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University of Kassel

Master of Arts thesis in Global Political Economy





Foreign aid and development: Success or failure in promoting Moldova`s
development?




Presented by
Valentin Lozovanu
31254320
valentin.lozovanu@student.uni-kassel.de




Supervisor: Prof. Dr. Aram Ziai
Prof. Dr. Christa Wichterich

1

Statutory Declaration
I herewith formally declare that I have written the submitted dissertation independently. I did not
use any outside support except for the quoted literature and other sources mentioned in the paper.
I clearly marked and separately listed all of the literature and all of the other sources which I
employed when producing this academic work, either literally or in content.
I am aware that the violation of this regulation will lead to failure of the thesis.

Valentin Lozovanu x
Students name Students signature

31254320 15.01.2014
Matriculation number Kassel, date












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Contents
List of abbreviations 3
Chapter 1
1.1 Introduction 4
1.2 Conceptual framework
1.2.1 What is development? .............................................................................................................7
1.2.2 What is foreign aid? ..12
1.3 Literature review about foreign aid-development relation
1.3.1 Foreign aid as development cooperation (aid effectiveness) .14
1.3.1.1 Positive foreign aid development relationship .15
1.3.1.2 Negative foreign aid development relationship ...17
1.3.1.3 Conditional foreign aid development relationship ..19
1.3.2 Foreign aid as diplomacy ..21
Chapter 2
2.1. The overall context of intervention. Macroeconomic situation and development indicators for
the period studied ...27
2.2. Government`s development priorities .30
2.3. Donor`s assistance priorities ...34
2.4. The institutional framework of foreign aid management 43
Chapter 3
3.1. Analysis of foreign aid offered to Moldova (2004-2012) 49
3.2. The correlation of foreign aid with Moldova`s development priorities. Does aid promote
Moldova`s development? ..53
3.3. What are the constraints? 59
4. Conclusion ....68
5. Annexes .72
6. References .78
3

List of abbreviations

ADA Austrian Development Agency
ATU Gagauzia Autonomous Territorial Unit Gagauzia (Moldova)
CIB Comprehensive Institution Building
CIS - Commonwealth of Independent States
CEB Council of Europe Development Bank
CBC Cross Border Cooperation
CSP Country Strategy Paper
CEFTA - Central European Free Trade Agreement
CPIA - Country Policy and Institutional Assessment (CPIA)
DCFTA Deep and Comprehensive Trade Agreement
DFID - Department for International Development (UK)
ENPI - European Neighborhood Partnership Instrument
EBRD European bank for Reconstruction and Development
EUBAM - European Union Border Assistance Mission
EIDHR - European Initiative for Democracy and Human Rights
EGPRS Economic Growth and Poverty Reduction Strategy
ECA Europe and Central Asia region
ESRP Economic Stabilization and Recovery Programme
ENPAP - European Neighborhood Policy Action
EIB European Investment Bank
FP7 - Framework Programme 7 (EU)
GIZ - Deutsche Gesellschaft fr Internationale Zusammenarbeit (German Society for International Cooperation, Ltd)
INOGATE - Interstate Oil and Gas Transport to EuropeDAC OECD Development Assistance Committee of the Organization for
Economic Cooperation and Development
IFI International Financial Institutions
INTERREG - Community initiative which aims to stimulate interregional cooperation
IDA International Development Agency
IFAD International Fund for Agriculture Development
HDI Human Development Index
MDG`s Millennium Development Goals
MTEF - Medium-term budgetary framework
MCC Millennium Challenge Corporation
NCU National Coordination Unit
NIP - National Indicative Programmes
PRSP Poverty Reduction Strategy Paper
PPP - Purchasing Power Parity
PPIP - Partnership Principles Implementation Plan
PIU`s - Project Implementation Unit
PBA`s Programme Based Approach
PCA Partnership Cooperation Agreement (EU)
SDC Swiss Development Agency
SIGMA - Support for Improvement in Governance and Management
SWAP`s Sector Wide Approach Programmes
ODA - Official Development Assistance
UNICEF United Nations Children's Fund
UNDP United Nations Development Programme
UNSC United Nations Security Council
UNCTAD - United Nations Conference on Trade and Development
UNDAF - United Nations Development Assistance Framework
UNDESA - United Nations Department of Economic and Social Affairs
USAID - U.S. Agency for International Development
TACIS - Technical Aid to the Commonwealth of Independent States
TRACECA - Transport Corridor Europe-Caucasus-Asia
TAIEX - Technical Assistance Information Exchange
Twinning - Secondment of experts from the European Union institutions to a member state
TIKA - Trk Isbirligi ve Kalkinma Idaresi Baskanligi (Turkish Cooperation and Development Agency)
TTSIB - EU project Support to the State Chancellery Moldova
KfW - Kreditanstalt Fr Wiederaufbau (German Development Bank)
WTO World Trade Organization

4

Introduction
Similarly with the other social sciences, the development concept has evolved as a highly contested
discipline combining different approaches and points of view about the meanings purposes and
ways of development. Currently, we assist in a long debate whether the development countries
constitute or not special case exception from the general rules guiding economic activity, are the
causes of failures originating from government or market, or maybe development is just a
system of knowledge originated in the West to impose a set of values, beliefs over the rest of the
world and not designed to bring any positive changes. What are the development paradigms
guiding the development and are these capable to improve the lives of people in poor countries?
Accordingly, the instrument of foreign aid designed to produce these changes in recipient countries
is assessed in terms of its effectiveness and purposes.
The persisting gap between the declared goals and present achievements during the decades of
development since its inauguration
1
raises contrasting opinions about the effects of the foreign aid
on development. Though there are many cross country analysis trying to establish the effects of
foreign aid on development, these are often inaccurate given the variety of factors influencing the
process of development, but also different history and local circumstances which make each
country`s development story different. Therefore, I intend to examine the particular case of
Moldova, taking into consideration all these factors, define and explain both concepts of foreign
aid and development, institutional setting, specific approach followed by different donors and
measure whether foreign aid promotes development of Moldova. Is the disbursement of foreign
aid tied directly to country needs and follows developmental purposes? Or, contrarily, it is tied to
the interests of the donor countries and should be treated as a foreign policy instrument, or maybe
it is something in between?
Moldova is not selected as a random case study. Despite the fact that it had benefited already 22
years from Official Development Assistance (ODA) to support its development, its results are
doubtful. Although it had the highest per capita income in the Soviet Union, during independence
years since 1991 it has ended up with the lowest per capita in Europe
23
.This situation has

1
President Truman 1949 Inauguration speech http://www.youtube.com/watch?v=PXE-u4WanMI
2
http://www.globalpropertyguide.com/Europe/gdp-per-capita Moldova in 1994 had the highest domestic
investment (55.8%) as a percentage of GDP (23.65% in 2010), and its HDI index in 1995 was 0.7 (in 2010 0.64).
Source National Statistical Bureau and Human Development Index of Moldova publications.
3
This call into question both the effectiveness of the development efforts undertaken by both international donor
community and Government`s. However, I will focus mostly on the analysis of foreign aid contribution for
promotion of development efforts of Moldova fixed in its strategic planning documents.
5

incited many development actors to extend their programs in Moldova and the level of their
assistance, but the question remain open: what effects does this assistance have for country`s
development given the questionable results from the previous rounds? Despite the growing
amounts of foreign aid, this field is mostly ignored by the academic scholarship in Moldova. The
works analyzing foreign aid are focused mostly on assessing it individually, in terms of
international aid effectiveness targets MDG`s (UN institutions), macroeconomic indicators fixed
in economic growth and poverty reduction (PRSPs of the WB, Memorandum of economic and
financial policies of IMF) or addressing the correlation of foreign aid with donor`s priorities
(bilateral aid), rather than assessing how overall the donor assistance is promoting the country`s
development strategy goals. No comprehensive assessment of how foreign aid promotes national
development priorities for a longer period (at least one decade) was done
4
. Moreover, the growing
international literature conclusions in this respect are divided and cannot alone provide answers as
there can be no one size fits all findings. It does not take into account the diversity of social,
political and historical contexts which makes each country development process story
different. Besides changing paradigms of development during different periods, there are
also various motivations guiding donor`s assistance for every case apart. The above-mentioned
gaps lead to the conclusion that foreign aid requires an examination for a better understanding
of its contribution to Moldova`s development process. Therefore, focusing on the particular case
of Moldova, I want to take into account all these particularities and reveal the role which it has for
development of Moldova.
The literature treats foreign aid differently by analyzing it mostly from the point of view of foreign
policy purposes or in terms of its effectiveness as a promoter of development. I intend to build a
common analytical framework which will examine both dimensions using Moldova as a specific
case. Given the participatory process through which the national development strategy is adopted,
it reflects not only the nationally agreed objectives but also Moldova`s international commitments

4
A first evaluation study published by a national think tank IDIS Viitorul only in 2010
http://www.viitorul.org/doc.php?l=en&idc=294&id=3525&t=/IDIS-Studies/Economy/Evaluation-of-
Moldovasabsorption-capacity-of-external-assistance , two evaluation reports prepared by State Chancellery for
2011 and 2012 http://www.ncu.moldova.md/lib.php?l=en&idc=423 and periodical UN monitoring in accordance
with aid efficiency DAC criteria (the last effectuated in 2010 http://www.un.md/donors/meetings/ . One chapter
by Maia Sandu (pp. 311- 328) dedicated to foreign aid from Governance priorities 2009 http://www.e-
democracy.md/files/prioritati-guvernare-2009.pdf (in Romanian).
6

such as MDG`s
5
, European integration agreements of Moldova, IMF`s Memorandums and WB`s
Poverty reduction papers. At least formally, at the stage of commitments, donors are following
country`s development priorities due to ownership principles. Therefore, both of them - foreign
aid priorities and development paradigms of the donors and recipient will be examined. However,
given the limitation of research, I will focus on foreign aid alignment with development priorities
rather than the quality of the development strategies adopted. Using a qualitative approach I
analyze foreign aid for the last 10 years. I will examine foreign aid contribution by the extent to
which it has supported during the period the national priorities identified from 3 development
strategies - Economic growth and poverty reduction (20042006), National development strategy
(2008-2011), National development strategy Moldova 2020 (20122020) and priorities from
Government activity programme 2011-2014.
My working hypothesis is a) Foreign aid promotes the development priorities identified in these
documents and b) Aid reflects rather donor`s foreign concerns and therefore has moderate
achievements in addressing country`s development constraints. The theoretical framework
research is based on assumptions and conclusions advanced by different theories in respect to
foreign aid. I use the realist theory, as it is especially useful for analysis of foreign policy concerns
attached to bilateral aid and liberal theory, when assessing the economic dimension attached to the
principle of aid effectiveness. I divide the work in three chapters each with 2-3 subchapters. In the
first chapter, I begin with explanation of the method used, clarification of the concepts and the
literature review about foreign aid and development. In the second, I will provide an analysis of
the macroeconomic situation and development indicators, donor`s priorities and aid management
institutional setting. The third will assess amounts of foreign aid allocated for Moldova with data
about sectors assisted, terms of aid (credit/grant) and how the donor`s aid promotes development
targets in the national planning documents, the existing constraints for both donors and
Government. I will try to identify which aid is producing desirable changes and promotes
development, or seems reflecting mostly donor`s foreign policy objectives. Conclusion will
summarize and connect the findings from the previous chapters and will provide an answer to the
research question.



5
The internationally development objectives to which Moldova has committed such as MDGs and the
commitments taken within EU integration, or IMF`s Memorandum and World Bank Poverty reduction documents
are taken into consideration at the moment when the national development strategy is adopted.
7

K: Are you redoing the African thing?
L: Yes. We had a version which is in the front office and we are redoing it some more. You can
look at what you have or wait for what is in the typewriter now. It will not be tremendously
different. We gave you a draft about two days which was bounced back.
K: It was not much.
L: We don't have much of a policy.
K: What would be a policy?
L: That it is, I think, it is a sober, restrained.
K: I don't mind giving them what our intentions are. It is not always possible to do a hell of a lot
L: Right. It is our lowest priority, but it cannot say that. But it is a fact of life.
K: We can say something about forthcoming aspirations.
L: You mean for development?
K: Right
6
.


1.2. Conceptual framework
1.2.1. What is development?
Nowadays perhaps no policy maker would not be so cynical about the phenomenon of
development. However, despite the increased significance of the development process during the
last decades, as this excerpt illustrates, the notion is far from being as unambiguous. It can have
different perceptions and serve various purposes. There are different meanings attached by various
authors to the notion of development. I will refer to the most important paradigms of development
having influenced the concept and how these have changed during time. The analysis of the value
of the notion of development can be differentiated in three broad categories.
The first one is a historical arguably relatively value free and long term systemic vision of
development (major societal shift from traditional to modern characteristics). The second a
short to medium term policy evaluative value of judgment (development as PRSP, MDGs). The
third group is constituted from post-modernist approaches focusing on the analysis of the
ideological content of development discourse and looking for alternative system of values (Sumner
and Tribe 2008, p.11). Other approaches focus their attention on the means to attain economic
development and oppose different instruments of how to achieve it. The agency is developmental
state using active government policies to guide economic forces by treating market failures and

6
Kissinger: when you dont have a foreign policy, talk about development! A transcript of a 1975 telephone call
between Henry Kissinger and his long-time aide Winston Lord on the knotty problem of what to say about Africa in
an upcoming speech http://www.globaldashboard.org/2013/08/09/kissinger-when-you-dont-have-a-foreign-
policy-talk-about-development/ .
8

lifting the standards of life of peoples. Or using the neoliberal view, it can be the market. In this
case, the state interferences in the economy must be limited, as these are believed to produce
government failures (Gilpin 2001, pp. 305-312).
These conceptualizations of development evolved in different periods of time with a considerable
influence on the meaning of development and have reflected largely the changes occurred in social
sciences as economics, political science etc. It was a response to different necessities of society
such as problems of economic development, addressing the problems generated by progress,
overpopulation, urban squalor, job loss etc. later translated into necessity of political and social
modernization, colonial economics, human development or more radical approaches as
dependency and post-development theories (Pieterse 2010, pp. 5-8). Development encompasses
continuous change in a variety of aspects of human society and its dimensions are multiple:
economic, legal, politic and institutional structures, technologies, environment, religion, arts and
culture (Sumner and Tribe 2008, p. 11). The majority of works designate development as a
continuous change in various aspects of the human society for better, although the notion of good
change raises many questions. There is no univocal answer about what is good and what kind of
changes are needed, (Sumner and Tribe 2008, p. 11) or moving towards which modernity?
(Pieterse 2010, p.1)
From the very beginning, the focus of development was on the economic meaning. In the first
instance, the concept of development appeared with the works of the classics Adam Smith and
Karl Marx preoccupied with addressing the problems of economic development envisaging
structural long term transformation of the society. The meaning of development was focused on a
long term process of historical change, through industrialization, shifts of economy from rural
agricultural to urban industrialized society producing a transition from traditional to modern
society and involving structural changes such as capital accumulation regimes and propriety over
the means of production (Sumner and Tribe 2008, p. 12). In 19th century, economic development
has characterized the efforts of the latecomers (US, Japan, Germany) catching up strategies to
converge with developed world. In modern times, it has evolved into 1950-60 Big Push theory of
economic growth embraced by post-war decolonized world, as part of efforts to provide better
lives for their citizens and need to consolidate economic independence to their newly won political
freedom. The Keynesian economics emerged from deep Depression of 1920-21 were predominant
at that time, as states were preoccupied with postwar efforts to promote economic growth and
social welfare. Development was perceived as the agency of state in the process of modernization
9

of society and rise of its income (Rapley 2007, pp. 1-4). The Lewis model, as one of the elements
of the Big Push plan, represented an economic growth based on a transfer of resources out of
traditional sector to a more performing through increasing investments in it. The main features of
this model in 1950-1960 were industrialization and import substitution with Government playing
the central role (Stern 2002, pp. 44-47). The least developed countries have used import
substitution strategies to stimulate the technological progress of their economies, as part of their
attempts to raise the value of their exports and avoid the primary resources export trap which
dominated their economies since colonial times. In their efforts, they have been guided by
dependency theory considerations to escape dependent accumulation, or development of
underdevelopment (Pieterse 2010, p. 6). Postwar developmentalism relied on national
accumulation (auto centric development) and the conviction that the less developed countries were
different from more advanced industrialized and their economies were functioning according to
different principles - represent a special case. By late 1970, the Keynesian economics entered in
crisis after a number of severe debt crises (oil shock 1973, Mexican crisis 1976 and 1982). The
neoclassical economics (neoliberalism) became more popular and prevailed in academic and
policy circles with the exception of several least developed countries and some organizations (such
as UNCTAD). The neoliberal theory has neglected the premises of developmentalist state as
special case and has instead insisted on reliance on market mechanisms. The state is not anymore
seen as an active actor in economic development, but rather this function is entrusted to market
forces. An active government intervention in this case means market distortion (Pieterse 2010, p.
7).The paradigm shifted in late 1970 to microeconomic principles and to measurements of poverty
and inequality dimension. Then after, in 1980 attention was brought to structural adjustment and
debt reducing and in the 1990 focus shifted to institutions development especially those in charge
of rule of law and financial system. Social cohesion was seen as an important basis for sound
policies and growth. It was recognized that financing gaps is not working because the progress
was hindered by inadequate institutions and policy framework. The reform of these constraints
was a complex contingent upon more elaborate process than simple making foreign aid conditional
on concrete policy measures. Given that it was recognized that conditionality could not be forced
upon Governments, except when these policies could be accepted by them as necessary, ownership
principle emerged with the recognition that country must be in the driver seat, if the reform are to
succeed. Thus, must efforts of the foreign aid turned on building institution capacity as
prerequisites for development. (Stern 2002, pp. 44-47).
10

Another approach, human development paradigm
7
emerged in 1980` aims to expand the freedoms
and incapacitate the people. It`s is based on removal of different types of unfreedoms which hinder
the empowerment of people to exercise their agency (Sen 2000, p. 13). This concept is more
general than those pursuing some narrower views of development such as gross national product,
rise in personal incomes, industrialization, technological progress or social development. All this
particular aspects can be useful for development growth of incomes will expand the freedoms
enjoyed by particulars of society, but nevertheless, the whole process will depend also on other
factors such as social economic arrangements (access to education, health care etc.), political and
civil rights (liberty of participation in public discussion), industrialization and technological
progress etc. Therefore, if freedom is what development advances than it is important to
concentrate rather on this major objective than on particular means of advancement of
development (idem, p. 5).
A different view has the post developmental theory which rejects the concept of development
itself. Post-development thinking represents a different more radical thinking opposed to structural
theories of transformation of society, development itself, which is considered as a constructed
reality that does not exists outside of discourse. Post development criticizes the ahistorical model
of change of developmentalism which created the construct of Third world and the West that
doesn`t have a basis in historical reality, as the modernization paths followed by western countries
(early, late industrializers) differed according to periods and contexts from the ideology of
development (Pieterse 2010, p. 29). Development is a discourse which shapes and frames the
reality and power relations by valuing certain aspects over the others (Sumner and Tribe 2008,
p.10). Development was equated to modernity and with this it has constructed a discourse of
superiority. By constructing the term of developed and developing countries and the concept
of modernity this created a rationale for the interventions of the first into the affairs of the second
group (Pieterse 2010, pp.1-9). One of the reasons of this more pessimistic view about aid is due to
the fact that the struggle against poverty (which was the mantra of the development strategies),
elimination of social disparities and environmental degradation and others which were supposed
to be addressed with the help of aid to promote development has not succeeded. In many respects,
the situation is even worse in the countries of the South (with the exception of Southeast Asia)
than before when this assistance did not exist (Rist 2008, p. 239). By making poverty elimination

7
A paradigm on which MDGs are based and which guides the activity of such organizations as UN agencies
11

their main goal the development agencies emphasize good governance principles, as a more
effective measure to achieve pro poor strategies of growth and eradicate poverty than just pooling
more and more resources. However, only by addressing the effects of poverty and not of its causes
they perpetuate the problem, proliferate the rationale and legitimize their intervention in every
domain of social life. For this reason, the problem is not the poverty but development itself which
is getting involved in all aspects of the life of society (Rist 2008, pp. 232-233, Peet 2009, pp. 229-
230).
Hence, development studies can be seen as a crisis prone science, a field of struggle which is a
subject to rethinking for alternative solutions and as an intellectual activity guided by political and
social forces (ibid., pp. 1-2). The question about the concept of development remains one of high
controversy and the academic debates most probably will continue in their quest for better
understanding the field and to propose improved or alternative solutions.
A more precise definition for reconciliation of different approaches is development as the
organized intervention in collective affairs according to a standard of improvement. (Pieterse
2010, p. 3). It is this definition of the concept of development which I will use in my analysis, in
particular the standards of improvement fixed in the development strategies (EGPRS 2004-2006,
NDS 2008-2011, NDS Moldova 2012-2020, Government Activity Program European
Integration: Freedom, Democracy, Welfare, 2011-2014) which included the national priorities
and international development commitments undertaken by the Government of Moldova (EU-
Moldova Action Plan 2005-2008, WB PRSP`s, IMF`s Memorandum of economic and financial
policies, MDG`s). Nowadays, development strategies followed by countries and donors doesn`t
follow a unique approach towards development, rather these can include several development
paradigms at the same time
8
. These aspects I will address in separate chapters describing
Government development and donor`s assistance priorities.






