysis of public expenditures in Moldova performed by the World Bank evaluates all aspects of public capital management and concludes that rather than contributing to the state’s economic progress, the capital management and budgetary reform in Moldova has resulted in significant inefficiencies in the allocation and implementation of capital budgets, a large variation in capital budget execution, dependence of capital investments on externally-funded projects and grants, and the lack of an integrated framework for strategic planning and common appraisal methodology for all capital projects (Coulibaly & Diagne, 2014). Scholars (e.g., Esfahani & Ramirez, 2003; Haque & Kneller, 2008; Srithongrung, Yusuf & Kriz, 2019) suggest that governmental capital management practices can deviate from the normative prescriptions of what a government should do due to institutional, political, and managerial contexts.

The major purpose of this chapter is to analyze capital management and budgeting practices in Moldova, comparing them against the normative framework suggested by the theoretical literature (Srithongrung, Yusuf & Kriz, 2019) to identify whether the adoption of the normative principles affects capital investment efficiency and effectiveness. This comparative analysis will focus on the four critical components of the systematic capital management process as described by Srithorgung, Yusuf, and Kriz (2019): (1) public capital planning, (2) capital budgeting and financial management, (3) centralized execution and project management, and (4) public infrastructure maintenance. In addition to the comparative analysis within the normative framework suggested by the scholars, the chapter will also present the unique features of the capital management approach used in Moldova as well as the country’s context that affects capital management and budgeting processes.