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Taking stock of progress and prospects in Moldova

Maria Davalos's picture
Also available in: Română | Русский
As the end of a year approaches, we instinctively take stock of what we accomplished and what will make it to our list of resolutions for next year. But, once in a while, it’s good to take a broader view than just year-to-year.

And a recent report does just that! Poverty Reduction and Shared Prosperity in Moldova: Progress and Prospects looks at what Moldova has achieved over the past decade in terms of poverty reduction and inclusive growth, and what the challenges are for the coming years.

Moldova has grown rapidly in the past decade, and has made good progress in lifting the living standards of the population. The economy has expanded at 5 percent annually since 2000, and the national poverty rate went down from 25.8 percent in 2007 to 11.4 percent in 2014, the last year analyzed in the report.

What drove that progress? In a country where employment has in fact been declining over the years, and where firms are struggling to create jobs, it is not surprising that labor markets were not the main driver of increases in people’s income. Many people are in inactivity, have migrated or a planning to migrate, go for early retirement or have moved to low-productivity semi- or subsistence agriculture that will not provide sufficient income to increase their living standards (see this companion report on Moldovan Small-holder Agriculture and Poverty). For those with a job and working as waged employees, however, salaries did increase over time and helped reduce poverty.

Instead, the past progress has been driven mainly by remittance and pension income. With a high number of Moldovans living abroad, remittances provided households with additional income that in turn boosted private consumption, and that drove, in large part, the economic growth observed over the past decade.

In fact, private consumption contributed as much as 5.7 percentage points to GDP growth in 1999–2014. Remittances helped lift many households, particularly rural ones, out of poverty. Similarly, pensions also contributed to increases in households’ income, accounting for more than 30 percent of the consumption growth of the less well-off between 2007 and 2014.

Taking stock of the past now leads us to think about the future. And thinking about prospects reveals concerns about the sustainability of past achievements. Slow growth of the agriculture sector and limited access to markets, non-farm jobs, and basic services mean that people in rural areas are persistently poorer than others. The potential to commercialize their produce is very low for those in semi- or subsistence agriculture. In addition, the poor in Moldova fare worse in dimensions that determine a person’s capacity to enjoy decent social and economic living standards of well-being, like education, health, and employment.

Of equal concern, the two main drivers of progress of the past – remittances and pensions – might not be able to keep it up in the future. More subdued economic growth in remittance-sending countries than in the early 2000s raises doubts about keeping up the past pace of growth for remittances, while demographic trends—showing a shrinking and aging population—put the pension system at risk in the coming decades. Finally, the agriculture sector is subject to high volatility due to climate and external demand shocks.

These challenges point to the need to promote a more vibrant domestic labor market to lead future progress. Further progress is undoubtedly needed, as Moldova remains one of the poorest countries in the region. This involves creating more (and better) jobs, enhancing equitable access to education, health, and services to allow individuals to access those jobs, and helping households to be better protected from climatic and economic shocks.

How to do that? A recent report, Moldova: Paths to Sustained Prosperity, goes deeper into that question and can further help inform what the policy “resolutions” for the coming years could be. And we’ll take a closer look in our next blog.

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