8
The donors compete advocating their agenda to be included in the country`s NDS (WB/IMF from one hand with a
more economic growth and poverty reduction concept and UN family institutions pleading for human
development centered approaches.
12

1.2.2. What is foreign aid?
Foreign aid can have different forms and definitions. According to OECD foreign aid
9
is delivered
through official bilateral and multilateral channels. The definition provided by the Development
Assistance Committee (DAC) of the Organization for Economic Cooperation and Development
(OECD) is Flows of official financing administered with the promotion of the economic
development and welfare of developing countries as the main objective, and which are
concessional
10
in character with a grant element of at least 25 percent (using a fixed 10 percent
rate of discount). By convention, ODA flows comprise disbursements by bilateral donors and to
multilateral institutions. ODA receipts comprise disbursements by bilateral donors and multilateral
institutions
11
. ODA is considered as the amount of grants and loans offered to recipient countries
which satisfy these conditions. From different categories of aid technical assistance is considered
ODA while funds accorded for military, private transfers for individuals, donations from
international civil society organizations, commercial funds and foreign direct investments are not.
The purposes of aid are very diverse ranging from macro-financial stability, policy and
institutional capacity building support (good governance), civil society, private sector
development, sector support such as environmental, education, health, etc. or infrastructure
building and humanitarian emergencies (Tarp 2006, pp. 13-44). Further, in my analysis I will use
the meaning provided by OECD for ODA when describing foreign aid.
The official reasons for giving aid are developmental. Foreign aid is used to address a number of
constraints for the economic growth such low level of savings and investment, insufficient
amounts of foreign exchange or because of both. Foreign aid is considered to fill this gap by
supplementing the domestic savings and foreign exchanges which in turn increase investments and
spur growth. Therefore, after a period of help the economies of recipient countries would register
growth and the need for foreign aid would disappear. This approach was known as two gap model
of aid similar with the Harrod Domar growth model (Addison et all 2005, p. 1). The beginning
of the development theory emphasized the economic growth as contingent on capital formation
and large scale infrastructure building (Lewis, Nurkse). Later, it has evolved and aid was seen as

9
The criticism of foreign aid assistance has led to its rebranding into development cooperation (Pieterse 2010, p.
60).
10
Concessional loan - These are loans that are extended on terms substantially more generous than market loans.
The concessionality is achieved either through interest rates below those available on the market or by grace
periods, or a combination of these. Concessional loans typically have long grace periods.
11
OECD Glossary of terms http://www.oecd.org/site/dacsmpd11/glossary.htm,
http://stats.oecd.org/glossary/detail.asp?ID=6043
13

providing the necessary capital to fill the savings and foreign exchange gap and push the economy
into self-sustaining development (Harrod-Domar gap growth model). The model assumes that
there is an excess of labor, low levels of productivity and capital. In order for an economy to grow,
savings are necessary, a constraint which foreign aid can fix to produce higher investment,
productivity, savings and growth. Additionally, foreign aid can fill the gap created by insufficient
level of foreign exchange because of the low export earnings required for the import of capital for
investment. A third gap is the low fiscal capacity to collect the revenues to cover the required level
of investment. Therefore, aid is seen as capable to fill the gap in savings, foreign exchange and
domestic revenues which will result in higher level of savings, investment and growth. (Radelet
2006, p. 9). In many cases, official donors required that recipient countries pursue reforms or
policies that the donors consider should promote economic growth. In the case of multilateral
organizations such as WB, IMF the requirements are known as stabilization and adjustment
conditions. Some researchers affirm that the policy reforms suggested by these institutions have
been counterproductive and caused economic and social decline rather than growth. Others, insist
on the idea that the main causes of inefficiencies are laying in the bad implementation of reforms
and deficient governance of these countries unwilling to adopt the right approaches. However,
as the practice of aid has revealed later, the reform of these constraints was a complex process
contingent on a more elaborate process than simple making foreign aid conditional on a number
of policy measures (Tarp 2006, pp. 13-27).
Various ideas and motivations have led foreign aid especially as the changing conditions and
development paradigms evolved over time. Development is only one of its aims (Lancaster 2007,
p 2). Foreign aid was also often used to serve donor`s countries political interests by assisting
beneficiary policy and legal framework reforms or commercial as a modality to penetrate markets
and access resources (Tarp 2006, pp. 25-27). As Morgenthau has coined the famous expression
of the seeming and real innovations which the modern age has introduced into the practice of
foreign policy, none has proven more baffling to both understanding and action than foreign aid
(Morgenthau 1962, p 301).




14

1.3 Literature review
Different theories gave diverse interpretations of the phenomenon of foreign aid. The realist theory
focuses on the purposes of aid as it sees as an instrument of diplomacy. Given its initial assumption
of states behaving in an anarchic environment, the realists see foreign aid as an instrument used to
ensure state security, protection of its political and economic interests. Therefore, taking into
consideration that aid in this case is given having donor`s interests at the core of motivation, its
capability to achieve developmental purposes are meagre. The Marxists school of thought and
postmodern tradition sees foreign aid through a dependency relationship between a group of
wealthy capital rich core and poor periphery countries. The first group of countries use their
position of dominance to control and exploit the resources of the second tying aid to policies,
services and goods for gaining access to markets and resources. The liberal strand of thought
concentrates on its economic dimension, in particular the effectiveness of development
cooperation to address the problems of globalization and interdependency such as environmental,
health etc. The constructivist theory interpret foreign aid as guided by normative principles, ideas
of humanity about the moral obligation of more affluent countries to help the poorer. Only in this
conditions an international order could prosper, when it is based on generosity and readiness to
cooperate in the interest of humanity (Lancaster 2007, pp. 3-4).
Nowadays, the debate in the literature about foreign aid is divided in two parts. One examines the
purposes of foreign aid and another focuses on the effectiveness of aid to achieve development.
During the last decades, the aid effectiveness aspect was more researched while the study of the
purposes of foreign aid was less prominent. Even after decades of study, currently, there is no
widely accepted consensus about the effects of foreign aid on development. The large literature on
this subject has not progressed in offering any hard conclusions.
I will start with the examination of the literature describing foreign aid as development cooperation
(aid effectiveness) which can be divided in several camps: positive, negative, and conditional
relationships with development. The first assumes that the allocation of aid will produce and
sustain the rates of growth. Foreign aid supplements the savings that a developing country is
lacking due to the poverty trap resources which invested lead to increasing savings and higher
growth. The long period and amounts of aid offered have not solved the problems of poverty and
underdevelopment and this has raised further questions about the effectiveness of this approach.
The second strand of thought findings are that aid is either displaced, has no impact on growth or
even harms fueling adverse processes. The third was introduced by the World Bank report
15

Assessing Aid: What Works, What Doesnt and Why adding much controversy over the impact
of aid on growth as contingent on the policy regime of the country. It has been challenged by other
studies and now, the aid literature is split between those who consider that aid impact on growth
is depending on policy regime and those who contest this conclusion (Addison et all 2005, pp. 1-
2).
This strand of literature is added by another studying foreign aid purposes, considering aid as
representing an instrument of foreign policy. Bellow, I intend to present the literature explaining
the relationship of foreign aid with development, before I will proceed to the second chapter, where
I will analyze the macroeconomic situation of intervention and measure the development
indicators, present the donor`s and Government development priorities and the institutional
framework for aid management of Moldova.
1.3.1.1 Positive foreign aid-development relationships.
One of the main advocates of aid Jeffrey Sachs, campaigning for increasing financing of MDGs
finds that foreign aid helps to start capital accumulation, spurs economic growth, rise the incomes
of households and breaks the poverty trap in which the poor countries are caught. It can contribute
through three channels: a small part of it goes to households as humanitarian aid, the other finance
budgets to sustain public investments and private business through microfinance programs to
supply capital for small businesses. Where foreign aid is substantial and lasts enough it lifts the
revenues of households and break the poverty trap creating conditions for a self-sustaining growth
(Sachs 2005, p. 246).
Hansen and Tarp consider that cross-country analyses have failed to produce enough statistical
clarity of the relationship between aid and growth. However, the author argues that most studies
have produced the conclusion of a positive relationship between aid and growth. Foreign aid is
offered for many purposes and ways and the dilemma of aid is not whether aid works or not, but
how and when varied instrument can be made to work better in different country circumstances
(Hansen and Tarp 2000, pp. 19-20).
The study of Minoiu and Reddy argues that aid matters for growth and it can contribute
significantly, but only specific kinds of aid have this clear cut impact on growth and only in a long
term. Overall, foreign aid has a significant effect in those cases when it ranks high in the aid quality
index while geopolitical aid has been found with zero or negative effect on growth. Their
measurements did not show that aid is more effective in better policy environments, that there are
diminishing returns or income thresholds for the ability to use aid productively. Foreign aid matters
16

for growth and a change in composition of it (developmental rather than geopolitical) and an
increase of ODA will seemingly have substantial effects on the future growth of developing
countries (Minoiu and Reddy 2007, pp. 20-21).
Another study of Tarp argues that the cross country macroeconomic analysis shows positive effects
of aid on growth when longer time is taken into consideration. That does not imply that there are
no negative side effects or it can be inefficient, but that more work must be done in order to
improve it. Foreign aid effects are not as large as supposed initially and appear after a considerable
period of time 30 years of more. Therefore, alone, it cannot constitute itself a solution to poverty
(Tarp 2009, p.1). Tarp also considers that there are different purposes for which aid has been given
and the political motives guides the form and size of aid. If the priority of donor is not growth it is
obvious that the link between aid and growth will be weak. In addition, aid effectiveness factors
such as the lack of coordination between donors, conflicting assistance priorities, reduce the impact
of aid on growth (ibid., pp. 17-18).
Similarly, Radelet finds that the most important determinants of growth are foreign policy and
political relationships. Donors have a variety of motives to give aid and only some of them are
related to development. The bilateral aid is designed at least partially to serve the economic
interests of the donor countries (for example tied aid - to support certain objectives that support
specific groups in donors countries). Multilateral is less biased in this respect, although, it cannot
be judged immune to influences. However, overall, donors provide most of the concessional aid
to poorest countries. There was no simple relationship between aid and growth. Some countries
which received aid grew, others have had recorded slow or even negative results. Generally, aid
has a positive relationship with growth across countries, but not in each country and presents
diminishing results as the volume increases (Radelet 2006, pp. 6-8).
A study of Clemens at all points that the effects of aid on average are positive across countries, but
are limited in comparison with other factors of growth and negative in some countries. However,
on average, it has moderate positive effects on growth. To determine the correlation between aid
and growth it needs to be measured for a longer period of time and for those elements of aid which
can produce growth for this period (pp. 593-594). In this way, the divergence in findings of the
debate about the effects of aid might be solved and their findings might show a positive modest
effect of aid on growth. In addition, aid does not work everywhere and there are also countries
which have accomplished growth with relatively little aid (Clemens et all 2011, pp. 591-614).
17

The first strand of literature seems to suggest that when it is allocated for developmental purposes,
assessed for a longer period of time and in sufficient amounts, using varied instruments and of
good quality (addressing the coordination problems, harmonization of procedures etc. ensuring its
efficiency) aid can promote development.

1.3.1.2 Negative foreign aid development relationship
Contradictory with the works mentioned above, this section identified that aid has a negative
impact on recipient countries and fuels corruption, stagnation and dependency.
One of the most ardent critics of aid Dambisa Moyo considers that foreign aid given to elites
encourage rent seeking behavior (because aid is fungible), hinder reforms and spurs corruption. It
interferes in the rule of law, the work of institutions and deteriorates the respect of civil rights
which makes country unattractive for domestic and foreign investments. Fewer investments reduce
growth and increase poverty levels and given the pressure to lend, donors allocate more aid which
is diverted, so that the process is continuing in the same vicious circle. It establishes a dependency,
encourages corruption which has repercussions for growth and perpetuates underdevelopment
(Moyo 2009, p. 49). There are other bad practices of aid which impedes development in recipient
countries (Africa) such as: the pressure to lend, unambiguous criteria and decisions regarding the
level of corruptibility when financing should stop, lack of accountability, weakening the
capabilities of local institutions by attracting the best and brightest to work for donor`s agencies,
rising local rivalry for the access to it, putting pressures on local prices, unproductive use of loans
because of low absorption capacity, large unproductive public sector and country ownership (ibid.,
pp. 54-67).
Another critical work written by Easterly finds that the goal of development is too broad and it
seems unattainable so far. It is a reason which makes difficult the task to hold aid agencies
accountable and process any feedback. Easterly suggests that interventions should be more focused
on specific tasks. Aid might be used to attain development specific targets by solving specific tasks
where there is big demand such as reducing the incidence of malaria by providing access to water,
building roads, providing scholarships etc. In other words to transform poor individuals rather than
poor societies. Easterly is a proponent of bottom up process for a focused effort which could solve
each problem separately, rather than within a more general framework of development assistance
at the macro level. He argues that development has not stopped from just happening in its own
18

way without much involvement of experts or contribution by foreign aid in places like China,
India, Turkey, Chile, Vietnam etc. (Easterly 2012, pp. 8-10).
The study of Doucouliagos and Paldam showed that foreign aid has no significant importance, as
on average, aggregate development and aid flows are ineffective to generate growth. Moreover,
their analysis shows a pattern in the correlation between foreign aid and growth which keeps
declining. Aid effectiveness has not increased despite the declared donor`s goal in this respect and
the marginal contribution of additional aid on growth estimate is minimal. That does not mean that
aid is never effective but that total aid does not generate growth. Moreover, aid seems to have
considerable fungibility, so that projects financed by aid are different from projects caused by aid.
If aid is at the discretion of the recipient government, the latter can feel free to seek rents from
these funds (Doucouliagos and Paldam 2011, p. 16).
The work of Bauer and Yamey (1982) affirms that foreign aid is likely to hinder development.
This is because the economic results depend on the conduct of people and their governments
efforts and the slow progress of these societies cannot be overcome by foreign aid, but rather will
reinforce it. They argue that foreign aid`s monopoly on compassion, so that nobody can criticize
these transfers of resources as ineffective or damaging, allows them to claim that poor results are
due to insufficiency of aid. During decades, sufficient amounts have flowed towards recipient
governments which did not performed well and created perverse incentives. The access to aid of
recipients has absolved them from the necessity to create necessary conditions for external inflows
of capital. The tax revenues are kept low, because of availability of aid money extends the power
of the existing political status quo and their control over the society which results in its
politicization. It inhibits private enterprise and therefore the inflow of foreign investments, creates
overvalued exchange rates, increases domestic money supply and inflation, balance of payments
difficulties and produces deficient fiscal policies. Foreign aid also creates perverse incentives such
as pauperization of the countries in order to be eligible for aid, de-skilling and increases of
dependency of these societies on donors (Bauer and Yamey 1982, pp. 302-310).
Moreover, the work of Djankov et al (2006) concludes that foreign aid has a negative impact on
economic growth and democratic achievements of developing countries, because it reduces
investment and increases spending. The effectiveness of aid is affected by the type of aid disbursed
grants or loans. Contrary with some opinions (such as Sachs) that more aid should be given as
grants, it is suggested that loans are a more effective measure to ensure the effectiveness of aid
(Djankov et all 2006, p. 2). The argument is that if aid comes as loans, there are stronger incentives
19

to use these resources efficiently. The recipient country will take care to obtain a good return on
the investment in order to pay back the loan. In the case of grants, these are mostly increasing
public consumption. Their research has shown that increasing ODA has no effect on investment,
but it has a significant effect on government consumption. Foreign aid has positive effects if the
ratio of grants in aid is small enough (ibid., p. 17).
A latest study (2013) which measured the degree of achievement of MDGs (in support of which
foreign aid is mobilized by UN organizations) has revealed that cross country analysis of data does
not support the hypothesis of a causal linkage between the initiation and the acceleration of
progress of MDGs indicators. The universal acceleration of MDG indicators happened in 2000, or
earlier which means that this could not have been caused by the MDG declaration. The study has
found a significant acceleration in 7 from 19 MDG indicators and from these 7 indicators only 1
had changed in 2011 or later. Only total debt indicator has indicated considerable acceleration in
progress after 2000 indicating that activities to debt financing by MDGs were successful. This
might happen because countries were already focusing on these indicators (such as health), prior
to their adoption and attempts to improve them (Friedman 2013, pp. 27-37).
This part of literature indicates that foreign aid is unable to eliminate the systemic constraints for
development, but rather reinforces these introducing various distortions in the recipient countries.
The role of aid compared with other factors is actually not so significant. Various authors described
different causes such as: approach followed is deficient (a micro is preferred), aid is fungible and
its role and contribution for growth is minimal, it does not generate growth and the type of aid
spurs rather consumption than investment.
1.3.1.3 Conditional foreign aid development relationship
This group of studies agree that foreign aid can produce development, but it is contingent on local
policy environment and for this to succeed a set of conditions must be fulfilled. One of the most
influential work in this respect, the Assessing aid report findings are that foreign aid works well,
but only in good government environment. At various time and places aid has manifested
differently from effective to ineffective or somewhere between (Dollar and Pritchett 1998, p. 2).
Aid agencies work in difficult environments and the early development thinking suggested that
bringing more capital will help to promote development. Nevertheless, as the evidence has
demonstrated this was not the case. Support must be directed to spur reforms, rather than just
allocate resources. These resources need to be given to reformers with long term vision to support
20

more systemic transformation than just pockets of reforms or project success which will not be
easy to extrapolate at the national level (ibid., p. 117).
Similarly, the study of Burnside and Dollar says that aid has positive effects on growth in good
policy environment. Strategic interests of donors plays a significant importance in their decisions
for allocation of aid, whereas commercial are not so important. The most biased channels are
bilateral aid, while multilateral is considered as being oriented to alleviate poverty and achieve
growth (pp. 31 - 32). On average, aid has little impact on growth, but when offered for countries
with good policy environment, it proved to have a positive effect on growth. Given that bilateral
aid is often offered with donor`s paying more attention to achieve its purposes rather than promote
the growth of the recipient country economy, it is positively correlated with government
consumption which can explain why its impact on growth is not more positive (Burnside and
Dollar 1999, p. 37).
In his analysis McGillivray concludes that aid works, but it depends on the policy environments
in different countries. The effectiveness of aid in promoting development is contingent on factors
such as conflict, political stability, and governance. The best situations, where foreign aid seems
to work, are post conflict and structurally vulnerable countries, as well as politically stable regimes
with good governance results. It can have negative returns when aid inflows reach from 15 and 45
per cent of GDP, the limit indicating limited absorption capacity. The allocation of aid, even if not
always, become increasingly more development oriented. Foreign aid is associated with increased
expenditures and fungibility, but nevertheless, it helps to diminish poverty through pro-poor
expenditures (McGillivray 2003, pp. 5-10).
The analysis of Roodman (2004) alleges that foreign aid is probably not as decisive for
development as are domestic savings, inequality or governance. Some aid finances investments,
but this is done in an environment influenced by domestic policies, governance, external conditions
and other factors which influence productivity of investment. It is not homogeneous, has different
purposes and forms, and much of it is poorly used. Cross-country are not able to produce robust,
valid generalizations about when and whether aid works (Roodman 2004, pp. 274-275).
Finally, the study of Peter Boone (1995) argues that aid does not contribute to a significant rise in
investment, growth and human development indicators improvement, but it does increase
government consumption. Donor`s aid is highly variable, fungible and considerably politically
motivated. The efficiency of aid mechanisms depends on political regimes. Most of aid, in all
regimes, finance government spending and transfers to political supporters. However, in more
21

democratic regimes aid is more equally distributed within population because of people ability to
influence and mobilize support which depends on such factors as education, health and capacity
to organize. The main factors driving foreign aid are donor`s interests, rather than recipient needs.
Given the lack of correlation between increasing of aid and health sector indicators improvement,
the author concludes that aid does not introduce incentives to improve human development
indicators and that financing is not the main constraint for development. Foreign aid can be
effective when it is offered conditional on policy reforms and it is non-fungible. If reformist
regimes stay long enough in power to promote better education, health care, this can empower the
poor in the political system so that it could be self-sustaining (Boone 1995, pp. 1-28).
The last group of aid effectiveness studies affirm that the simple allocation of aid is not capable to
eliminate the constraints for development, that reforms must be carried to strengthen institutions
to allow efficient use of it. For this, foreign aid must have concrete conditionality contingent on
the policy environment, together with provision of more development oriented aid (multilateral
institutions are given as an example).

