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The Role of the

Government in the
Economic Growth
of the Republic of
Made by FB-157 students:
Babenco Nicoleta
Novitchi Alexandrina


Economic functions of government
Growth performance
Fiscal policy
Government spending
Wages and prices
- Limited government
- Regulatory Efficiency
- Open Markets

Review the economic growth of Republic
of Moldova
Analyze governmental levers of stabilizing
the economy
Evaluate the governmental spending
Provide statistics of the current situation in

Government-A group of people that governs a
community. It sets and administers public policy and
exercises executive, political and sovereign power
through customs, institutions, and laws within a state.

Maintaining Legal and Social Framework
Providing Public Goods and Services
Maintaining Competition
Redistributing Income
Correcting for Externalities
Stabilizing the Economy

Growth Performance
1990 -the government has liberalized most prices and has phased
out subsidies on most basic consumer goods.
1995- The National Bank of Moldova (NBM) introduced a
new, stable, national currency and initiated credit auctions. As a
result, the rate of inflation was reduced from 84% in 1993 to 30%
in 1995.
1998- currency crisis
2000-economic recovery

Fiscal Policy
Moldova managed to accomplish a dramatic fiscal adjustment reducing
deficit of the consolidated budget from 9.7% of GDP in 1996 to 0.9% in 2002 .
This allowed for tightening of monetary policy, stabilizing leu and decreasing
Reduction of expenditure from 36.3% of GDP in 1996 to 24% of GDP in 2002
was achieved mainly due to a massive reduction in net lending to enterprises
through the budget and almost complete elimination of quasi-fiscal subsidies in
the form of bank credits directed to specific sectors and borrowers.
There was a slight decrease in revenues from 26.6% of GDP in 1996 to around
23% in 2002.

Government Spending
In the first years of Moldovas independence, as GDP fell, expenditures
were not reduced at the same proportion. Consequently, in 1997, consolidated
budget expenditures amounted to more than 40% of GDP. Since then, they
were cut to only 24% of GDP in 2002. This reduction has not been easy.
Expenditure rationalization involved, among others, elimination of almost all
subsidies, reduced health services, better targeting of social assistance, and
decreasing number of public employees. Government succeeded in bringing
consolidated budget expenditures on the national economy down from 14% of
GDP in 1997 to slightly over 2% of GDP in 2002. The slump in public
investment continued, falling to under 5% in total expenditure in 2002 and
under 1% of GDP.

Wages and Prices

The government influences prices through the large state-owned sector.
According to the Ministry of Economy, the state regulates the prices of goods
and services provided by monopolies and the prices of electric or thermal
energy, land, medical services, and services offered by local tax regions.
Moldova has two legal monthly minimum wages:
1.wage for state employees
2.wage for the private sector.

According to the 2016 Index of Economic
Freedom, Moldova ranks 117th globally with
the overall score of 57.4, a decrease of 0.1
relative to 2015.

Limited Government
The top personal income tax rate is
18 percent, and the top corporate tax rate
is 12 percent. Other taxes include a valueadded tax. The overall tax burden equals
31.5 percent of GDP.
Government spending amounts to 38.5
percent of total domestic output. The
government budget has recorded a small
deficit, and public debt has reached a level
equivalent to over 30 percent of GDP.

Regulatory Efficiency
Bureaucracy and a lack of
transparency often make the formation
and operation of private enterprises
costly and burdensome.
Labor regulations are rigid. The nonsalary cost of employing a worker is
high, and restrictions on work hours are
A marked pickup in inflation was driven
by a rapid fall in the leu in early 2015.

Open Markets
Moldovas average tariff rate is 5.7 percent.
Foreign and domestic investors are generally
treated equally under the law. Most stateowned enterprises have been privatized, but
some remain in operation in such sectors as
energy, telecommunications, and
transportation. The financial sector is
relatively stable, but the level of overall
financial intermediation remains shallow, and
government interference is significant.

The budget formation process in Moldova has been
thoroughly modernized in the last few years, but the
government should apply more effort to the
enforcement of the existing fiscal rules. One of the
most important goals remains gradually narrowing
the budget deficit by:
- Increasing excise taxes
- Cutting expenditure
- Reducing external debt
- Fighting corruption
- Reducing administrative employment