Chisinau, Moldova, March 20, 2023—Accelerating reforms and fostering private sector development in key economic sectors are critical to improve Moldova's competitiveness and productivity, according to a new IFC and World Bank report. The country also needs to take certain actions to tackle the unprecedented economic challenges caused by the Russian invasion of Ukraine.
The Moldova Country Private Sector Diagnostic (CPSD)—first of its kind in the country—aims to support the government by identifying key growth constraints and sectors that can optimize Moldova's private sector potential. The study recommends adopting reforms to strengthen governance and build capital while addressing sector-specific bottlenecks for increased private investment.
Moldova is among the countries most affected by the Russian invasion of Ukraine. Given a range of factors—high inflation, refugee influx, energy security threats, and major trade disruptions—the country's gross domestic product (GDP) is expected to drop by 5.9 percent in 2022 compared to 2021.
Against this backdrop, it is key to unlock the private sector's potential, introduce new digital technologies, develop sustainable supply chains, and connect Moldova to export markets including the European Union (EU). Supporting small and medium enterprises (SMEs) is critical. A cornerstone of the local economy, SMEs accounted for 98.4 percent of all registered enterprises in 2021, generating 48 percent of the country's GDP. The CPSD says that limited access to finance is among the key constraints for smaller businesses, with a financing gap of 14 percent of GDP.
Yet with a modern credit infrastructure, better access to digital financial services and an upgraded movable collateral registry, the sector can help drive Moldova out of its economic crisis.
"The Russian invasion of Ukraine has dealt a severe blow to Moldova's economy, but the country can get back on its growth trajectory and emerge stronger by adopting necessary reforms," said Lisa Kaestner, IFC's Regional Manager for Moldova and Ukraine. "Building a robust private sector and improving access to EU markets will offer opportunities for many sectors, attracting domestic and international investments while ensuring long-term development."
With freight transport routes blocked by the Russian invasion of Ukraine, improving port and road connectivity between Moldova and Romania will be key, says the CPSD. Additionally, ensuring trade and securing supply chains, and harmonizing trade and logistics regulatory frameworks with EU standards will help diversify exports and improve access to new markets. Addressing the dominance of state-owned enterprises will further ensure a level playing field for businesses, bringing in more private investments to finance development projects. In some cases, this could include preparing state-owned enterprises for privatization.
With the ongoing disruptions in gas supply, exacerbated by the Russian invasion of Ukraine, the CPSD recommends reassessing the country's energy policy to diversify its energy mix—especially by leveraging its solar and wind energy potential—and develop utility-scale cost-competitive projects to attract more private sector investors.
"Given the recent series of ongoing crises, Moldova needs to find quick and efficient ways to recover from shocks and get back to its reforms and development path," said Inguna Dobraja, World Bank Country Manager for Moldova. "In this respect, the first Moldova Country Private Sector Diagnostic comes to support the government by identifying key development constraints and sectors that can unlock Moldova's private sector potential, a key element in this recovery process."
The CPSD also identifies other potential sectors—agriculture, information and technology and business process outsourcing, and shared service centers—that can generate more revenue and drive development in Moldova.
IFC's investment and advisory work in Moldova, aligned with the World Bank's Country Partnership Framework, will target sectors and areas of reform highlighted in the CPSD. The aim is to help the government prioritize actions to support the country's transition to a new, more sustainable, and inclusive growth model.
The full Moldova CPSD can be downloaded here.
About the Country Private Sector Diagnostic (CPSD)
The World Bank Group's Country Private Sector Diagnostics aim to identify sectors where private sector solutions can create or expand markets and make substantial contributions to development impact. The diagnostics use a structured approach to analyze key sectors with unrealized private sector potential in each country, select several sectors for deeper analysis, and make recommendations for policy action. The sector analyses, conducted with significant input from teams across the World Bank Group and from external partners including governments, provide valuable information on the challenges and opportunities to better leverage the private sector to achieve developmental objectives. The CPSD aligns with the World Bank Group's Maximizing Finance for Development (MFD) approach, which looks to private sector solutions to reach the 2030 Sustainable Development Goals.
About IFC
IFC—a member of the World Bank Group—is the largest global development institution focused on the private sector in emerging markets. We work in more than 100 countries, using our capital, expertise, and influence to create markets and opportunities in developing countries. In fiscal year 2022, IFC committed a record $32.8 billion to private companies and financial institutions in developing countries, leveraging the power of the private sector to end extreme poverty and boost shared prosperity as economies grapple with the impacts of global compounding crises. For more information, visit www.ifc.org.
About the World Bank
The World Bank provides financing, global knowledge, and long-term commitment to help low- and middle-income countries end poverty, achieve sustainable growth, and invest in opportunity for all. We comprise the International Bank for Reconstruction and Development (IBRD), the world's largest development bank, and the International Development Association (IDA), one of the largest sources of funding for the world's poorest countries. With the other World Bank Group institutions as well as partners across the public and private sectors, we are helping build solutions to the global challenges of the 21st century in all major sectors of development. A world where no one lives in poverty and everyone has the opportunity for a better life is within our reach. For more information visit: www.worldbank.org.
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Note: The technical assessments included in the report are based on the latest available information at the time of preparation and does not fully reflect the impact of the Russian invasion of Ukraine and of more recent developments affecting the global economy.
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