1.3.2 Foreign aid as diplomacy
This strand of literature is dominated by realist assumptions which considers foreign aid as an
instrument of foreign policy and has a more pessimistic view about its developmental potential. It
identifies different interests which guide donor`s policies of aid giving such as: geopolitical,
economic/commercial, humanitarian etc.
As the work of Finn Tarp (2009) acknowledges foreign aid is not just a transfer of resources, it has
often attached besides economic also policy strings. The effectiveness principle supposes that the
conditions tied to aid are for developmental purpose, but it also can contain commercial interests
of the donor. Bilateral aid is considered more biased in favor of donor`s interests than multilateral.
For multilateral aid such as WB and IMF the conditionality known as stabilization and
macroeconomic criteria has occasionally proved as counterproductive resulting in social and
economic distress, rather than progress in development. One cause why it might not be successful
is that it is given often in accordance with donor`s interest (Tarp 2009, p. 4).
The classic work of Hans Morgenthau indicates that foreign aid is by no way different than
diplomatic or military policy or propaganda. It is an instrument of the state interest. The expertise
is economic, but formulation and execution is political. In fact, development process depends on
internal factors such as existing intellectual, moral and political precondition and not so much on
22

the possibility of external manipulation to bring it. Its potential for successful change is much more
modest than generally accepted. Morgenthau distinguishes six policies which are pursued using
foreign aid: humanitarian, subsistence, military, bribery, prestige and economic development.
From all this types of policies only humanitarian is offered on non-political premises, but when
needed, it can also be used having diplomatic reasons. The economic development became an
ideology which legitimizes and rationalize the transfer of resources using an elaborate aid
apparatus. For instance, when subsistence aid is offered to purchase political favors or to help
maintain a status quo in the recipient country, it is always given as an assistance for economic
development, even if its real purposes are different. It is used to eliminate the deficit in the budget
of the recipient country, as an attempt to ensure stability, rather than promote some changes via
reforms. Similarly, prestige aid is made available using the same appearance that it intends to
improve economic situation of the recipient, even if it has other purposes. Usually, it is a piece
propagating recipient`s symbol of development to meet high expectations of the population and
serve a propagandistic role for elites. This kind of assistance is cheaper, faster and offers political
dividends for both donor and recipient. However, sometimes it is hardly distinguishable for donor
or recipient and produces errors in understanding what recipient actually needs, or what are the
real intentions of the donors. Therefore, in order to use it better, one must differentiate these 6
types of aid, choose the appropriate type of aid quantity and quality for each situation apart and
treat it as an integral part of political process (Morgenthau 1962, pp. 301-309).
Another work that of Berthlemy, analyzes foreign aid according to three variables: self-interests
of donors, recipient needs and their merits. The first is geopolitical or commercial and is specific
for bilateral donors. The estimation of the second is more complex, but most measure it by per
capita income of the recipient. The third, is a more general definition full of ambiguities and its
widely accepted as good governance criteria. The self-interest pursued by donors can reflect
several concerns such as geopolitical provided for political alliance, reflecting historical or
geographical factors (colonial past, proximity), or commercial (oriented to trade partners). The
author calculations showed that commercial interests have a big role in aid allocations in bilateral
aid which suggests that the motives of aid are rather egoistic than altruistic. Moreover, trade
linkages seem to matter more than geopolitical linkages. Bilateral donors do not behave similarly
and at least partially some of their aid is correlated with multilateral. The Nordic countries are
those who are least selfish from bilateral donors, but their aid constitutes rather an exception from
the general rule. Multilateral aid which is considered to follow more closely the principle of aid
23

effectiveness and that of EU is found to be influenced by commercial interests of US and Britain,
and also in a more limited extent by Japan. Recipient merits (governance) are only in the third
place after geopolitical, commercial interests and recipient needs, and it seems that it does not have
significant influence in donor allocation (Berthlemy 2006, pp. 79-99).
The study of Dreher et al (2008) finds a positive correlation between the status of non-permanent
member of UN Security Council and participation within IMF programs, even after accounting for
other influencing variables such as economic, political and country specific factors. The
international institutions seem to reflect the interests of the most powerful of its constituents and
the distribution of power within these reinforce the dominance of the key countries. The reason of
it is that using the institutions brings more legitimacy and lower costs than unilateral policy.
Therefore, besides economic variables guiding IMF policies politics matter as well. The non-
permanent members of UNSC in exchange of legitimacy are more likely to receive IMF loans and
with more favorable conditions than other countries (Dreher et al pp. 1-23). Similarly, an analysis
of Wittkopf (1973) says that states attempt to coerce one another to support their positions
in the UN under a threat of reducing foreign aid and this attempts are mostly characteristic to great
powers (Wittkopf 1973, pp. 869). Finally, a study of Kuziemko and Werker (2006) argues that
there is a large and positive effect of Security Council membership status on the foreign aid
receipts. An increase of approximately 59% in total aid from US and 8% from UN. Aid payments
sharply increase in the year in which a country is elected to the Security Council. These can get
significantly large especially during the key diplomatic years and recedes returning to previous
levels after the completion of the mandate. From UN agencies UNICEF and in a lesser extent
UNDP are those who allocate more aid after the countries from UNSC voted favorably for US
decision. Donor countries use aid strategically and do not prioritize humanitarian concerns when
designing their aid allocations (Kuziemko and Werker 2006, pp. 905-923).
For Mesquita and Alastair (2007) aid giving is a transaction in which donors purchase policy
support in exchange that parts of aid will be used to secure the recipient elites in power. It cannot
be expected from the leaders from developing countries to engage themselves in reforms, but rather
to follow a quid pro quo arrangement to back donors policy in exchange for aid sufficient for their
survival. Their selectorate theory says that the decisions of leaders with restricted exclusive
coalition are not to support the improvement of the welfare of the people. Only in a more broad
inclusive coalitions enhancing leader`s survival also means promoting public welfare (p. 225).
Foreign aid is more likely to favor big nations at the expense of small ones. Donors are more
24

induced to give aid for geographically proximal countries, than distant ones, although, the result
of measurements are not significant in this respect (de Mesquita and Alastair 2007, pp. 225 - 275).
Akram (2003) points out that the pattern of disbursements does not seem to have any ties with the
needs in developing and transitional economies (p. 1351). The level of per capita income in a
country is not decisive factor for the decisions of donor. Therefore, he concludes that the flow of
aid is not oriented to those countries with the most urgent need. This misalignment between human
needs and actual allocations raise some doubts about the real interests of donors and efficacy of
international aid regime (Akram 2003, pp. 1351-1356).
The findings of the Nielsen`s (2010) assessment of need orientation of donors suggests that aid is
more responsive in countries that donor find strategically important. The norms and ideas matter
in allocation of aid in the same way, as the recipient needs, however, donors tend to meet them
when it is also in their interest. Nielsen asserts that the current debate is divided between the
constructivists and realist strand of thought. The first one believes that in countries with strong
traditions of domestic redistribution and poverty reduction, domestic norms dictate the necessity
to allocate more aid to developing countries for economic redistribution and poverty alleviation.
The second, assumes that foreign aid is just an instrument of foreign policy. He resumes that
between these two opinions there is a middle ground emphasized by strategic development of
(Bermeo model) which consider that donors have interest to maximize both diplomacy and
development. The need orientation is a strategic choice by donors, rather than evidence of norms
and domestic considerations regarding poverty reduction in donor countries. This is because the
economic development of strategic important allies represents a goal for donors and it must be
effective. This indicates to a softer realism, humanitarianism with instrumental reasons attached
to it (Nielsen 2010, pp.3-26).
A study of Dreher et al (2013) describes foreign aid as significantly less effective when aid has
been granted for political reasons. Given that it is granted for political reasons, other than
developmental when the donor is not so much concerned about how the recipient uses aid, it results
in meagre outcomes. However, there are cases when politically motivated aid can have remarkable
results such as Marshall Plan for European countries, South Korea and Japan. In this case, it might
not only curry favor but also help allies recover economically. Foreign aid granted for short-term
geopolitical motives is less effective. In this respect, the aid committed during the time when a
country gets a non-permanent membership in the UNSC is not effective in terms of helping to spur
economic growth (Dreher et all 2013, pp. 5-35).
25

Bermeo (2010) developed the concept of strategic development which implies that foreign aid is
targeted to countries were the benefits for donors are high. These are not necessary the states that
are most in need, but rather those which are important for donor countries due to such factors as
proximity, historical ties, and economic interconnectedness between a particular industrialized-
and developing country. In an increasingly interdependent world wealthy countries are forced to
pursue development abroad. Thus, a developed country interested to improve its own welfare will
concentrate its efforts in poorer countries where the degree of interdependence between them are
high. Strategic interventions also respond to humanitarian goals although not always as it also
depends on the importance of a country for donor.
Strategic development concept also gives an interpretation of different approaches for aid giving.
Poorly governed countries receive a greater percentage of their aid in the form of technical
assistance and through non-governmental organizations. Additionally, in these countries donors
focus more on providing humanitarian assistance and aid for social services. The better governed
countries receive more in form of cash transfers for infrastructure. The more marginalized
countries, some of which already suffer from poverty, are in this way excluded (Bermeo 2010, pp.
1-4).
Nye (2011) analyzed foreign aid and describes it as soft and hard power in the hands of states. The
first category includes the transfer of money, services, ideas, concessional loans
12
and grants which
have the capacity to attract and enforce the dependency of one state on the other. The hard power
represents the use of foreign aid enacted when it is withdrawn, asking the repayment of debts (after
a generous period of giving) or harshening the conditions of aid. It contains an element of coercion
based on asymmetric relation of dependence between the recipient and donor. The purposes for
aid giving by donors are different. For instance US is seen as offering aid for Egypt and Israel,
Pakistan and Afghanistan for security reasons. China increases its aid in Africa to get access to
vast reserves of natural resources and ties its assistance to concession contracts. The new bilateral
donors (China in particular, India, Brazil, Russia) do not follow the OECD aid effectiveness
principles to which the traditional donors have subscribed. Nye doesn`t exclude such cases when
foreign aid can follow humanitarian purposes if it is properly managed and the donors have the

12
To qualify as ODA, a flow must among other things be concessional in character. It must also convey a grant
element of at least 25 per cent (calculated at a rate of discount of 10 per cent). When interest rates are low, it is
easy to satisfy the grant element test.
http://search.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DCD/DAC(2013)2&docLanguage=En
26

interest to provide such kind of help. It must be gradual, to involve participation and allow time
for results to appear (Nye 2011, pp. 32-33).
Finally to conclude, Gilpin`s work (2011) gives a more general explanation of the purposes of
foreign aid. He also finds that foreign aid is given for national security or economic interests, rather
than humanitarian reasons. According to him Robert Keohane and Joseph Nye`s analysis of
political power and aspects of economic interdependence distinguishes two forms of dependency
sensitivity and vulnerability. The first one refers for example to changes in the interest rate in
one country to influence interest rate in another one. The second to the possibility of political
exploitation of market interdependencies. Individual states can have preferences to decrease their
dependence from other states through trade protection and industrial policies, or increase other
state`s dependence using foreign aid and trade concessions. Therefore, international economic
relations are never pure economics, it implies consequences for economic autonomy and political
independence of national societies (Gilpin 2001, pp. 81-93).

















27

Chapter 2
2.1. The overall context of intervention. Macroeconomic situation and development indicators
for the period studied
Since its independence in 1991 from the Soviet Union, Moldova has confronted with a conflict at
its eastern borders when a number of rayons
13
from the region (known as Transnistria) have auto-
proclaimed as an independent state. This conflict had a profound impact on Moldova, from both
political and economic dimensions, as Transnistria held approximately a third of total industrial
production of Moldova and accounted for almost its entire energy production at the time of
breakup. The conflict has also delayed economic reforms, increased the political vulnerability and
internal instability of the country. It amplified the already difficult situation in which Moldova
found itself after the collapse of the Soviet Union to which Moldova`s economy was increasingly
connected, producing a large economic recession that worsened social indicators and raised the
level of poverty (Government 2012, p. 10). Besides the negative effects enumerated above, the
economic crisis in Russia from 1998 has affected severely the economy of Moldova, because its
exports were dominated by agricultural products increasingly dependent on Russia`s market.
Therefore, between 1991 until 2000 due to different factors such as deficient transition from state
planned to market economy model, delay in reforms, vulnerability of Moldovan economy and
complex geopolitical context, it was registered a reduction of GDP by two thirds. The
transformation in which Moldova has engaged also included a series of deep and socially costly
reforms. The liberalization, privatization and stabilization of the economy was marked with
political instability and deep economic recession. Moldova has a small economy which is
vulnerable to external shocks and climate factors because of its poor diversification of exports and
high portion of agriculture in its economy. Between 2001-2005 period Moldova registered high
economic growth with approximately 7% of GDP. In 2005-2006 the country suffered from a
commercial ban from Russia on vegetables and wine. These negative effects have been
complemented by an increase of the prices on natural gas that led to a contraction in growth. By
2008, benefitting from increasing inflows of remittances, its economy grew by more than 8%. But
the progress has been reversed in 2009 when the economic crisis has affected the economy of the
destination countries for Moldovan exports, reduced employment opportunities for workers abroad
and decreased remittance inflows. In 2011 and 2012 efforts were made to stabilize the economy
and reduce budget deficits (Bassiouni et al 2011, p. 1).

13
Administrative unit in some countries from the former URSS
28

The country remains one of the poorest countries in Europe in terms of GDP per capita (PPP) with
3,368 (USD) in 2012 (Table nr. 1 of the Annex).
The implementation of national MDG`s has been a challenging development agenda for Moldova.
After it has committed in 2000 to Millennium Declaration, the country has registered progresses
in meeting most of the MDG`s targets (21 out of the 27 national targets are on track). The most
important improvement was the reducing of the infant and child mortality, while other targets
remained unmet in such areas as education, gender equality, combatting HIV/AIDS and TB, better
access to improved water sources and sewage (Government 2012 p. 10). There is a risk that the
remaining unmet targets could not be achieved by 2015. The Gini coefficient has registered a
slight improvement between the years 2004 - 2010 from 36 to 33 (in a range between 0 and 100).
14

The HDI prospective of Moldova is that it is one of the least advanced in terms of human
development in Europe and among transition countries. It has registered a decreasing level of
human development (HDI) compared with 1990 (0,650), only in 2010 it has registered a moderate
growth to 0,660 (Government 2010, p. 5).
In terms of poverty reduction, basing on the ECA regional poverty line of USD 5/day at PPP, 94%
of the population was poor in 2002, but their number declined to 55% by 2011. The incidence of
extreme poverty (based on the ECA poverty line of USD 2.5/day at PPP) has been significantly
reduced in the same period from 57 to 10%. The national poverty rate fell from 30.2% in 2006 to
17.5% in 2011. The observed poverty reduction has been produced by growth derived from
increasing transfers such as remittances, better employment opportunities and earnings (WB 2013,
pp. 13-14).
Given its European integration aspirations (the signature of Association Agreement) and the
closeness to European Union borders, Moldova can benefit from opportunities emanating from
this new enabling environment, but it also needs to undertake important efforts to manage the
external factor risks which it is confronting due to its vulnerabilities. The involvement of EU in
the resolution of Transnistrian conflict has increased during the last years, particularly after the
EU-Moldova neighborhood policy action plan was adopted. However, the slow progress in solving
the Transnistrian conflict continues to pose a silent threat for further stability and development of
Moldova (UNDAF 2011, p. 1).

14
WDI (WB) data set http://databank.worldbank.org/data/views/reports/tableview.aspx# . For 2011 and 2012
data are not available.
29

During the 2004-2012 period Moldova has promoted active foreign economic relations. It has
concluded free trade agreements with most of the member countries of the Commonwealth of
Independent States (CIS), it is a member of WTO from 2001, joined CEFTA in 2007, and
benefitted from EU`s autonomous trade preferences. In 2013 Moldova and EU sealed the
Association agreement which is expected to be signed at the end of the next year. However, despite
liberalization of the trade regime, the slow pace of reforms has not produced also a viable and
diversified economic structure which would allow it to benefit from opportunities on the new
markets. For the whole period 1991-2012 the imports prevailed over the exports worsening the
trade balance, current account and ration of savings (Table nr. 1 of the Annex). The global
economic crisis has affected Moldovan economy reducing the inflows of remittances, exports, FDI
and ODA, revealing its unsustainable fiscal situation. The resulted unemployment and the pre-
electoral spending in 2009 campaign has only increased the large fiscal gap created. The 2008
crisis has shown the necessity for fiscal consolidation and structural reform on both dimensions:
public revenues and expenditures. Therefore, the efforts of the authorities have concentrated on
improving the taxation administration and rationalization of the expenditures, to redirect more
funds to finance investments and fulfil increasing demands for social assistance (Quehaja 2012,
pp. 3-4). As a consequence, the general government's fiscal deficit decreased from 6.3 % of GDP
in 2009 to 2.1% in 2012 (WB 2013, p. 11). Moldova has recovered from 2008-2009 financial
crisis, severe drought in 2007 and a ban from Russia in 2006 and is approaching the level of middle
income country status with 6, 4 % of growth in 2011. However, this tendency is not sustainable as
in 2012 growth has slowed down to -1 because of lower external demand for its exports and
decreasing remittances
15
. The low amounts of foreign investment in 2008 (12% of GDP) continued
the downward trend from 4% (2011) to 2, 2% of GDP in 2012, while the current account improved
in 2012 from 11, 3% of GDP to 7%. Recently, the authorities have undertaken efforts to improve
the business environment and to make country more attractive for foreign investments. The Global
Competitiveness report for 2012-2013 has reflected a better ranking for Moldova (87 position from
144 states assessed). In 2008-2009 Moldova was ranked 103rd out of 181 countries in the World
Bank Doing Business ranking and for 2014 the rank shows an improvement of 8 positions from
86 (2013) to 78. At the same time, the CPIA average measured by WB reflecting the quality of
institutions has improved from 3 in 2005 to 4 in 2012 from 6
16
. The remittances will continue to

15
WDI (WB) http://databank.worldbank.org/data/views/reports/tableview.aspx
16
Data taken from WDI (WB) dataset http://databank.worldbank.org/data/views/reports/tableview.aspx#
30

play a significant role (approximately 1, 2 billion in 2012), especially considering their effects for
poverty reduction and a source of foreign currency for the state. Improvements in fiscal
performance and growth in 2010-2011 have reduced public and publicly-guaranteed debt from 31
% of GDP in 2009 to 28% in 2011 and in 2012 constituted 23.8% of GDP. The debt percentage is
expected to continue to decrease (State Chancellery 2012, pp. 9-10, State Chancellery 2013, pp.
12-14, EU 2013, pp. 13-14). It is lower than the standard threshold and so far there are no signs
for concerns regarding the debt sustainability. Nevertheless, it should be managed careful, because
Moldova`s public debt servicing remains low. The situation with the private debt is more fragile,
as it was around 44% of GDP in 2009 2011 and is projected to grow over the medium term,
mostly as short term debt (European Commission 2013, pp. 33-34).
As the NDS Moldova 2020 reveals, without a concerted effort to change the development
paradigm, the potential of growth for the next 10 years is limited at maximum 4, 5%-5% annually.
This scenario is based on such assumptions that the labor outflows will be stopped and remittances
will remain at the current levels which cannot be guaranteed at all. Besides the fact that the inflows
of remittances are expected to diminish in the next decade, predictions show this increase is not
sufficient to converge with the comparable countries, even less European levels. Moldova is
penultimate country ranked with countries in the region in terms of GDP per capita at PPP after
Kirgizstan. Another paradigm of development based on exports and investment is necessary which
would allow Moldovan economy to continue to grow (NDS Moldova 2020 p. 6).

2.2. Government`s development priorities
In 2004 the first Poverty Reduction Strategy Paper was succeeded by a strategy for economic
growth and poverty reduction paper. It was built on three pillars: sustainable economic growth,
human development and social protection and inclusion. Deriving from these, the medium-term
objectives were focused on sustainable and inclusive economic growth, poverty and inequality
reduction, increased participation of the poor in economic development and human resources
development (Picard et al 2012, p. 18). The EGPRS was preceded by the signature in 2005 of the
EU Moldova Action Plan which gave a start for reforms to bring Moldova economically and
politically closer to EU. The EU Moldova Action Plan provides the basis for economic integration
contributing to adoption of economic and trade rules and standards to enhance trade, investment
and growth. It has also the objective to support development policies via social cohesion, poverty
reduction and protection of environment. There was a synergy between these two documents.
31

EGPRS reflected European integration priority and was the main planning document, while EU
Moldova Action Plan was seen as guiding more closely the relations between Moldova and the
European community. Before the adoption of EGPRS, the planning process was considerably
complicated by a high number of sectorial level strategies, when Government found itself in a
situation to monitor and report simultaneously on approximately 50 various strategies. By adoption
of EGPRS, it was achieved a more coherent and strategic approach towards development. For
Moldova it was the first experience to elaborate such a development strategy and this caused some
difficulties. The mid-term expenditures framework did not manage to reflect fully the EGPRS
priorities, the progress indicators were broad and the weak administrative capacities have
precluded from obtaining better results in the sectorial level. Also, because of the lack of more
precise progress indicators, it was difficult to monitor more closely the progress and control the
efficiency of spending (Government 2012, pp. 13-15). As a consequence, the EGPRS monitoring
was sporadic, politicized and the results of the EGPRS did not achieve what was proposed. The
program contained an amalgam of different objectives and priority domains which has denaturized
the principle of priority
17
(Sandu 2009 p, 317)
18
. There were lessons to be drawn from this
experience for the next development strategy (NDS 2008-2011). when Government learned to
focus more on cross cutting issues, rather than on policy sector priorities (Government 2012 pp.
13-15). In addition, given the country`s European integration aspirations, it was considered
necessary that the next strategy would incorporate the objectives of the EU-Moldova Plan in a
more holistic way (PPIP p. 2). Therefore, in 2007, the work on the elaboration of the new
development strategy was completed with the adoption of the National Development Strategy
(NDS) for the period 2008-2011.
The NDS has contained practically the same main priorities such as EU integration, reintegration
of the country and socio economic development (long term priorities) and also served as a planning
framework for implementation of the poverty reduction agenda. It highlights several prerequisites:
the macro-economic stability and efficient public administration which are crucial for pursuing
other medium term objectives such as democracy and rule of law, conflict resolution and

17
European integration, economic and social modernization, poverty reduction, territorial integrity, rule of law and
democracy consolidation, private propriety guaranty and stimulation of entrepreneurial activity, stimulation and
improvement of the investment climate, adjustment of the fiscal budgetary, monetary and lending policies with
the norms and standards of the European Community, respect of minority rights, ensuring the individual rights and
liberties, equality of chances and increase the family and citizen security etc.
18
Maia Sandu, from 2012 Minister of Education was the person in charge at that time within the Ministry of
Economy for the process of elaboration of the EGPRSP 2004-2006.
32

reintegration of the country, competitiveness improvement, development of human capital,
inclusion and improvement of employment level and regional development. NDS was made
operational through action plans developed by line ministries and consolidated by State
Chancellery into a single Annual action plan besides Government`s activity and economic
stabilization and recovery plan (elaborated after 2008 crisis). An MTEF is developed for financial
planning which connects it with the annual Government budget (PPIP 2010, p. 2).
NDS did not include any reference about industrial policy as the previous EGPRS
19
has done, or a
mention of development bank, export promotion and import substitution which is a sign of a more
developmentalist approach of the Government. It has resumed economic development to efforts to
remove the constraints for private sector activity such as rule of law, building the necessary
infrastructure, ensure the access to finance and markets, support for development of SMEs,
improve the quality of human capital etc. which leads to the conclusion that it does not give any
solution for a timely economic catch-up of Moldova, rather this process is entrusted to the market
forces (Girbu 2010, p. 18). NDS was criticized also that it did not include climate and
environmental changes within its priorities, despite the environmental challenges which it is
confronting periodically (the most severe drought in the last decades occurred in 2007), with
significant negative impact for economic and social development of the country. The budgetary
processes improved and NDS was better assessed in terms of costs of implementation than EGPRS.
However, its quality suffered from weak administrative capacities to formulate priorities and
conduct their cost benefit analyses. Additionally, the proper implementation of the strategy was
impeded by the severe consequences of the economic crisis and the political instability from 2009
to 2012. For successful implementation, it had to survive political changes in the Government in
order to have a significant impact on development. However, despite the fact that the new coalition
endorsed the NDS, it has not undertaken concrete steps to fully implement it
20
.
The new Government activity plan
21
and Economic Stabilization and Recover Programme (ESRP)
for the period 2009-2011 guided most of activities of the new political leadership, until the new
national development strategy was adopted in 2012 (Government 2012, pp. 13-15). The ESRP

19
EGPRS pp. 81-86
20
As in the case of EGPRSP there is no final evaluation of NDS for the whole period 2008-2011 and monitoring was
carried only to track the achieving the progress indicators for the first and the last year of implementation. No
attempts were to assess the results of its overall implementation in terms of development.
21
Activity Program Government of the Republic of Moldova European Integration: Freedom, Democracy, Welfare
2011-2014.
33

appeared as a measure to address the consequences of the economic crisis, to stabilize and optimize
public finance, economic recovery and ensure social protection schemes. It derives its priorities
from NDS, selecting specific objectives namely reducing government expenditures, ensuring
efficient public spending and increased revenues to create conditions for implementation of
structural reforms. These reforms constitute the basis for a long term policy framework aiming
modernization. Giving the limited resources for the wide range of interventions, it required a
prioritization to receive an external support and therefore, another document was formulated
Rethink Moldova 2010-2013 and presented to donors in March 2010 in Bruxelles. It is based on
five pillars: European integration, economic recovery, rule of law, administrative and fiscal
decentralization, and the reunification of the country. The priorities reflected those already fixed
in several planning documents such as Government program
22
, ESRP, NDS, EU Moldova Action
Plan and PCA. The costs were estimated at 3, 6 billion of which 1, 1 were already committed by
donors leaving a gap of 2, 5 billion (PPIP 2010, pp. 5-6). Moreover, after the finalization of the
EU-Moldova Action Plan, new steps to establish a new cooperation framework with EU have been
undertaken, and only in January 2010 Moldova and EU negotiated the Association Agreement
sealed in November 2013 (which contains visa liberalization regime and Deep and comprehensive
free trade area (DCFTA). This new agreement establishes a higher level of cooperation for a longer
period of EU integration agenda.
Another long term development target to which Moldova has committed, MDGs, were included in
all its development strategies. The progress targets have been fixed for 2006, 2010 and 2015. The
periodical monitoring reporting of the indicators was carried biannually and after 2007, once in
two years, a national MDGs report was elaborated. An evaluation of the costs has been made to
assess the human and financial resources necessary to implement MDGs which allowed the
Government to allocate its resources and to attract external support for their realization
(Government 2010, p. 6).
In 2011 the Government has elaborated a new development strategy Moldova 2020 National
Development Strategy. The Strategy prioritize state interventions to achieve the goal of qualitative
economic development and poverty reduction. The NDS includes measures to reduce inequality
and address crosscutting issues such as social inclusion and gender equality, environmental
preservation, climate change and disaster events, and reintegration of localities from the left bank


34

of the Nistru River (Transnistria) (WB 2013, p. 8). It has 7 priorities: aligning the education system
to labor market needs, increasing public investments in the national and local road infrastructure,
reducing the financing costs by increasing competition in the financial sector and developing risk
management tools, improving the business climate by streamlining the regulatory framework and
applying information technologies in public services, reducing the energy consumption by
increasing energy efficiency and using renewable energy sources, ensuring financial sustainability
of the pension system and increasing the quality and efficiency of justice and fighting corruption
(Government 2012, pp. 13-15). As in previous cases, the strategy addresses major constraints
revealed by cost-analysis exercise
23
. Given that most of them were not eliminated, it has
reformulated priorities, although slightly changed to a new context, for continuing the work done
and adopted adjustments in strategic views that occurred. For the new NDS, the major leftover is
agriculture which continues to play a significant role in the Moldovan economy (its share in
exports is 50%) and were Moldova retains some comparative advantages. Moreover, it is a first
such long term strategy intended at the conception phase to align the budgetary and policy
framework with that of EU`s. Therefore, it relies heavily on external financial support and is
dependent to changes in political landscape. This aspect complicates a consistent planning of costs
associated with the implementation of policy priorities. Moreover, there is no guarantee that a
change in political leadership will not preclude its further realization, as it happened with previous
NDS. Given that this strategy has been enacted only in 2012, the results of the implementation of
the policies and the degree of alignment of foreign aid are not available yet. Thus, I will use as a
landmark the previous strategic documents adopted.

2.3. Donor`s assistance priorities
The last decade has witnessed a significant increase of the number of donors active in Moldova
which now exceeds thirty
24
(State Chancellery 2013, p. 16). The priorities of foreign aid can differ
depending on the degree of specialization, mandate of activity and donors foreign policy interests
(bilateral donor). There are various agencies and institutions, multilateral such as IMF, WB, UN

23
The first constraints analysis for economic growth was carried by MCC Moldova
http://www.hks.harvard.edu/fs/drodrik/Growth%20diagnostics%20papers/Moldova%20CA_Bozu,Caragia&Gotisan
.pdf and since then, it provides a guidance for the adoption of each major national development strategy. For NDS
Moldova 2020 - http://www.mec.gov.md/docs_news/report-on-analysis-of-constraints-to-economic-growth.pdf
24
At the same time, some donors have resumed their activities. One example in this respect is DFID which phased
out its activities after 2009. It is expected that with increasing of the income per capita and/or foreign policy shifts
others will follow (such as USAID, Netherlands etc.).
35

institutions, IFAD, EU, international/regional banks EIB, CEB, EBRD or bilateral actors like Sida,
USAID, MCC, China, ADA, SDC, Romania and others. However, despite of an apparent diversity
in priorities, there is a particularity which makes their approach to have something in common. A
program with IMF (Memorandum of Economic and Financial Policies) and adoption of Poverty
Reduction Strategy Paper (PRSP) of WB
25
is a prerequisite for beneficiary country in order to
obtain increased support from other donors
26
. In spite of different priorities for their activities
dictated by various interests, most of donor`s aid is related with the adoption by developing country
of these two documents
27
. The IMF Memorandum focuses on policies to address fiscal imbalances
for macroeconomic stability and introduce necessary structural adjustment, while WB PRSP
poverty reduction efforts are oriented to ensure a market oriented economic growth based on
production and trade and establishing sustainable social programs (social protection, education,
health system etc.). The loans under this programs are conditional on accomplishment of a series
of policies reflected in IMF Memorandum and PRSP with concrete action plans (IMF, WB policy
matrix). Other documents which guide the activities of the EU member countries aid and influence
other donors agenda are the agreements with EU (Partnership and Cooperation Agreement, EU-
Moldova Action Plan and recently sealed Association Agreement with EU). In this respect, the
Government is implementing the policy conditionality fixed in special Action Plans reflecting the
objectives from the Agreements, before receiving the tranche according to a certain financial
schedule
28
. Moreover, another document to which Moldova has committed are MDG`s, reflected
both in the national development strategies and donor`s (especially in the UN agencies priorities
centered on the human development concept). Currently, there are many disputes to what extent
the reform agenda is actually owned by beneficiary country and it is not introduced from outside

25
Washington Consensus institutions are well described by Dani Rodrik`s work Goodbye Washington Consensus,
Hello Washington Confusion?
http://www.hks.harvard.edu/fs/drodrik/Research%20papers/Lessons%20of%20the%201990s%20review%20_JEL_.
pdf
26
Moldova seems to opt for a stand by relation with IMF and does not need any more funds from IMF. This
arrangement will allow to continue to receive foreign aid from other donors http://unimedia.info/stiri/moldova--
pe-stand-by-in-relatia-cu-fmi-leanca-ne-descurcam-deja-si-fara-sprijin-financiar-63289.html ,
http://unimedia.info/stiri/filat-cifrele-arata-ca-nu-mai-avem-nevoie-de-finantarea-fmi-54485.html
27
This type of information is unofficial. Nowhere it is specified in donor`s strategies that they condition their
support with entering into program with IMF and WB. This observation is based on my own experience in aid
coordination at Ministry of Economy and State Chancellery. Moreover, it is also confirmed by the record of the
2002-2003 years when Moldova has interrupted its relations with these institutions (IMF assistance and budget
support from WB) and by the recent declarations of the Prime ministers Vlad Filat and later Iurie Leanca (the
articles above are in Romanian)

36

by means of donor`s agencies. Given the precarious situation of the many developing countries
which are running a constant budget deficit and have a constant need of aid injection in their
budget, and the weak donor driven civil society
29
(which otherwise should play the role of a
watchdog
30
), the donor organization are advantaged in their negotiations with the developing
countries. The support of many donors is constantly mentioned in donor`s and Government reports
as well aligned with the country development strategy. However, this does not take into account
that the national strategic planning document can be influenced at the design stage and that donors
could choose to support only those activities which are in line with their own priorities, leaving
other sectors without attention (so-called orphan sectors). For instance, the World Bank is given
as an example of support which was best aligned with PRSP priorities, but this perhaps can also
be a consequence of the fact that the national development strategy was developed being
influenced by WB`s PRSP approach specially to guide the Bank's assistance in Moldova (Sandu
2009, p. 318)
31
. A short description about the aid priorities of the major donors active in Moldova
fixed in their development cooperation strategies (where is the case country strategy papers), or
otherwise in agreements, protocols and/or the facto activities under implementation in Moldova,
will provide more details about the specific of their work.
The EU is the major donor and is also performing the most complex set of aid activities in
Moldova. EU`s assistance has increased by 5 times in the last 6 years from 25 million in 2006 to
122 million Euro in 2012 and represents the highest level of support for a country in the European
neighborhood (State Chancellery 2012, pp. 10-12). The legal framework for cooperation was
established in 1994, when Moldova signed with EU for an initial period of 10 years a Partnership
and Cooperation Agreement (PCA) entering into force in 1998. The PCA provided a general
framework for development of economic and political relations, trade and investment social and
cultural cooperation. The 2004 enlargement led to a reconsideration of the EU foreign policy which
became more engaged in its neighborhood. Another agreement EU Moldova Action Plan (2005-
2008) was concluded and provided a framework for EU activities in Moldova. In 2007, EU
elaborated a special policy towards neighborhood countries European Neighborhood Policy (ENP)

29
USAID country development cooperation strategy 2013-17 p. 15 http://www.usaid.gov/results-and-
data/planning/country-strategies-cdcs
30
Orysia Lutsevych, How to Finish a Revolution: Civil Society and Democracy in Georgia, Moldova and Ukraine pp.
3-6 http://www.chathamhouse.org/publications/papers/view/188407
31
I will refer more thoroughly about this in the chapter regarding alignment of the donor`s aid to national priorities
37

and an Action Plan. The ENP was developed with the objective to avoid dividing lines in the
continent and contribute to security, stability and prosperity. The ENPAP defines more concrete
areas of cooperation such as political dialogue and reform, settlement of the Transnistrian conflict,
economic, social, market and regulatory reforms, cooperation in justice and home affairs and trade,
transport, energy and environment, people to people contacts related issues. Even if at the first
sight it seems that its focus is development cooperation, in fact, it can serve also other purposes.
ENP is a key EU foreign policy strategic for addressing the objectives fixed in its Security Strategy
(Spruds et al 2008, pp. 4-9). The Country Strategy Programme (CSP) objectives for the period
2007-2013 are to tighten the relationship between the EU and Moldova, contribute to resolution
of the conflict in Transnistria, and to promote economic growth and poverty reduction in
accordance with PCA, EU Moldova Action Plan and ENPI (NIP 2011-2013, pp. 4-5). In addition
to this, the National Indicative Programme (NIP) (2011-2013) has an envelope of 273.14 million
Euro assistance
32
and will focus on such areas as good governance, rule of law and fundamental
freedoms
33
(ibid, p. 12).
During the period 2004-2012, besides the ENPAP instrument providing annual sector budget
support, other assistance priorities of EU in Moldova also included the global thematic Food
Security Programme (FSP) (from 2002 - 2006 around 30 million Euros) which allocated budget
support grants to improve government capacity to formulate and implement reforms, to reduce
poverty and ensure food security. The budget support was complemented by technical assistance
to improve the administrative capacities. The allocations of budget support were conditioned by
progress in adopting structural adjustments and social system sector reforms (Pot et al 2010, p.
36). Another humanitarian programme was an aid of 3 million Euro in 2007 under Drought
recovery, project focused on most affected regions. The macro-financial assistance programme
compensated the increase of energy prices (2007-2008) comprised 90 million Euro was used also
to mitigate the negative effects of financial crisis (2011-2012). The multi-country EU cooperation
instrument TACIS grants
34
and from 2007 CBCs
35
involved interventions scaled at national

32
Mainly technical assistance and budget support grants. Technical assistance, budget support, macro-financial
and humanitarian assistance represents grants.
33
71% for rule of law, human rights and security, public administration reform, facilitation of new EU-Moldova
Agreement), social and human development (11% for social protection, health system reform, labour market
reform and education) and trade and sustainable development (18% for facilitation of DCFTA, regional and local
development, environment and energy efficiency/renewable energy and diversification.
34
Mainly technical assistance for national for regional and cross-border components
35
Technical assistance and investment projects
38

regional, sub regional or cross border level to complement national development cooperation
strategies. It has supported institutional, legal and administrative reform, the private sector and
assistance for economic development and addressed the social consequences of transition. The
issues aimed under this instrument have a trans-border character such as border management and
trafficking, environmental, transportation issues and energy corridors. The regional cooperation
was enabled in three domains: networks (INOGATE oil and gas infrastructure, TRACECA
(technical assistance and investment in railroads, roads and ports), environment (education and
awareness rising and policy making support in water, biodiversity, forests, climate change issues)
and justice and home affairs (JHA border management for preventing drugs, smuggling, crime and
terrorism, migration and asylum). Another priority for EU development cooperation represents the
Transnistrian conflict. The most significant support in this respect is EU Border Assistance
Mission (EUBAM), EIDIHR instrument to support the civil society organizations work in the areas
of justice, freedom and security, economic development (CSP 2007-2013 p. 11, MacKellar et al
2007, pp. 138-148). Recently another programme developed was Democracy support and
confidence-building measures (Instrument for Stability) with a budget of 18 million Euro
committed and 28 million Euro planned
36
. Other forms of assistance included efforts to increase
institution`s capacities using Twinning projects
37
, TAIEX
38
, while SIGMA supported central
public administration reform, modernization of public procurement and public internal control
systems. The European financial instruments EBRD
39
, EIB and CEB are providing support in loans
for infrastructure
40
, technical assistance, financing sustainable energy (20 million EBRD), finance
credit lines for private sector (34 million EBRD), rehabilitation of power networks
41
and social
infrastructure
42
(State Chancellery 2012 pp. 10-12, State Chancellery 2013, pp. 25-29).

36
EU - Moldova relations: basic facts http://eeas.europa.eu/delegations/moldova/eu_moldova/index_en.htm
37
8 in implementation in 2012; 3 completed in 2012, 4 launched and 5 projects in the preparation stage
38
87 events for 1244 civil servants
39
A brief on EBRD activities can be found here
http://www.ebrd.com/downloads/research/factsheets/moldova.pdf
40
Roads rehabilitation, maintenance and building 75 million Euro (EBRD), municipal infrastructure of 11 million
Euro by EBRD
41
SA Moldelectrica EBRD/EIB 52,6 million Euro
42
Rehabilitation of the Republican Hospital and housing project for socially vulnerable people 33, 7 million Euro
financed by (13, 4 million Euro by CEB), Neighborhood Investment Facility (NIF) and own sources (Government).
39

Since 1993, Moldova had had a series of agreements with IMF for economic adjustment
programs
43
. After the Government has submitted to IMF and WB the elaborated EGPRS (2006) a
3 year IMF Poverty Reduction and Growth Facility was agreed. The main objective of the
programme was to maintain macroeconomic stability and improve the performance of financial
sector. Its implementation was reviewed 4 times and expired without disbursement of the 5th
tranche. After the financial crisis, Moldova has confronted with a difficult situation of worsening
of the fiscal situation and lack of access to international capital markets. Therefore, in 2010, a loan
was approved under the Extended Credit Facility and the Extended Fund Facility (ECF/EFF) with
a combined financial assistance of around 574.4 million USD to support the countrys economic
program. An amount equivalent to 60 million USD was made available immediately, while the
rest of funds was contingent to semiannual reviews (Qehaja 2012, pp. 19-23).
The World Bank's Country Assistance Strategy (CAS) for 2005-2008 focused on 3 priorities:
reducing poverty by promoting economic stability, growth, and employment, improving access to
social services and minimizing environmental risks, and improving governance and fighting
corruption. The CAS budget was between 90 million and 137 million USD (European Commission
2013, pp. 35-36).
From 2009 2012, the WB has offered concessional lending around 123 million Euro with a
disbursement of 84 million Euro and additional 19, 5 million were provided by Trust Funds
administered by WB. The three major areas of support intended an improvement of economic
competitiveness, minimizing social and environmental risks and building human capital and
promoting social inclusion and improving public sector governance (European Commission 2012
pp. 28-29). It also established a support for localities from both banks of the Nistru River (WB
2013, p. 8). The CPS 2014 2017 will help Moldova to benefit from the openness and integration
in EU and in the global market. The first priority aims to increase competitiveness through
continued institutional reforms for friendly environment business and governance, access to
finance and transparency in the financial sector and improved competitiveness. The second refers
to improvement of human capital and minimizing the social risks. It envisages also a support for
improvement of education and health sector outcomes and strengthening the social protection
schemes. The third will promote a green agenda and improve natural resources management and

43
Compensatory and Contingency Financing Facility (CCFF), Systemic Transformation Facility (STF), Stand-by
arrangements (SBA), Extended Fund Facilities (EFF), Poverty Reduction and Growth Facilities (PRGF), and (after
2009) Extended Credit Facility (ECF).
40

ensure sustainable development (ibid, p. 18). The World Bank portfolio
44
was broad, covering
almost every sector with demonstrated highest concentration in infrastructure, human development
and rural development. Additionally, WB has administered around 70 million USD multi-donor
Trust Fund portfolio which provided co-financing for IDA activities in areas like GEF and carbon
operations, Regional Development TF and Public Administration reform. (State Chancellery 2012
pp. 10-12, State Chancellery 2013, pp. 25-29).
The UN Development Assistance Framework (UNDAF) (2013-17) guiding the assistance of all
UN institutions active in Moldova
45
focuses on three broad thematic pillars: democratic
governance, justice, equality and human rights, human development and social inclusion, and
environment, climate change and disaster risk management. The first envisages to strengthen the
institutional capacities on both central and local levels (regional development) for good
governance by attracting international expertise to assist them. The second promotes principles
such as human rights and democracy, ensure equity by improving the social services delivery and
advocating for more inclusive opportunities for people. The third aims to ensure sustainable
development, help authorities to better manage the risk hazards and adapt to climate change
(UNDAF 2013-17 pp. 12-13). The current UNDAF main priorities do not differ significantly from
the last one
46
(2007-2011) (State Chancellery 2013, pp. 25-29).
The U.S. Government has a regional approach towards countries in Eastern Europe (Joint Regional
Strategy (JRS) 2014-2016 for Europe and Eurasia) with a declared goal to contribute at the
consolidation of peace and stability. The main objectives in this respect to help to achieve this
outcome are more effective and accountable democratic governance and increased broad based
trade and investment. Traditionally, US Government was a significant donor for Moldova
providing one of the largest share of bilateral aid which Moldova receives. US assistance is
delivered through programs implemented by the US Embassy in Chisinau, USAID, distinct
agencies and state institutions and MCC. The US Embassy and USAID grant assistance supported
democratization, rule of law, corruption fighting, trafficking, media and non-governmental
organizations development, improving the business climate in Moldova and helping the country
diversify its export (State Chancellery 2012 pp. 10-12, State Chancellery 2012, pp. 25-29). Derived

44
WB portfolio has around 12 projects with commitments at around 300 million USD in the period 2011-2012
45
Mostly technical assistance
46
In 2011 contribution of UN agencies totaled 23 projects with an estimated budget of 63.8 million USD and
increased to a number of 98 projects amounting to about 50.5 million USD. The UN institutions are implementing
donors and most of their funds are fundraised from such donors as EU, Sweden, Denmark and Romania etc.
41

from its regional approach, the USAID country strategy (2013-17) asserts that that democratic and
economic gains are closely and inextricably related. Thus, the first objective intends to develop
more effective and accountable democratic governance by improving judiciary and law
enforcement bodies, increasing local government capacity and capacity of civil society to deliver
high quality public services, transparency in policy formulation and building the capacities of
governmental institutions to react on increasing social and economic pressures. The second
objective aims to increase investment and trade in targeted sectors by helping to diversify the
export and increase the investment base, introducing structural, regulatory, policy-level necessary
to ensure friendly environment for business, increasing foreign and domestic investment and of its
competitiveness focusing on the most promising economic sectors. The improved economic
opportunities are expected to grow incomes, provide more jobs and increase the quality of life
(USAID CDS 2013-2017, pp. 10-12). MCC provided grant assistance for agriculture development
(transition to high value agriculture project) and road rehabilitation. Before to be eligible for MCC
full-fledged Compact grant assistance, Moldova has undertaken reforms under the Treshold
programme supporting policy and institutional reforms. During 2011-2012 year, an overall
number of 25 grant projects financed by US Government were under implementation with a budget
of around 280 million Euro in such sectors as agriculture and rural development, health,
governance and civil society, justice, private sector development, education, etc. (State
Chancellery 2012, pp. 10-12, State Chancellery 2013, pp. 25-29).
Other most significant donors include Sweden which is the largest European bilateral donor to
Moldova and provides around 100 million SEK in grants per year (in 2012 it has increased with
10% to 110 million SEK). Sweden`s implementing agency is Sida with priority activities that
include democracy, human rights and gender equality (strengthening civil society and public
administration capacities, transparency, accountability and anti-discrimination), sustainable
infrastructure (energy efficiency and the spread of sustainable energy alternatives, where it is the
lead donor) and confidence-building measures that target Transnistrian conflict resolution. Sida is
also providing technical expertise to support institutions to harmonize national legislation with
EU`s in the energy sector, implement environmental standards (sewage treatment and waste
management) and market development by supporting transition of micro enterprises to new EU
regulations (Sweden SDC 2011-2014, pp. 4-8, State Chancellery 2012 pp. 10-12, State
Chancellery 2013, pp. 25-29). Germany is offering through GIZ technical assistance grants for
structural reforms (consultancy at the central level), improvement of local infrastructure in
42

Moldova and financial assistance for private sector (KfW). The other areas of intervention are
agriculture, education and regional development with 5 projects amounting to about 12.9 million
Euro in 2012. The German development cooperation has a tendency to increase. In 2013 it has
totaled about 19 million Euros in technical assistance allocated for implementation of
infrastructure projects in the countrys development regions (divided in North, Center and South)
and Transnistria. Austria`s development agency (ADA) and Government of Switzerland through
SDC allocate grant assistance for infrastructure water and sanitation (ADA, SDC) and social
services such as: vocational training in rural areas, capacity building in public administration,
conflict prevention and reintegration of returning migrants (ADA), public health (ADA, SDC)
with around 10 projects of 16, 6 million Euro and 3 projects of 14 million Euro. Denmark provides
assistance for young entrepreneurs in rural areas (4, 5 million) and makes financial contributions
to Trust funds managed by Sida and UN agencies (State Chancellery 2013, pp. 25-29, State
Chancellery 2012 pp. 10-12). Another bilateral donor is Romania, which besides its bilateral
assistance of around 1 million (grants for agriculture, health, good governance, education and
media) and allocations offered using the UN system (for local development, social protection, civil
society development and human rights), has committed to offer Moldova in 2010
47
a grant of 100
million Euro
4849
. The education sector (schools and kindergartens) will receive 20 million
50
. In
the recent period China emerged as a donor for Moldova allocating grants for specific domains
chosen by Government on annual basis (through signed protocols). The Chinese aid is tied to goods
and services and reflect both parties commercial interests. China is interested in commercial
opportunities for its investments which Moldova offer having access to both EU and CIS markets.
Moldova relies on Chinese market for export of its agricultural products (especially wine) attracted
by the growing potential of it. A loan offer of around 1 billion was declined
51
. Later another credit

47
Romania to grant Moldova 100 million euros http://www.allmoldova.com/en/moldova-
news/economics/1249046149.html
48
The pledge was not honored with the exception of 7 million Euro humanitarian aid offered for mitigations of
floods consequences in 2010. Only recently, new arrangements were signed to extend the effect of the grant
agreement and to decide the destination of the remaining funds.
49
Valentin Lozovanu ODA cooperation between Romania and R. of Moldova http://www.crpe.ro/en/the-
acceleration-of-delayed-cooperation-analysis-of-the-relationship-regarding-development-assistance-between-
romania-and-moldova/ ; http://www.crpe.ro/wp-content/uploads/2012/09/Policy-Brief-nr.-8-mai11-Romania-
Moldova.Accelerarea-unei-cooperari-intarziate.-Analiza-cadrului-relatiilor-de-asistenta-pentru-dexvoltarea-dintre-
Romania-si-Republica-Moldova.pdf
50
http://www.gov.md/libview.php?l=en&id=7142&idc=436
51
Valentin Lozovanu China becomes a new player on the Moldovan stage http://www.isn.ethz.ch/Digital-
Library/Publications/Detail/?ots591=0c54e3b3-1e9c-be1e-2c24-a6a8c7060233&lng=en&id=121699
43

agreement of around 62 million USD for road rehabilitation
52
has been agreed. In 2011 Moldova
and China have signed a grant agreement on economic and technical cooperation of 9.5 million
USD for a domain which will be identified during further negotiations. Other 6, 6 million Euro
were allocated in 2012 for equipment and IT for traffic monitoring system (State Chancellery 2013,
pp. 25-29, State Chancellery 2012 pp. 10-12). Other smaller contributions from bilateral donors
include grants offered directly or using other donor systems (Trust funds managed by WB or UN
programs) by Japan, Poland, Slovakia, Hungary, Czech Republic, Holland, Liechtenstein, TIKA,
Norway, Latvia, Estonia etc.

2.4. The institutional framework of foreign aid management
The institutional framework has a significant role as it determines how efficient and optimal
national institutional framework is to implement projects financed with the support from donors.
Historically the planning coordination and evidence of external assistance was divided between
the Ministry of economy (technical assistance) and Ministry of finance (financial assistance), and
occasionally Ministry of Foreign Affairs. This arrangement was characterized by a series of
deficiencies: poor evidence of the assistance (especially technical assistance), uncoordinated
support requests from authorities, weak linkages with national planning strategies. In 2005 the
national institutional framework has been modified. A national Committee for external assistance
under the leadership of Prime-minister was established together with a section for aid coordination
within the Government Apparatus. The Committee was charged with strategic policy functions in
coordination, planning, monitoring and evaluation of foreign aid including the ability to approve
and send requests for assistance. The technical and financial coordination has remained at the
level of these two ministries (MoE and MoF). The sector level involved a dialogue with the donor
organization through special ministerial committee meetings. The new arrangement has solved
only partially the deficiencies in coordination, because the delimitation of functions between these
3 institutions continued to be ambiguous, while the capacities of the aid coordination unit created
were limited.
53
After the inauguration of the new Government in 2008, a new structure was
approved which has combined the functions of policy coordination with foreign aid. All policy

52
Tadeusz Iwaski Ukraine, Belarus and Moldova and the Chinese economic expansion in Eastern Europe
http://www.isn.ethz.ch/Digital-Library/Publications/Detail?lng=en&id=144470
53
Until 2008 this unit had only 3 persons. Later it was extended to 5 and only in 2012 after reorganization the
Division`s personnel has significantly increased.
44

responsibilities regarding aid coordination were transferred at the level of Government Apparatus.
At the same time, the ministries were left only with sector coordination or in the case of the
Ministry of Finance financial aid management. This fusion intended to ensure a better alignment
of the foreign assistance with national priorities. During this time, the technical capacities of the
strategic planning policy and aid coordination division increased, but still were not enough to
increase its effectiveness and alignment with the national policies. Moreover, the increasing calls
for accountability, transparency and national ownership of foreign aid led to attempts to bring more
stakeholders in the policy process. Despite this, the pursuit to combine the functions of the
National committee of foreign assistance with those of the National participation council have
failed and the involvement of the civil society in the dialog concerning foreign aid was quite
limited. Moreover, the national aid coordination system was plagued by excessive centralization.
The purpose of establishing of the new division was to improve the external and internal
coordination mechanisms, determine the necessities at the macro level and promote the
harmonization agenda, but not to replace the work of the ministries and specialized agencies. The
overview over the degree of efficiency of the projects, their coordination and alignment with sector
priorities can be best performed only at the level of ministries and relevant governmental agencies.
Therefore, the increasing of capacities in these institutions will be essential for an improvement of
the efficiency and efficacy of foreign aid. In order to improve the donors` coordination and inspired
by global initiatives related with aid effectiveness, a group of donors has signed with Government
a Partnership Framework for development in 2006. An action plan was elaborated and a
Secretariat for supporting the implementation of the document was created
54
. Nevertheless, its
implementation was not realized and the Secretariat financed by UNDP has been active only
several months (Sandu 2009, pp. 324-325).
From 2010, the normative framework and institutional setting for aid coordination was ensured by
the Regulation regarding the institutional framework for coordination of the external assistance
provided by international organizations and donors for Republic of Moldova
55
. The Government
Decision establishes a high political forum the Common Partnership Council for coordination of

54
The Action Plan required elaboration of a mechanism of data collection about the foreign aid, exchange of
information between Government and donors and improvement of the normative basis, elaboration of Sector
Wide Approaches Programs and common programs, projects and programs TORs, audit standards, trainings, and
dissemination of information and analytical reports.
55
G.D. #12 on 19 January 2010 regarding the institutional framework and mechanism of coordination of external
assistance given to Moldova by international organizations and donor countries (version available in Romanian and
Russian) http://lex.justice.md/index.php?action=view&view=doc&lang=1&id=333522
45

aid effectiveness and sector councils of external assistance which is an advisory body that reflects
the partnership between government, civil society, private sector and development partners.
(OECD/UNDESA 2010, pp. 3-4). Another body, the Inter-ministerial Committee for strategic
planning was enacted with functions of coordination of policy and resources planning with the
involvement of all national stakeholders (State Chancellery 2012, p. 87).
The State Chancellery
56
is the main authority for coordination of external assistance. The
Department of coordination of policies, external assistance and central public administration
reform is performing the functions of national coordination unit and is responsible for elaboration
of strategic programmes and policies, and coordination of all the external assistance on behalf of
the Government of Moldova. The NCU`s main mission is to ensure that foreign aid is aligned with
the national priorities and to monitor and evaluate the effectiveness and efficiency of received aid.
Other functions include efforts to improve transparency, ensure record keeping, coordinate with
other national institutions and donors in order to improve aid coordination and improve the
absorption capacity (ibid, p. 47, State Chancellery 2013, p. 10). Additionally, NCU provides
necessary support for efficient operation of the Inter-ministerial Committee for Foreign Assistance
Coordination; carries negotiations with the donor community; provides support in elaboration and
negotiations of the sector government contracts; identifies new financing resources, provides
assistance for formulation of the new projects by national authorities, or participates at the
elaboration of the design of future operations of donors when it is involved by donor etc. (Gaibu
et al 2011, pp. 34-35).
In 2010, the Government following a consultative process with development organizations agreed
a Development Partnership Framework for Coordination and Harmonization of Government and
Donor practices of aid effectiveness in Moldova. This initiative was influenced by global processes
concerning the efficiency of aid
57
was quite similar with the first one and provided a set of rules
to guide donors and Government activity. Twenty one donors have signed the Partnership
Principles with its Implementation Plan based on five principles highlighted by Paris Declaration:
ownership, alignment, harmonization, results and mutual accountability. The PPIP is organized
around four key issues: strategic planning and alignment with national priorities, improving
national systems and increase use of these by donors, improving coordination and harmonization

56
Former Government Apparatus, in 2009 it was renamed in State Chancellery
57
Monterrey Consensus (2002), High Level Forum on Harmonization from Rome (2003), Paris Declaration (2005),
Accra (2008) and the adoption by European Union countries of the EU Consensus for Development and a Code of
Conduct on the Division of Labor in Development Policy in 2007.
46

between donors and Government and improving communication, transparency and information
sharing (PPIP 2010, pp. 9-10). The realization of activities from PPIP was expected to improve
the efficiency of use of resources for realization of the Government priorities and development
targets set in the NDS for 2008-2011 and ESRP for 2009 - 2011. However, the PPIP emphasis is
placed mainly on the modality of cooperation between the Government and development partners
and does not specify a set of specific development results. Moreover, there are no strong time
limits for PPIP (though there might be some timeframe objectives). PPIP will be reviewed
regularly by all of the stakeholders (OECD/UNDESA 2010, p. 2).
Another document guiding the EU institutions and member countries aid is the EU Code of
Conduct in providing Development aid which intends to introduce a better coordination of donor`s
work through complementarity and division of labor between EU donor countries, including the
EU`s own assistance. It also attributes different roles that Development Partners might play in one
sector lead, active or silent partner. Moldova has been selected to be a pilot project for the
exercise of fast track donor`s division of labor and an operational framework was elaborated. The
adoption of Code is to avoid duplication of donor`s missions, concentration of donors in the same
sector (leaving orphan domains), harmonization of donor`s requirements, conditions,
procedures, avoid duplication and lower the transaction costs which are limiting the impact of aid.
A matrix with an Action plan was added with progress indicators for monitoring by a special forum
of donors and Government Harmonization group. The EU Code of Conduct suggests that donors
should focus on no more than two sectors and no more than 3 donors per sector. However, despite
that it has been already for some time in place, there is no assessment of the progress of the
implementation of its principles. Moreover, as the mapping exercise of donor`s activity against
NDS strategy priorities has shown in 2010, many partners are involved in more sectors than the
Code indicates (PPIP 2010, pp. 3-27). As the evaluation report of external assistance 2012 of the
State Chancellery shows, the presence of the donors is still fragmented across sectors (UN 9, EU
8, WB, Germany - 6). This situation is posing difficulties for efficient coordination and
achievement of specific results (State Chancellery 2013 p. 17). Besides the more formal
mechanism of coordination there are also regular monthly donors meetings. The secretariat of the
donor`s meeting is exercised by UN and the key purpose is the information sharing. Another
coordination mechanism exists between the EU countries chaired by the EU Delegation (PPIP
47

2010, pp. 3-27). Another more technical level was established at the sector
58
level, where
ministries monitor, evaluate and coordinate the process and supply with proposals the Inter-
ministerial strategic planning Committee and Common Partnership Council. The Sector foreign
assistance boards (also called sector coordination boards), include an advisory body with
representatives from Government, donors and civil society (including the private sector) (PPIP
2010, p. 24). At the regional or local level, institutional framework of aid management is exercised
by the Ministry of Regional Development and Constructions, as the authority in charge with
elaboration and implementation of the regional development policy. Regional development
agencies were established (North, Center, South and other to be set in Chisinau, ATU Gagauzia,
and Transnistria) to manage regional and local development and attract and coordinate support
from foreign aid. A National Fund for Regional Development (NFRD) is financed from internal
resources (1% of the state budget revenues) and external funds provided by some donors such as
DFID, GIZ (Gaibu et al 2011, pp. 30-31).
Despite the changes in the mechanism of aid coordination introduced by the new GD, the
functional division of labor between technical assistance (State Chancellery) and loans (MoF)
remained largely unchanged. The distinction between the aid coordination functions performed by
State Chancellery and MoF has involved a division between programing and negotiations (State
Chancellery and MoF) and implementation issues (line Ministries / Sector Coordination Councils)
but, this as it will be explained in the chapter regarding the constraints, is more apparent than real.
For instance, currently, the humanitarian aid is managed by the respective division from the
Ministry of Labour Social Policy and Family. The Ministry of Foreign Affairs and European
Integration is responsible for the negotiations related to the initiation of the Community
programmes in the framework of the Association Agreement, while aid related with regional or
thematic programmes is coordinated by respective ministries (CBC/INTERREG, Black sea
synergy), regional and horizontal programmes (Ministry of Transport and Roads Infrastructure for
TRACECA, Academy of Science for FP7 etc.). In spite of the efforts to ensure a clear division of
roles in donor coordination, it is becoming ever more problematic to avoid further fragmentation
of responsibilities which affects overall the effectiveness of aid. The changes in volumes, types of
aid and delivery mechanisms used by donors continue to pose pressures on the management

58
Or programme/project level for instance the Roads Sector Investment Programme
48

capacities of the national institutions and require some changes in the institutional setting (State
Chancellery-TTSIB 2012, pp. 19-20).






















49

Chapter 3
3.1. Analysis of foreign aid offered to Moldova (2004-2012)
There are two types of foreign aid (or ODA): financial and technical assistance which represent
grants and loans. Financial assistance involves budget support grants/loans to cover state deficit
and investment projects
59
or support for maintenance of the states balance of payments. Technical
assistance is a transfer of knowledge for training, human resource development or research and
covers the costs associated with this. This can involve different social projects, central and local
authorities` capacity building and civil society projects or support for preparation and
implementation of different investment projects etc.
Throughout 2004-2011, the Republic of Moldova has benefited from external assistance of around
2.99 billion USD
60
, 2.10 billion USD of which are grants (71%) and 888.8 million USD (29%)
loans
61
(Table nr. 3 of the Annex). The distribution between the years is irregular but shows a
clear tendency of ODA flows to grow over time. Before the adoption of PRSP (2003-2004) the
Government had difficulties in negotiating policies with international financial organizations (IMF
and WB) which resulted in a decrease of the volume of assistance. The cooperation programs of
IMF and WB were suspended due to insufficient progress in reforms and only the volume of
technical assistance was maintained at the same level as in previous years.
The period 2005-2007 was marked by the increase of the volume of aid determined by growing
assistance from EU and international financial institutions (IMF, WB) (Table nr. 7 of the Annex)
(Sandu 2009, pp. 311-312). For 2012 the State Chancellery report estimated the aid provided by
donors to be about 474 million Euros (around 645 million USD
62
).

59
With the exception of IMF support which aims to address balance of payments needs and thus goes to the
central bank

61
The data are based on calculation of data taken from OECD and State Chancellery. Currently there isn`t a single
database which would collect all the data from donor`s and Government and present the information about ODA
from the 1992 or at least for the last decade. Moreover, the data which donors are publishing on their websites
are not complete (most of the time is not updated), are not sufficiently detailed or comparable. For instance the
information published by OECD often can differ from other donor`s organization making public data about aid
(WB) or State Chancellery.
62
These are the estimates of the State Chancellery comprising also non OECD donor`s contributions (OECD gives
476.55 million USD) which differ from those recorded by OECD. It is not uncommon that the data recorded by
recipient and OECD (based on OECD donors reporting) are varying. However, I have tried to stick mostly to one
source OECD as it has more detailed data and occasionally WB`s WDI and State Chancellery when the data from
OECD were missing.
50

The share of aid disbursed in 2012 in GDP is about 8.26% of GDP
63
and 21.65% of the current
National Public Budget. About 109.4 million Euros (148.8 million USD) were received in the
form of grants and 97.1 million Euros (132.07 million USD) in the form of loans (EBRD, EIB,
and WB) which represents a grant loan parity of 53% and 47% of aid received in 2012 (State
Chancellery 2013, pp. 15-25). To estimate the capacity of national authorities to attract aid and the
degree to which a country's development level determines the degree of donor support, the data on
Moldova will be compared with a number of countries with a similar level in terms of level of for
2004-2011
64
(Table nr. 5 of the Annex).
According to OECD estimates Moldova has received a net volume of aid 476.55 million USD in
2012 with a level lower than Georgia and Kosovo and almost the same as Kirgizstan but the
average and total volume are lower than most of the countries from the group (Table nr. 4 of the
Annex). With a net value of 131.79 USD of foreign aid per capita in 2011 it is the second in the
group after Kosovo and had almost the same level of support as Georgia. However, on average
with 79,24 USD per capita it is ahead only of Tajikistan, Kirghizstan and Azerbaijan while Kosovo,
Georgia, Albania, Armenia and Macedonia benefited from significantly higher volumes of
assistance. At the same time, comparing the percentage of foreign aid flows in the GNI in 2011
Moldova was the third in the group after Kosovo and Kirghizstan (Table nr. 6 of the Annex).
Nevertheless, on average, the percentage of aid in GNI was significantly lower than that of Kosovo,
Kirgizstan, Tajikistan, close to that of Georgia and higher than Albania, Armenia, Azerbaijan and
Macedonia. It is interesting that countries with higher levels of GNI per capita (Table nr. 2 of the
Annex) have received more aid than Moldova which in 2011 was the third with lowest ratio net
ODA per GNI in the group after Tajikistan and Kirgizstan.
65
Tajikistan and Kirghizstan can be
classified in the group of countries with low levels of income and Moldova in the low middle
income level
66
while the others are upper middle income level countries. In conclusion, overall
Moldova has received less aid than other countries with comparable or even higher income levels.

63
It has constantly risen from 1.6% in 2006, 2.9% in 2007, 2.3% in 2008, 2.6% in 2009 and 6.3% in 2010, 6.6 % in
2011 (data based on calculations from WB WDI and the study of Gaibu et al 2011, p. 26).
64
For 2012 data could not be found for the whole group of countries (OECD or World Development Indicators).
65
This situation can be explained that due to difficulties in negotiation with IFI`s in 2002-2003 Moldova has
received less financial aid. Unfortunately, the aid statistics generated by OECD, WB, UN or national authorities
does not offer data about the distribution in the volumes of aid across countries of financial and technical
assistance for the whole period
66
The OECD, classifies beneficiary countries in 4 groups: (I) Least developed countries (II) countries with low levels
of income (GNI per capita < 825 USD); (III) countries with low middle income level (GNI per capita 826 3.255
USD), and (IV) countries with upper middle income level (GNI per capita 3.256 10.068 USD).
51

One explanation might be the low level of financial aid received due to difficulties in negotiations
with IFI`s during 2002-2003 years, low level of absorption and donors' priorities. However, in the
last years the volume has increased due to growing financial aid in the form of budget support and
investment projects. One explanation is the change in donor priorities (especially EU), improved
dialogue with Government and strengthened country institutions and financial and procurement
system.
In 2006
67
, in order to increase the support from donors the Government has convened a Donors'
consultative meeting for Moldova. One of the reasons was the negative effects of external shocks
which required significant additional funds to cover the financial deficit of an average estimated
by IMF at 61 million USD for 2007 and 57.5 million USD for 2008. The donors have expressed
their willingness to support the Government and made a pledge of around 1.2 billion USD for the
period between 2007-2009, 25% of which were for budget support and balance of payment. The
new commitments represented only 43% of the pledge; the rest of funds were money for the
projects already approved (Sandu 2009, p. 313).
After 2009, the Republic of Moldova has engaged in a more firm course towards European
integration. In addition, the resumption of the IMF program signaled the authorities efforts to
manage the macroeconomic instability problems and counter the effects of the economic crisis.
The international community has reacted and supported authorities reforms reflected in the
Rethink Moldova
68
document at the Consultative Group meeting in March 2010 with a pledge
of around 2.6 billion USD or 1.84 billion Euros (0.96 billion in grants (52%) and 0.88 billion in
loans (48%) over 2010-2014. Most of this support was foreseen as budget support (873.28 million
Euro or 1.19 billion USD around 45%) (Qehaja 2012, pp. 19-23, State Chancellery 2013, p. 15).
Foreign aid, and especially financial aid is given to countries with limited access to external
financial resources. Until 2006, the amount of FDI in Moldova was almost the same as the foreign
aid. In 2007 and 2008 FDI levels even surpassed the volume of aid but in 2009 it has fallen and
never recovered. The volume of FDI in 2012 was 4 times less than that of aid. At the same time,
the volume of remittances has increased fast and has exceeded by 2-3 times the volumes of ODA
and FDI combined (Figure nr. 2 of the Annex). These flows became an important source for

67
Donor`s meetings represent a good modality for mobilization and coordination of aid. This sort of meetings are
taking place usually once in 3-4 years when a new national development program is launched.
68
Rethink Moldova represents a mid-term complementary document elaborated to simplify and actualize for
donor financing the priorities already fixed in NDS (2008-2011) and the Economic Stabilization and Recovery
Program of the Republic of Moldova for the years 2009-2011 and Government Programme.
52

compensating the trade balance deficit, reducing the pressure to contract loans for the balance of
payments support. The growing GDP per capita and easier access to external capital should
decrease the volume of foreign aid. However, given the previous low levels of financing and recent
commitments of donors in the mid-term, the volume of aid will most probably increase
69
(Sandu
2009, p. 314).
Financial assistance
70
is reflected in the national budget and can have two destinations as budgetary
support and means for investment projects implementation
71
. Budget support is given to assist the
implementation of Government policies for poverty reduction and economic growth and is
transferred using national financial and procurement systems. In this respect, the use of money is
a subject of negotiations with donors, together with policy conditionality attached to aid. However,
when aid is used for implementation of investment projects, most of the times, the donor`s own or
other organization`s
72
financial and procurement systems are employed bypassing the national
systems. This modality was criticized because of increasing transaction costs, weakening the
national institutions by creating parallel implementation units and making coordination,
monitoring and evaluation difficult. According to the 2012 State Chancellery report on foreign
assistance, the implementation of projects in 2012 accounts 75%, channeled as budget support
(17%), and the remaining volume is technical assistance and maintenance of the states balance of
payments (State Chancellery 2013, p. 15).
The international aid effectiveness initiatives highlight the increasing importance of the use of
national systems for channeling foreign aid. Given that budget support is becoming the preferred
modality of support for the major donors, financial assistance share will increase in the total aid.

69
The volume of aid will increase in the mid-term due to assistance from EU and MCC (US). Nevertheless, in the
long term aid is expected to decrease. Several donors have announced that they will gradually diminish the
volumes of assistance given the reasons expressed above. DFID has already withdrawn. However, due perhaps to
geopolitical reasons, EU integration course of Moldova and/or worsening macroeconomic and social indicators for
a while some donors continue to increase their assistance (USAID, Germany, EU, Sweden etc.) despite the fact that
many of them have shown before opposite signals.
70
Unfortunately, no data is available which could give any hint about the volume of financial and technical
assistance as percentage of total aid. The old Government database of the NCU (IDEA) was not able to generate
such information (besides other technical parameters for generation of information) and therefore it was replaced
with another one (Development Gateway) which soon will be launched. OECD and WB database also lack this
information.
71
The strict delimitation between financial and technical assistance is difficult because investment projects often
contain components of technical assistance which are not counted separately. Moreover, the diversity of aid
operation often include mixed forms of aid instruments (regional, cross-border, thematic projects and
programmes etc.)
72
In particular cases the financing donors use other donor`s implementing systems (implementing donors). For
example EU aid is given using UN institutions which are implementing EU financed projects and programmes.
53

Together with this, the state capacity and responsibility to use aid efficiently (strengthen financial
and procurement systems) need to be adjusted. Since 2008 Moldova`s financial and procurement
systems have improved and were evaluated as presenting moderate risks and corresponding with
the basic criteria of efficient systems of financial management and public procurement (Gaibu et
al 2011, p. 36).
For the first period after 2004, despite the fact that the volume of financial aid has increased, the
net flux of resources
73
was negative, reflecting a higher value for the repayments of the external
debt which was accessed before
74
. This situation has changed only in 2007 when Moldova became
eligible for IDA (WB) and IMF concessional loans and the share of concessional loans and direct
budget support has increased. Technical assistance has comprised around 20%
75
of total aid in
2010 and even if its share out of total aid is less than before and 70% of it (91 million USD) was
reported as a coordinated technical cooperation, a fragmentary tendency in capacity building
actions
76
is still maintained in 2010. The problem is that it tends not to be reflected in the national
public budget, which makes it difficult to monitor against the NDS and other sector strategies and
objectives. The national authorities cannot efficiently monitor technical assistance delivered using
an enormous number of projects - over 200 in 2010
77
, for a consolidated assistance approach.
Therefore, the efforts for coordination and monitoring of implementation of these projects impose
higher transaction costs for donors and pressure on Government capacities than in the case of
financial assistance. A capacity building assistance program can be considered only when it is
harmonized with the sector strategies, with concrete measures for identified needs (OECD 2011,
p. 5). The aspect regarding the objectives financed by foreign aid is discussed in the next chapter
where donors' contribution is assessed in terms of national development priorities.



73
Moldova had to repay the debt accumulated during 90` which volumes were higher than the financial aid
allocated by donors per year.
74
This situation is due to higher levels of indebtedness from previous decade. From 1999 WB and IMF is offering
concessional loans. However with increasing GDP per capita Moldova will soon graduate IDA conditions and will be
eligible again only for non-concessional IBRD and other organization loans.
75
It should be taken into account that the lower level of technical assistance is due to increased budget support
from WB and EU rather than a significant change of other donors approach.
76
There is no capacity building strategy and donors allocate technical assistance using small projects for a wide
range of sectors.
77
In 2014 the number is even higher 365 projects
54

3.2. The correlation of foreign aid with Moldova`s development priorities. Does aid promote
Moldova`s development?
Besides aid volumes, questions regarding the quality and relevance of aid for a country`s needs
are even more important. Both variables are difficult to evaluate because of quality of data
78
, the
fragmented donors' approach, absence of regular monitoring and evaluation reports of the
Government and donors on aid effectiveness and the contribution of donor`s aid in the realization
of priorities
79
. Foreign aid tends to rather reflect donor`s individual approach (regional and/or
country strategies) which is not always designed with the participation of the Government and
other actors such as civil society from recipient country. The requirement for alignment with the
country`s priorities is a recent response to global aid effectiveness initiatives. It appeared as a
feedback to accusations from developing countries that the donors' programmes are imposed
80
.
Aid is offered on the basis of the PRSP document adopted at the initiative of IMF and WB, whose
approach was later incorporated into EGPRS (2004) and NDS (2008) and served as a holistic
development framework to guide both Government and donors efforts.
The first EGPRS strategy offered a large range of priorities which haven`t determined significant
changes in donor`s assistance strategies. The only exception is perhaps road infrastructure,
presented as a priority and has attracted the increased support from donors (WB, EBRD, EIB and
MCC). Another document, the Government programme Modernization of the country welfare
of the people for 2005-2009
81
has broadly formulated the same priorities as EGPRS. In addition
to EGPRS it has also highlighted public administration reform as a priority determining a growing
in the volume of donor`s support (DFID, Sida, UNDP) (Sandu 2009, pp. 316-317).
For the period of implementation of EGPRS the sectors receiving most of the attention from donors
were infrastructure, public sector, private sector and agriculture. Less support was allocated for
environment protection and regional development (perhaps given that regional development
policy did not exist at that time) while industrial sector or research and development have not
received any support from donors. Considerable differences were registered between committed

78
There is a lack of disaggregated data about aid per priorities and sub priorities from national development
strategies
79
There are few evaluation reports published on the websites of donors. The Government own assessment about
the aid effectiveness and contribution for country`s development can be found only for the last two years. There
are no assessments of a longer period than several years.
80
In other words donors decide what to finance ignoring the priorities expressed by recipient countries.
81
It was replaced in 2009 by the new Government activity program
55

funds and actual disbursements. The causes of this gap can be attributed to both donors' interests
and constraints and the low capacity of the authorities to estimate the costs of EGPRS in the initial
elaboration phase. The estimated costs of the EGPRS, which didn't have financial coverage, were
around 430.7 million USD and the aid provided by donors was estimated at 81.5 million USD
covering around 18% of necessities. Most funds were directed to such sectors as (Table nr. 8 in
the Annex) private sector (7%), agriculture and rural development (7%), public sector (5%),
energy(5%), justice (3%), social protection (3%), education (3%), water and sanitation (3%),
health (3%), social infrastructure (2%) (Sandu 2009, p. 318, Government of Moldova 2007, pp.
220-221). The impression at first sight is that foreign aid was aligned with the EGPRS priorities
even if the distribution between sectors was unequal. However, in order to give a precise
appreciation, a more thorough study of the connection between foreign aid and activities planned
under EGPRS is needed. Given the week linkage between the strategy and the action plan and the
modest Government engagement for their implementation, the alignment of donors on more
concrete activities would be difficult anyway (Sandu 2009, p. 319).
The NDS (2008-2011) also offers a wide framework for activity. Compared to the EGPRS, it has
a detailed action plan with a more strong linkage with the MTEF and thus, gives a better estimate
about the financing needs per activity. The Paris and Accra rounds on aid effectiveness in 2005
and 2008 incited donor`s community to resume efforts to establish a Partnership Principles
Implementation Plan agreement between donors and Government. In preparation of PPIP an
analytic work on donor`s activity mapping exercise has been carried in 2009 to improve the
coordination of aid support. The exercise gave a comprehensive view of the distribution of aid
across sectors
82
from 2005 until 2009 and revealed the trends for fragmentation and increased
volumes of aid spent per sector (Country Programmable Aid)
83
. The NDS mapping has revealed
that in 2008 and 2009 period
84
(see the Figure nr. 3 in the Annex) most allocations addressed
macroeconomic stability
85
, democracy/human rights
86
, social policies, central public
administration. Significant changes in allocations between years have been registered in the case

82
According to OECD classification of sectors http://www.oecd.org/dac/stats/dacandcrscodelists.htm
83
More data can be found at http://www.un.md/donors/meetings/ from June 24, 2010 file (ODA by NDS
Objective and Donors mapping)
84
2010, 2011 and 2012 amounts are only estimative projections and will not be counted from this Table.
85
Exchange rate from 07/01/2009 of National Central Bank of 100 MDL = 7,68
http://www.bnm.md/en/rate_convertor
86
Perhaps because of the April 7 2009 events which have resulted an increased number of human rights violations.
56

of border management
87
and anti-corruption
88
. Some aid has been allocated for purposes other
than those from NDS
89
. Less aid or no assistance at all, have received: Transninstrian conflict
demilitarization, assistance for financial crises effects mitigation, physical infrastructure,
development of towns, R&D, agricultural efficiency and SME development. Overall, the donor`s
mapping (Table nr. 9 in the Annex) shows overcrowding of aid in particular sectors (strengthening
of public administration capacity and democracy, the rule of law and human rights, social
protection) but also orphan sectors (enhancing competitiveness of the national economy),
increased fragmentation with donors scattered across various domains (the most fragmented are
technical assistance projects). This can be explained by specialization of some donors
(comparative advantage in providing assistance for specific sectors) and/or donor`s foreign policy
interests.
The Government reports on the efficiency of aid for 2011 and 2012 years
90
give a positive
assessment of the results of aid support. In 2011, 40 % of projects had a substantial impact on
sector development and 95% of the aid was considered compatible with NDS objectives (State
Chancellery 2012, p. 5). Most of the projects (225) addressed such sectors as governance and civil
society (62), social infrastructure and services (33), education (23), multisector/cross-cutting (21),
agriculture (17), environment (11), energy generation and supply (10) and 8 private sector
development (State Chancellery 2012, p. 9). An analysis has shown that aid has tended to
concentrate in specific areas such as governance, social infrastructure, education, agriculture
91

(Chancellery 2012, p. 51).
In 2012 the distribution of foreign aid has followed the same tendency of crowding in particular
sectors. Foreign aid has concentrated in specific areas such as accountable and efficient
administration, foreign policy, country reintegration, environment protection. Less aid has been
provided for culture policies, youth policies, education and research, economic and financial

87
Due to increasing interest of EU for securing the eastern borders (Transinstria).
88
Related with the expiration of the US Treshold Programme. Moldova has graduated and became eligible for
Compact programme assistance.
89
13.24 million USD in 2008 or 5% from total aid and 6.96 million USD in 2009 or 2% from total aid
90
The 2012 report has given an assessment in accordance with NDS priorities while 2013 report has assessed aid in
correlation with the Government Action Program "European Integration: Freedom, Democracy, and Welfare, 2009-
2013 (NDS expired in 2012 and was replaced in 2013 by NDS Moldova 2020).
91
The allocations across sectors have maintained the same pattern with the exception of agriculture which
benefitted starting with 2009 year from Compact programme assistance (Transition to High-Value Agriculture
project - USD 101.70 million)
57

policies etc. (State Chancellery 2013, p. 31). According to a survey carried out by the report team,
in 2012 aid was appreciated by beneficiaries as in-line with government policies. However, in two
sectors - economic and financial policies and the environment, there were major difficulties in
aligning the donor assistance with the sector policies. Other two areas of intervention - rule of law
and other sectors
92
also presented complications but less severe. Most of the authorities were
involved in project design, even though 5 of them have declared that they did not participate in the
project design phase or had some problems. The building of rule of law, economic and financial
policies, accountable and efficient public administration, public health, and environmental
protection were among these (State Chancellery 2013, p. 47-48). The evaluation of external
assistance provided to Moldova versus the Government Action Plan found that only 40% of the
actions laid down in the latter have aid support for implementation. This means that the other
actions are funded from the Governments budget (ibid 2013, p. 30).
Alignment means not only national priorities but also institutions and systems. In line with the
Paris and Busan aid effectiveness declarations, several parameters are used to determine the degree
of relevance of aid to country systems: existence of reliable national financial and procurement
management systems and use of them by donors, the degree of reflection of aid in public budget
and implementation of the projects within the existing institutional system. Measured as
contribution to the state budget, foreign aid is aligned in proportion of 70% in 2005, only 57% in
2007 and 92% in 2010 which is 7% above the target
93
(Sandu 2009, p. 320, OECD 2011, p. 5,
OECD 2008, p. 4, OECD 2006, p. 3). The national public finance management system (budget
execution, financial and audit reporting) was scored by 2011 OECD aid effectiveness report at 3,
5 in 2006, 3, 8 in 2008 and 4, 0 for 2010 (from 6 points) reaching the target set. The national
procurement system, though no specific target was set in 2006, has improved, receiving C grade.
As a result, 71% of aid now makes use of Moldovas national procurement system, a substantial
increase from the 25% recorded in 2005 and 39% in 2008. The use of country financial systems
has increased from 25 % in 2006 and 41% in 2008, to 70% in 2011, which is a progress of 20%
above the target
94
.

92
Other sectors category as classified by the survey
93
However 32 million USD (mostly technical assistance) were still not aligned with national systems.
94
Five donors use Moldovas PFM system for over 60% of their funds in 2010. The use of the country public
financial management systems by the majority of donors still remains a challenge. Several donors (IMF, EU
Institutions, DFID, World Bank) only use Moldovas PFM systems for direct budget support with the rest of their
support still outside the country public financial management systems OECD 2011, p. 9.
58

However, as the OECD 2011 report mentions for both financial and procurement systems, this is
a result of increased budget support from 2-3 major donors who traditionally make use of it rather
than a change in approach from the donor communities regarding the use of country systems.
Moreover, as the OECD aid effectiveness reports show from 2006 until 2011, the usage of the
national systems was limited only to cases when aid was provided using direct budget support
instrument. Most of the donors except EU, WB and IMF continue to use their own financial and
procurement systems (OECD 2006, p. 3, OECD 2008, p. 3, OECD 2011, pp. 5-9, Sandu 2009, p.
320).
Another aspect pertaining to the alignment is the implementation of the assistance programmes
within the existing institutional framework. Given the weak institutional capacities when Moldova
started to benefit from donor`s programmes, it was established that temporary project
implementation units will be created to assist the implementation of donor funded programmes.
However, after 15 years and 3 successive OECD aid effectiveness monitoring exercises (2006,
2008, 2011), these units still exist (43 parallel PIU`s in 2006, 59 in 2008 and 18 in 2011 which is
4 more than the target). In 2011, UN agencies had the most PIU`s, followed by Switzerland and
UK. The donor traditionally having the most PIU`s, the World Bank, has reported 0, however
Government claims that their real number is diminished (together with other donor financed PIU`s
their real number is 18). The existence of these structures is undermining institutions and the
degree of involvement of public authorities in the process of monitoring and implementation of
the projects. The institutionalization of the functions of these units will be possible only when the
donors will be ready to use national systems (OECD 2008, p. 5, OECD 2008, p. 8, OECD 2011,
p. 11, Sandu 2009, p. 321).
Most of the donor`s evaluation reports consulted affirm that aid was aligned with the country`s
development strategy, European aspirations of Moldova and MDG`s (IEG 2013, p. 1, Picard et al
2012, p.9, Bassiouni et al 2011, p. 13, UNDP 2011, p. 13). However, there are contrasting
tendencies in some aspects. For some reason, for instance, the authors of the UNDAF evaluation
report are complaining that the Government is not using UNDAF as a reference for measuring
effectiveness, which undermines its strategic place in Moldova`s planning priorities (Bassiouni et
al 2011, pp. 34-41). It is strange how UN can affirm that it aligns its strategy with the beneficiary
59

priorities and at the same time, require that it should include UNDAF within its strategic planning
process
95
.
In addition, one should also take into consideration that for some international organizations (UN
institutions) which have fewer resources at their disposal and are specializing as implementing
donors providing technical assistance, the objective to increase the level of usage of national
systems is contrary to their own policy. Furthermore, the specific of their activity (providing
technical assistance) is sometimes conflicting with the objectives pursued by them as
implementing donors to support capacity building within Government institutions. Therefore, the
decision to use or not the national systems mostly have to do with the donor`s interest rather than
the soundness and reliability of country systems. Otherwise, one cannot explain why under the
same conditions, some donors prefer to use country systems while others opt for alternative
modalities.
During recent years, increased efforts have been undertaken to improve the alignment of foreign
aid with national priorities. National authorities have improved the institutional setting concerning
aid coordination, the country`s financial and public procurement systems and the overall strategic
planning documents which demonstrate a better connection between policies and budget. The NDS
2008-2011 and NDS Moldova 2020 offer a better framework for guiding aid. The donor`s
community, inspired by international initiatives, demonstrated more openness during the design
phase of their strategies for cooperation. Nevertheless, the progress in terms of alignment to
country`s systems remains modest. The fragmentation across sectors, overcrowding or leaving
orphan sectors, slow progress towards use of country financial and procurement systems and
issues concerning sustainability of projects and improvement of beneficiary capacities denotes that
despite some progresses, the approach in aid delivery remained largely donor driven. A possible
explanation of reported donor`s alignment to country`s priorities with overcrowding/orphan
sectors, fragmentation and parallel implementation units is that donors have their own individual
approach regarding development which does not always coincide with that of the Government`s.
Whereas the major`s donors (EU, IMF, WB) preferred approach is budget support (loans/grant)
conditioned by policies adopted by the recipient (which gives them capacity to influence recipient
policy making), the other donor`s modalities (implementing UN institutions or bilateral) are more
selective in alignment. They pick up specific sectors relevant for their interest/comparative

95
No doubt that there is a competition between donors
60

advantage and expertise and avoid allocation of aid using Government`s financial and procurement
systems.
3.3 What are the constraints?
As mentioned above, the problem of aid efficiency is as important as alignment to country
priorities and perhaps even more difficult to appreciate. It can be measured individually per
programmes and projects or based on projects performance in the sector. In Moldova, despite the
efforts to improve aid coordination, it continues to be deficient primarily in areas dealing with
institutional setting of aid management, excessive centralization of aid management,
fragmentation of donor`s work, uncoordinated work and missions, untying, weak M&E mutual
accountability and predictability of aid flows.
There are two main actors involved in the process and their actions determine the effectiveness
and efficiency of aid. From one side, it is the Government which sets the policy and institutional
framework for coordination of donor`s activity and oversight over the implementation, monitoring
and evaluation. On the other side, the donors elaborate their own country or regional strategies and
use different instruments of aid (programmes, projects) and M&E systems to assist the
Government development agenda.
One of the Government constraints refers to issues such as providing clear, strategic guidance.
Currently there are several strategies guiding donor`s interventions and the Government needs to
ensure a closer linkage between NDS Moldova 2020, Government Programme, European
Integration aspirations, a formal public investment programme, to guide donor`s multi-annual
allocations and foreign aid whether in the form of loans or grants. The Inter-Ministerial Committee
for Strategic Planning needs to be transformed into a more active structure to ensure coordination
and guidance for the whole process (State Chancellery TTSIB 2012, p.4).
Another constraint is the programming phase of aid delivery which is heavily centralized.
Currently, the NCU establishes the extent to which the proposed project is going to address the
problems in the sector, which is not optimal due that the responsibility in the sector should be
primarily in the competency of the ministry/specialized agency and can be adjusted only within
the ICSP framework. In the current Regulation
96
there is a confusion created between the state and

96
Government Decision nr. 12 from 19.01.2010 about Regulation regarding the institutional framework and
coordination mechanism of foreign assistance received by Moldova from the international organizations and donor
countries http://lex.justice.md/index.php?action=view&view=doc&lang=1&id=333522
61

sectorial contracts. The first is as an agreement concluded with the donor at the state level,
Government, ministry or other central public authorities. Despite the fact that it is mentioned in
the text of Regulation, there is no definition to explain what a sectorial contract is. This introduces
certain incoherencies and inefficiencies which reduce the ownership and autonomy of the sector
authorities in the management of their sector. The original role of the NCU to provide assistance
for elaboration of state contracts, negotiation and policy guidance, is transformed into a decision-
making role for the sector authority at the programming phase, leaving implementation entirely as
the responsibility of the latter. Therefore, the role of the authority responsible for the sector which
also has the most expertise in this field is transformed from one of coordination to implementation,
which is not desirable. An option would be to transfer the responsibility for carrying out
negotiations of the state contracts (concerning the sector) to the sectorial authority (with the
participation of NCU) which will submit these proposals for final approval to the Inter-ministerial
committee for strategic planning. The NCU will continue to provide technical expertise and ensure
that these proposals correspond to development priorities derived from strategies (Gaibu et al
2011, p. 43).
The recent modifications operated in the management of aid were intended to bring a better
coordination and reduce fragmentation. However, given the changed donor`s delivery instruments
after the Paris Declaration and the inclusion in the ENPI, it is more likely that it will not be possible
under the current setting to remove these constraints. One reason why the current institutional
setting represents a rather high level of centralization is due to the willingness of donors to have a
unit with high political clout in the Government and the efforts of the executive to reduce
uncoordinated requests, increase the alignment of aid with the national priorities and reduce
fragmented implementation across the ministries and other state agencies. Moreover, internal
political matters make it important for the chief of the executive to control the aid allocations in
order to exclude internal competition for foreign aid money. Nowadays, the changing realities of
the aid industry require a much more sophisticated system of aid management, which the current
NCU, based on division of aid in technical and financial assistance, cannot provide. The emphasis
is on more varied aid delivery instruments such as sector and budget support, sector wide approach
(SWAPs), use of technical assistance (Twinning, TAIEX, and CIB), more involvement of civil
society in the implementation of the aid projects. Also, the types of allocations are more mixed as
the development banks (WB, EIB, and EBRD) combine loans and grants (financial with technical
assistance). The mixed and diversified forms of aid delivery is posing difficulties for the State
62

Chancellery aid management unit (NCU) given the existing framework of division of labour
between the State Chancellery, MoF, line Ministries and state agencies implementing aid projects.
It is not possible anymore to divide aid into technical and financial assistance and the
corresponding institutional framework must be reviewed to address the changes in delivery of aid.
In spite of their different perspectives, the Government and donor views coincide that the
assistance co-ordination process remains confused and largely ineffective. The Government has
the perception that aid is largely donor led and that more emphasis should be given to partnership
and alignment with the national planning documents and systems. The donor`s predominant view
is that national authorities do not have the necessary capacity to implement the projects and
programmes. Although Government Decision nr. 12 from January 19th 2010 defines their
competencies, it can only partially address the specifics of coordination between these institutions
and departments. The Regulation has established the institutional framework but it does not bring
clarity regarding the reporting and authority relations within the aid management framework. The
only references in this respect in the Regulation are provisions that NCU provides proposals to
Interministerial Committee for Strategic Planning within the programming phase for approval. At
the same time, the sector coordination unit can submit projects to IMC for approval, by-passing
the NCU. Moreover, it is not clear what IMC can do except for receiving, hearing and approving
projects and why it does not have a more active role in developing the strategic focus, coordination,
monitoring and evaluation (State Chancellery TTSIB 2012, pp. 21-37).
Another major shortcoming is the fact that public authorities engaged in the management of
foreign aid projects do not carry out evaluations of the degree of achievement of these projects in
terms of efficiency in achieving country`s priorities. The current practice of the main authority
responsible for aid coordination (NCU) is to carry out an annual monitoring of foreign aid. The
ministries which are implementing aid projects also produce sector monitoring reports but these
hardly resemble a monitoring exercise. Rather, it is a progress report which summarizes the
achievement of each individual project summed up according to priorities but without trying to
assess the degree of achievements on the sector level in accordance with the sector strategy and
national development strategy priority (is at the level of sub priority and activities derived from
this)
97
. Moreover, the Regulation does not stipulate which authority should examine the reports
and draw conclusions, where these should be going, how will be introduced in subsequent policy

97
An example in this case is the 2011 OMS report of monitoring of ODA to the health sector in Moldova
http://www.euro.who.int/__data/assets/pdf_file/0006/169836/e96623.pdf
63

making as adjustments or improvements and who is supposed to inform donors about revealed
deficiencies. Without proper monitoring and evaluation, no lessons can be learned and
interventions will tend to repeat the same mistakes. Recently, the Government began to measure
the efficiency of aid delivered in accordance with national priorities. Unfortunately, these still
retain the characteristics of a progress report summing up the results of the projects according to
NDS (2011) and Government activity programme (2012) priorities in the reporting year. It does
not measure the alignment of these with the sub-priorities/activities of the national development
strategy, the financial contribution and results in achievement of sector objectives both annually
(as monitoring exercise) and for the whole period of implementation of the strategy (as evaluation).
Adding up together project`s results can provide a description of what has been done but will not
produce a valid conclusion about the impact of aid. It also excludes the learning component from
policy making, impossible to follow their implementation with the purpose of identifying major
causes that lie at the basis of possible inefficiencies (Gaibu et al 2011, pp. 43-50, State Chancellery
TTSIB 2012, pp. 64-65).
Concerning the donor`s approach, it is noteworthy that the conclusions from the OECD country
report on monitoring the Paris Declaration regarding the efficiency of ODA show that there are
significant progresses in terms of increasing institutional capacities of the GoM. The majority of
targets regarding country systems which are the responsibility of the Government were attained
while, as the report mentions, there are unmet targets in the areas of primarily donor responsibility
in alignment and harmonization such as PIUs, untying, predictability common arrangements and
joint working (OECD 2011, p.1). The report calls for more efforts to be undertaken by donors to
make use of country systems, common arrangements and reduce fragmentation of efforts.
The problem of fragmentation of efforts is an impediment to country`s authorities which have to
deal with a large number of donors and projects. If not taking into consideration the budget support
which is provided traditionally by 2-3 donors (EU, WB, and IMF), most of the technical assistance
is fragmented and dispersed across sectors. Nowadays, most of the donors' approach is exclusively
focused on realization of their projects objectives but even when these projects are implemented
successfully, it does not mean that these contribute to the achievement of the country`s
development objectives. Such an outcome requires a common effort where from one side, donors
provide support and from another, there is an effective and efficient coordination framework of a
pro-active Government.
64

In reality, the Government cannot achieve effective coordination because of a great variety of
procedures and rules used by donors. The lower the level of development of a recipient country,
the more likely the donors will use their own financial management systems. However, the less
developed a country is, the weaker is its capacity for cooperation with the donor`s community and
the existence of numerous individual procedures reduces the quality of these discussions to zero.
With some exceptions of traditional donor`s using budget support (EU, WB), most of the time the
ODA offered by donors was given using their own systems. Though it is called development
assistance, it is in fact humanitarian due to the characteristics of the instruments employed.
Namely, the use of their own procedures expresses the opinion about limited capacities of the
national authorities to manage the aid funds. Additionally, another argument often used is the
necessity to undertake rapid interventions to mitigate problems which cannot wait until the
corresponding Government capacities will be created. Besides the fact that implementation of this
kind of individual projects reduces the capacity of coordination of the Government, the role of it
is sometimes purely formal, to accept the received reports.
Another aspect to note are additional pressures on the public budgets of the recipient countries,
such as providing supplementary funding for some institution or activity supported previously by
the donor`s projects as an attempt to institutionalize them but which were uncoordinated with
the Government at the design phase
98
. This can severely affect the sustainability of the
implemented projects, especially if these do not represent a major priority from the point of view
of the Government for public expenditures. All the practices enumerated above impose higher
costs for both Government during coordination and donors in terms of transaction costs. There are
recent shifts towards programme approaches such as SWAP`s but so far, there are no assessments
regarding the progresses in this direction.
Moreover, the fragmentation of donor`s aid and use of a great variety of procedures represents a
constraint on the Government which must coordinate donors support in implementing national
development programmes, strategies and sector programmes. Even if the foreign aid supports a
national programme, the use of national budgetary systems, reporting, financial management, and

98
One example in this respect is the project implemented by NGO`s IDIS Viitorul Community based monitoring of
the impact of the Global Economic and Financial Crisis on Human Development and MDGs in the Republic of
Moldova with financing from UNDP/UNICEF/UNWomen 06.09.2009 - 30.10.2010. After implementation, as an
attempt to ensure its sustainability, it was proposed for institutionalization at local level early warning and grass
roots instrument of gathering data. Given that it was not coordinated previously with the authorities at the
designing phase, the authorities declined the offer as it was not seen priority for them.
65

procurement systems is limited. According to 2010 data, around 51% of aid to Moldova made use
of PBAs. This is not enough to meet the 2010 target of 66%, but it represents a progress compared
with previous measurements (16% in 2005, 30% in 2007). The bulk of donor`s aid using PBA`s
is constituted by EU and WB with 34% and 30%. The majority of it is budget support or sector
budget support (OECD 2011, p. 13).
There is a significant number of implementing donors present in Moldova which implement
projects using funds from other aid organizations and increase fragmentation. Currently there are
365 projects under implementation, most of them technical assistance projects financed by 31
donors (10 of which are implementing donors) and around 190 (52%) projects are implemented
by donors or using international NGO`s, universities and private companies. Moreover, the number
of parallel project implementing units (PIU`s) is still considerable (18) especially compared to the
target for the year 2010 (0). Taking into consideration that it will not be possible to change the
approach of some donors due to the specifics of their activity, specialization (technical assistance)
and foreign policy interests, the harmonization of donor`s work around PBA`s, SWAP`s or pulled
funds/trust funds is seen as a possible way to facilitate the work on the sectorial level. In this way,
the fragmentation of donor`s activity and procedures could be addressed. The Government has
expressed its preferred mechanism of delivery which is direct support. Besides that it can be useful
for overcoming or avoiding the negative moments described above, it is also contributing to a
decrease of the transactional costs. In this way, premises are created for putting in place an efficient
monitoring and evaluation process of the delivered aid making best use of it together with all
internal means which the recipient country possess. This can represent a new operational system
for evaluation of the performances of aid at the level of the entire country. The change of approach
of the donor`s community regarding the instrument used for assistance is a necessity. This implies
a process of capacity building which can be achieved only if the development activities will be
implemented by national authorities and not mostly by donors through individual projects.
Besides issues concerning fragmentation and use of country systems, the number of uncoordinated
missions of donors is quite high: in 2005 it was 20% from 201 missions, 14% from 229 mission
in 2007 and 36% from a total of 187 mission in 2010 (the target remains unmet - 40%). The high
number of missions represents a problem for the public administration because the public servants
are required to dedicate significant time for these meetings. Another issue is the high number of
uncoordinated analytic work 50% in 2005, 46% and 51% (target of 66% remained unmet)
(OECD 2011, pp. 14-15, OECD 2008, p. 34-13, OECD 2007, p. 21-8, Sandu 2009, p. 325).
66

A constraint on efficiency is the status of aid untying to goods and services from donor countries.
For 2005 and 2007, the tying indicator was 81% of aid which registered a minor setback in 2010
to 80%. The 2010 OECD country chapter reports findings are that most donors provide untied aid
with the exception of the US, Spain Netherlands, Italy and Austria (OECD 2006, p.7, OECD 2008,
p. 11, OECD 2011, p. 12). As the Aid Untying report (2012) notes, despite the fact that the majority
of the countries report all or almost all of their aid untied, the accuracy of data can raise doubts
(OECD 2012, pp. 3-9). A closer look at the Annex nr. 1 of the GD nr. 246 from April 8, 2010
99

reveals that from 114 projects representing bilateral aid, an approximately 45 (39%) are
implemented with a different degree of involvement of contractors, NGO`s or institutions from the
donor country. The numbers are more significant for bilateral donor technical assistance US
(USAID, US Embassy and US Department), Germany, Austria, Slovak Republic, Czech Republic,
Turkey. While this kind of information is far from conclusive, it gives some hints about possible
hidden tying and worsening of the untying status of the projects
100
(OECD 2011, p. 12).
The latest OECD aid effectiveness exercise has also shown that common arrangements concerning
predictability of aid have increased. However, the Government has reported difficulties with the
coordination of aid flows (for technical assistance) and also with the timing of aid disbursements.
For example, in 2010, parts of anticipated budget support tranches were not provided which has
exerted financial pressures on the Government plan for implementation of programs and public
investment. Another aspect is policy conditionality which puts pressure on the Government to
adopt EU rules and practices in a very short time. The unrealistic time schedule is also due to
higher than projected costs for the implementation of the policy conditionality. Some
conditionality which were adopted by the Government are accompanied by high administrative
costs due to management constrains and/or being implemented by PIU`s (OECD 2011, p. 12,
Gaibu et al 2011, pp. 42-43).
The Paris and Busan declarations highlight monitoring and evaluation as instruments for
determination of relevance and effectiveness degree of objectives realization, impact and

99
http://lex.justice.md/index.php?action=view&view=doc&lang=1&id=334259
100
It should be noted that if measured as a volume of aid implemented by contractors from the donor country the
percentage of tied aid could be more significant. Only bilateral aid was considered, while it is not excluded that
other donors such as EU`s (which is implemented mostly by implementers from EU not by national authorities or
NGO`s) or MCC which has as main contractors US companies could also tie aid. It is not that the utility of
involvement of foreign implementers is denied (as import of expertise) but rather the fact that the competition for
contracts might be not fair (foreign contractors could be privileged) and the prices for services and goods could be
higher. This question requires a separate research.
67

sustainability. In Moldova the evaluation of the donor`s programs is taking place periodically, at
the end of year or when the country strategy is finalized. Donors, central public authorities and
civil society organizations responsible for implementation of foreign aid projects are involved in
these evaluations. Notwithstanding, overall, most of these evaluations are formal and do not
contribute to the identification and solving of the projects problems, implemented with external
support. Moreover, many donors still do not make public their evaluation reports (with few
exceptions such as WB and occasionally EU, Sweden, UN institutions) or present
narrative/progress internal reports which do not examine what was realized or not and why. Some
donors enumerate the activities without carrying a serious evaluation or do not publish them at all.
One example of a lesson not learned, which causes efficiency loss, are the projects for
strengthening the public authorities capacities. The strengthening of the public authorities
capacities represents an important desiderate for the country`s development agenda and an
important number of projects have addressed this objective. However, the effects of these projects
are doubtful.
Due to competition from the donor`s funded projects in terms of remuneration, Government is
facing high staff turnover. Therefore, the competition which usually comes from private sector in
other developing countries, is exercised by donor`s projects. This phenomenon is more evident
with the increasing number of projects. As a consequence, the initial role of donors to support
Government in the process of economic development, in fact is altered. It is rather a hindrance to
this process because the donor community, through individual projects, substitutes the
Government and does not help it achieve the objectives set. This situation determines a decreased
interest of public servants for particular positions. Despite this and a lack of tangible results, some
donors continue to provide the same type of aid for the same institutions for a number of years.
Often, the conclusions about the low level of effectiveness of a particular project can be deducted
from the objective of the next project launched which repeats the previous in totality (Sandu 2009,
p. 322). It is no wonder that the aspects concerning project sustainability and improvement of
the capacities of beneficiaries have received unsatisfactory reviews in the last survey carried out
for the annual report measuring aid effectiveness (State Chancellery 2012, p. 15).




68

Conclusion
In the last years Moldova has received increasing volumes of aid. In 2012, it had a net volume and
amount per capita which is resembling with that of other countries of similar level of development.
However, both net volume and aid per capita levels are lower if compared with total aid for 2004-
2012 period and average volumes. Moreover, compared with other countries with higher levels of
GNI per capita, it has received in 2011 less aid and was the third with lowest ratio of net ODA per
GNI in the group after Tajikistan and Kirgizstan. The type of aid offered was mostly grants while
the share of loans begun to increase in the last years. Thus, for the whole period, Moldova as a
middle income level country received less aid than countries from the same group classified as
upper middle income level countries. This aspect indicates that for donor countries the scale of
poverty is not a decisive factor influencing aid allocations and the flow of aid is not oriented mainly
to those countries with the most urgent needs.
The increase of efficiency is not as obvious as the growth in the volumes of aid. Despite the efforts
to improve aid coordination it continues to be deficient primarily in areas dealing with institutional
setting, excessive centralization of aid management, fragmentation of donors work, uncoordinated
work and missions, untying, the degree of alignment with country systems, weak M&E mutual
accountability and predictability of aid flows. Another element of efficiency is transparency, which
only in recent years has slightly improved as donors and Government start to produce and publish
their monitoring reports about the effectiveness of aid delivered. However, not all of them are as
qualitative and independent in their estimations. Most are focusing on monitoring and few conduct
evaluations. The learning element and mutual accountability is a crucial element for eliminating
the inefficiencies and exercising a more transparent control over the public funds. So far, the
progress in making the data public is slow and the character of data about aid monitoring and
evaluation, alignment and coordination which both donors and Government offer is limited. On
the other hand, the capacity of civil society to exercise a control is weak, due to modest expertise
in this field. Moreover, the specificity of its funding makes it increasingly sensitive to donor behest.
The 2011 OECD monitoring report on aid effectiveness has shown that less than half of the targets
set have not been met and most of them lie in the responsibility of donors. In particular, it is the
limited degree of use of national financial and procurement systems. The Government has
improved them and the average CPIA has increased, however, this has not lead to a significant
improvement of the efficiency of aid. Moldova`s preferable aid delivery instrument is direct
69

budget support, which besides increasing the ownership, alignment, decreasing of fragmentation
and overlapping and strengthening of the country`s capacities will help also reduce the transaction
costs. The decision to use or not the national systems, in this case, most have to do with the donor`s
interest rather than the soundness and reliability of country systems. Otherwise, one cannot explain
why under the same conditions, some donors prefer to use country systems, while others opt for
alternative modalities. This result indicates that foreign aid is oriented to satisfy first the donor`s
interests and only after Moldova`s merits.
Overall, the majority of donor`s aid can be considered aligned to country`s priorities. However,
problems observed with overcrowding of donors in particular sectors leaving orphan sectors, the
degree of fragmentation of projects (mostly technical assistance) and existence of parallel
implementation units, indicate that alignment might be rather the result of a compromise of the
interests of the donors and Government. Donors supported Government agenda mostly where it
has coincided with their own priorities. Whereas the major`s donors (EU, IMF, WB) preferred
approach is budget support (loans/grant) conditioned by policies adopted by the recipient (which
gives them capacity to influence), the other donor`s modalities (implementing UN institutions or
bilateral donors) is to follow a more selective alignment. They choose specific sectors relevant for
their interest/comparative advantage and expertise, and avoid alignment with Government`s
financial and procurement systems. The degree of alignment according to national priorities seems
significant, but it is in fact, a selective engagement. This leads to conclusion that for majority of
the developed countries foreign aid represents an instrument to satisfy their interests. Most active
donors in Moldova (in particular bilateral donors) concentrate their efforts in those areas, where
the degree of interdependence is higher. In particular, as it can be seen from the analysis, these
include security issues aiming to increase stability at the borders and only in the last years overall
country sustainability, as the borders in particular of EU moved closer (ensuring macroeconomic
stability of the recipient country, improving governance, social services, migration, border
management, transportation networks, energy, human trafficking/criminality, environment,
conflict management etc.).
The specific of aid instruments used has also suffered changes reflecting major donors interests.
Starting with 2010, these rely more on increase of the volumes of aid with a combination of
financial (budget support and investment projects) and technical aid (public administration reform,
providing expertise) which has the potential to produce significant and more rapid changes in the
70

recipient country. This approach was preceded by Moldova`s adoption of the policies (IMF, WB,
EU) which coincide with the major donors policy requirements and availability of strengthened
institutions. It represents a more active donor approach. The previous approach was based on
less generous allocations of technical assistance grants for improving governance/public
administration reform, democracy and human rights, social protection, macro-financial support for
stabilization and food security, humanitarian assistance budget support and represents an attempt
to stabilize the situation and gradual improve the institutions, rather than a genuine desire to
produce significant changes. Despite apparently economic dimension which foreign aid displays,
in fact, the reasons and implications are political and it cannot be expected that countries do not
act in their interests including also use of international institutions. Therefore, decisions
concerning foreign aid are most of all political, while the principles in accordance to which it is
implemented are economic.
Taking into account the above mentioned aspects, I incline to second hypothesis of my research
which says that foreign aid reflects rather donor`s foreign concerns and therefore, has more
moderate achievements in addressing country`s development constraints. Beneficiary needs are
addressed only in those areas, where it coincides with donor`s interests (reflected in priorities).
This indicates to realist interpretation of the foreign aid, in particular strategic development
proposed by Bermeo model. It is a softer version of realism admitting that foreign aid is targeted
to countries were the benefits for donors are high, due to such factors as proximity, historical ties,
and economic interconnectedness between a particular industrialized and developing country. For
such countries, it will be more effective to supply not only grants and technical assistance for
humanitarian reasons, but also to pursue economic development of strategic important allies to
ensure a certain economic development which would buy a safer and stable neighborhood. Thus,
donors have the interest to maximize both diplomacy and development. The modest level of
donor`s progress in adopting aid effectiveness criteria in Moldova and their selective engagement
in supporting EGPRS and NDS priorities demonstrates that quality of aid is affected by foreign
policy purposes. Most obvious it is in the behavior of bilateral donors. It is more difficult to follow
the degree to which multilateral organization represent the interests of some of its major
constituents. However, it might be the case, especially with adoption of certain policy conditions
which Moldova has to implement in order to obtain budget/macro financial support. The increased
interest shown by EU after 2004 enlargement for Moldova (due to security reasons) comparing
with other countries, the growing number of active bilateral donors and increasing EU
71

development banks allocations in Moldova, are just few examples in this respect. Soon, with the
rising level of income per capita, Moldova is expected to graduate from the group of countries
eligible for concessional loans from IDA. In view of Moldova`s European integration aspirations,
the other donors already announced (WB, Sida, US) their support for integration agenda. Thus,
EU will become the single important donor providing budget support and other kinds of aid which
will gradually increase its leverage in Moldova.
Foreign aid potential to promote development of Moldova is limited primarily by varying and
different donor`s interests to pursue Government agenda which affects the effectiveness of
delivered aid and to a less extent by its own institutional capacity constraints. Moldova should
further strengthen the institutional framework for aid management, negotiation, M&E systems and
absorption capacities to make good use of the available funds. Additionally, an independent
strategy from foreign aid funds must be developed in time to allow a better financing of country`s
development needs.













72

Annexes:
Table nr. 1 Evolution of Moldovas Key Macroeconomic Indicators, 2004 2012
Note: * At year-end
Sources: Ex-post Evaluation of the EUs Macro Financial Assistance to Moldova report (2013) World Development
Indicators WB 2013 compiled data from IMF World Economic Outlook; World Bank, National Bank of Moldova.







2004 2005 2006 2007 2008 2009 2010 2011 2012
Real Sector
Real GDP Growth (%) 7.4 7.5 4.8 3.0 7.8 -6.0 7.1 6.8 -0.8
Nominal GDP (USD billion) 2.6 3.0 3.4 4.4 6.1 5.4 5.8 7.0 7.2
GDP per capita (USD) 724 834 954 1234 1699 1527 1635 1971 2037
CPI average (% change) 12.4 11.8 12.7 12.4 12.7 0.0 7.4 7.6 4.7
Unemployment rate (%) 8.1 7.3 7.4 5.1 4.0 6.4 7.4 6.7 5.5
GDP per capita, PPP (USD) 2,124 2,362 2,558 2,713 2,986 2,883 3,073 3,336 3,368
Fiscal sector
Government Revenues (% of GDP) 35.4 38.6 39.9 41.7 40.6 38.9 38.3 36.6 38.1
Total Government Expenditure (% of
GDP)
34.6 37.0 39.8 42.0 41.6 45.2 40.8 39.1 39.4
Net Lending/Borrowing (% of GDP) 0.7 1.5 0.0 -0.2 -1.0 -6.4 -2.5 -2.4 -2.1
General Government Debt (% of GDP) 42.8 34.8 30.0 24.0 18.8 28.6 26.2 23.1 23.8
Monetary Sector
Central Bank Base Rate (%) 14.5 12.5 14.5 16.0 14.0 5.0 7.0 9.5 6.5
Private Credit Growth (%) 21.2 30.7 38.4 60.1 16.5 -5.2 9.9 15.6 16
External Sector
Current account balance (% of GDP) -1.8 -7.6 -11.3 -15 -16.1 -8.2 -7.8 -11.2 -6.8
Exports of goods and services (% of GDP) 51.0 50.3 44.8 45.5 41.1 36.8 39.4 45.0 43.6
Import of goods and services (% of GDP) 80.9 90.9 91.9 98.2 94.3 73.4 78.7 86.0 84.2
FDI (Net Inward) (% of GDP) 5.6 6.4 7.6 12.3 11.7 2.7 3.4 3.8 2.4
Personal remittances, received % of GDP 27 31 34 34 31 22 23 23 25
External and Debt Vulnerability
External Public Debt (long-term; % of GDP) 30.7 24.4 24.6 20.6 15.4 20.2 22.5 21.1 23.8
Public Debt Service Ratio 7.4 4.3 4.5 3.1 2.5 3.4 2.4 - -
Gross External Debt (% of GDP)*
GDP)
72.4 69.5 73.0 75.4 67.4 79.6 81.3 76.6 82.7
Gross Reserves (Including Gold) (USD
millions)
470 597 775 1334 1672 1480 1718 1965 2515
Import cover (months) 2.1 2.2 2.2 2.8 5.0 3.9 3.4 3.6 3.7
73

Table nr. 2 GNI per capita
GNI per capita, Atlas method (current US$)

2004 2005 2006 2007 2008 2009 2010 2011 2012
Albania 2030 2540 2940 3310 3850 4030 4040 4050 4030
Armenia 1160 1500 1960 2650 4110 3440 3330 3490 3720
Azerbaijan 950 1270 1890 2710 3870 4800 5370 5530 6220
Georgia 1100 1360 1680 2090 2460 2540 2680 2850 3270
Kosovo 2520 2730 3080 3230 3340 3520 3600
Kyrgyz Republic 400 450 500 610 770 860 840 900 990
Macedonia, FYR 2420 2830 3130 3390 4130 4450 4580 4710 4620
Moldova 730 890 1030 1160 1500 1570 1820 1980 2070
Tajikistan 270 320 370 440 570 650 720 780 860
Source: World Development Indicators WB

Table nr. 3 Foreign aid 2004-2012 in grants and loans

Figure nr. 1 Foreign aid flows for a group of countries

Source: OECD Stat extracts
Year Other Grants mln USD Gross Loans mln USD
2004 118.97 25.86
2005 173.14 32.23
2006 168.6 110.04
2007 211.77 90.64
2008 238.08 79.82
2009 246.12 28.7
2010 316.16 204.26
2011 310.81 155.03
2012 319.88 162.27
Total 2103.53 888.85
Grants and loans total 2992.38
Source: WDI, State Chancellery (report of external assistance 2012), own calculations
74

Table nr. 4

Table nr. 5


Table Nr. 6

Net ODA received per capita (current US$
Country Name 2004 2005 2006 2007 2008 2009 2010 2011 Average
Albania 93.2623219 99.85200852 101.202268 97.0209922 115.082392 113.278021 108.15382 110.578 104.8037
Armenia 83.7538488 56.4990678 71.7670287 117.068165 101.639368 177.204417 115.680939 127.586 106.3998
Azerbaijan 21.1593331 25.80003217 24.3253914 26.2442753 26.827487 25.904069 17.5728038 31.8563 24.96121
Georgia 72.5794873 66.97161462 80.9777171 86.5121684 202.497833 205.663243 140.403791 131.601 123.4009
Kosovo 443.645492 349.05501 366.854 386.5182
Kyrgyz Republic 51.2018336 51.88858327 59.510578 52.0936148 67.65375 58.2096484 69.8195635 94.8174 63.14937
Macedonia, FYR 126.306019 108.7536913 98.027463 95.7398098 97.5381283 91.6280341 89.0346187 91.5542 99.82275
Moldova 32.8835101 47.03795246 64.0715991 74.4470637 83.347642 68.3138308 132.049919 131.799 79.24381
Tajikistan 38.0286165 36.95456205 34.6882216 31.234597 39.6797252 54.8003624 57.2481103 45.3649 42.24989
Source: World Development Indicators (WB)
*for 2012 data are not available
Net ODA received (% of GNI)
Country Name 2004 2005 2006 2007 2008 2009 2010 2011 Average
Albania 3.92278825 3.73663067 3.44276144 2.79110009 2.76562098 2.97232442 2.89735277 2.70486045 3.15418
Armenia 6.87860135 3.38449233 3.26548992 3.69022396 2.49422961 5.96702737 3.57143896 3.53665731 4.09852
Azerbaijan 2.20250961 1.86663603 1.12770996 0.80518453 0.53938796 0.56844915 0.32184127 0.51810527 0.993728
Georgia 6.02242608 4.51223111 4.49357611 3.71869501 7.00072249 8.49462819 5.47645756 4.21073532 5.491184
Kosovo 14.0431549 10.8503688 9.92463621 11.60605
Kyrgyz Republic 12.3878725 11.2949655 11.1469847 7.31740994 7.25540197 6.96312319 8.54683799 9.22550446 9.267263
Macedonia, FYR 4.80820848 3.86784499 3.14170495 2.58323562 2.10731084 2.08499999 2.03115173 1.87633832 2.812599
Moldova 4.03813385 5.05258074 6.03104514 5.52594312 4.47229578 4.24173934 7.47021795 6.19139746 5.377919
Tajikistan 12.6737422 11.2589658 8.84027887 6.11266686 5.65106915 8.31721961 7.83738165 5.50424074 8.274446
Source: World Development Indicators (WB)
*for 2012 data are not available
Dataset: Aid (ODA)
disbursements to countries
and regions [DAC2a]
Average Total
Recipient
Albania
299.95 319.14 321.78 307.19 363.27 356.96 340.7 350.75 341.62 333.48444 3001.36
Kosovo
.. .. .. .. .. 781.47 619.81 657.02 567.68 656.495 2625.98
Macedonia, FYR
263.44 227.3 205.25 200.73 204.71 192.47 187.17 194.97 148.94 202.77556 1824.98
Moldova
118.51 169.11 229.73 266.29 297.56 243.58 470.37 460.59 476.55 303.58778 2732.29
Armenia
253.41 170.34 215.51 350.02 302.63 525.97 342.82 380.92 291.95 314.84111 2833.57
Azerbaijan
175.76 216.51 206.39 225.21 235.1 231.77 159.11 286.41 337.61 230.43 2073.87
Georgia
313.42 292.09 356.14 379.65 887.71 907.16 625.19 591.53 656.46 556.59444 5009.35
Kyrgyz Republic
261.37 267.88 310.55 274.45 359.83 313.36 380.37 525.03 472.91 351.75 3165.75
Tajikistan
253.42 251.5 241.24 222.11 288.68 408.12 436.65 347.51 393.91 315.90444 2843.14
data extracted on 01 Jan 2014 13:17 UTC (GMT) from OECD.Stat
2011 2012
Amount type Current Prices (USD millions)
Year 2004 2005 2006 2007 2008 2009 2010
Donor All Donors, Total
Part 1 : Part I - Developing Countries
Aid type ODA: Total Net
75

Figure Nr. 2
Source: World Development Indicators (WB) and OECD stat extracts

Table nr. 7
101

Source: Driton Qehaja Fiscal Policy Response to External Crises: The Case of Moldova 1998-2010. IMF working
paper 2012

101
The foreign aid numbers recorded in the budget often differ from funds which the donors are reporting for
OECD. Some aid activities are implemented by other actors (for instance civil society) about which the Government
does not have information.
118.51
169.11
229.73
266.29
297.56
243.58
470.37 460.59
476.55
87.69
190.7
258.68
536.02
726.61
135.15
201.51
276.42
184.94
705.23
915.08
1175.82
1491.26
1888.02
1198.63
1351.43
1600.4
1786.32
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2004 2005 2006 2007 2008 2009 2010 2011 2012
Remmitances/FDI/ODA flows in Moldova
2004-2012
ODA FDI Remmitances
76

Table nr. 8 Foreign aid distributed according the EGPRS priorities 2005-2007, mil. USD
Budg
et
supp
ort
Pub
lic
sect
or
Priv
ate
secto
r
Agricult
ural
sector
Infrastruc
ture
Social
protect
ion
Educat
ion
Heal
th
Regional
develop
ment
Enviro
nment
WB 10,0 2,8 7,6 8,9 49,5 5,0 6,4 6,0
EU 73,0 14,5 2,7 4,7 6,0 2,9 2,9
US 13,7 20,0 24,0 2,0 0,7 4,5
Holland 3,5 4,0 2,0 1,0
Sida 6,0 5,2 1,8 6,4 0,8 0,2 0,2
Dfid 2,5 1,0 1,0 0,3 1,0
Japan 4,5 3,6
Switzerl
and
0,1 1,6 0,2 4,0 3,2 0,2
Turkey 4,9
IFAD 6,8
UNDP 3,4 0,2 0,2 1,6
GEF 6,0
Total 89,0 45,8 36,4 40,9 64,2 19,3 17,8 19,0 5,9 7,0
Gap
original
EGPRS
- 15 10,5 31,5 141 9,6 26 138 0 48,7
Source: EGPRS 2004-2006, Sandu Maia 2009, Asistena extern, in: Prioriti de Guvernare 2009, ADEPT report,
pp. 311-328

Figure nr. 3
102

Source Donor`s mapping exercise 2009. The table with data can be found at http://www.un.md/donors/meetings/
meeting from June 24, 2010 file (ODA by NDS Objective)
103


102
At the exchange rate from 07/01/2009 1 MDL = 0,08 USD http://www.bnm.md/en/rate_convertor
103
It is an excel document which could not be placed here.
77

Table nr. 9

Source Donor`s mapping exercise 2009. http://www.un.md/donors/meetings/ meeting from June 24, 2010
















NDS objectives being supported by Development Partners**
Development
Partner
2.1. 2.2. 3.1. 3.2. 3.3. 3.4. 4.1. 4.2. 4.3. 5.1. 5.2. 5.3 5.4. 5.5. 5.5.1 5.5.2 6.1. 6.2. 6.3. 6.4. 6.4.1 7.1. 7.2. 7.3. 7.4. 7.5. 7.5.1
ADA 9
Bul garia 1
Czech Republi c 0
DFID/UK 10
EC 9
Germany (GTZ, KfW) 5
Hungary 9
IFAD 1
ILO 3
IOM 9
Li echtenstei n 2
The Netherl ands 1
SDC 6
SIDA 16
TIKA 8
UNAIDS 2
UNDP 8
UNFPA 6
UNICEF 13
UNIFEM 1
USAID 10
WB 13
WHO 1
Total 3 10 7 12 5 4 5 6 1 5 5 3 1 2 0 1 2 8 11 8 7 3 4 1 9 1 3 5 3 2 4
**Source: Development Partner mapping Jul y 2009 and Ai d Coordi nati on Uni t data March 2009
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