At the start of this September, the European Court of Auditors, which is also called the guardian of the European funds, issued a special report on the EU financial support to Moldova aimed at strengthening the country’s public administration. The general conclusion of the auditors was that this support was partially effective in strengthening the public administration.
The auditors examined budget support programs in the sectors of justice, public finance, public health and water, which received the largest part of the EU assistance. The auditor’s conclusions do not refer to the whole EU support, but some of the identified problems can be considered structural, such as insufficient political will or the EU’s slow reaction to risks associated with the European assistance.
It is for the first time that the European Court of Auditors produces a special report on a particular country of the Eastern Partnership. At the same time, Moldova is not the only country examined by the guardian of the EU funds in 2016. Thus, until September 2016, the special reports focused on Macedonia (a candidate country for EU membership since December 2005) and Greece (an EU member state since 1981). The special reports envision the auditing of specific budget areas of the EU, chosen by the auditors, in accordance with Article 287 (p.4) of the Treaty on the Functioning of the European Union.
Earlier, Moldova was included by the European Court of Auditors, alongside Belarus and Ukraine, in a special report on EU assistance in the areas of freedom, security and justice of November 2008. In that report, the auditors formulated a series of recommendations for the European Commission, including the necessity of strengthening the human and operational capacities of the EU Delegation to Moldova and Ukraine, focusing on the growth of the EU visibility, improvement of coordination between different donors and adoption of a more realistic attitude to the implemented projects.
Details about EU budget support
The Court selected four areas for auditing: justice, public finance, public health and water, whose value amounts to €218.6 million.
Thus, there were assessed two EU sector budget support projects in public administration with major functions (transversal functions): reform of the justice sector (initiated in 2013) and reform of public finance (initiated in 2014). Only a part of the assistance was disbursed to justice (€28.2 million of the total of €58.2m planned) and to public finance (€8m of the total of €33m planned). The partial disbursement of the EU financial support is due to the defective implementation of reforms such as the justice sector reform.
Another seven projects assessed by the auditors are related to public administration, but are narrower and aim to improve public services: water sector (four projects to the total value of €48.5m) and public health sector (three projects to the value of €52.1m). By one project in each of these sectors is under implementation. The other five were completed. The projects from the more specific areas (water, health) benefitted from larger financial support owing also to the insignificant involvement of the political factor (political will).
Also, the Court assessed a series of technical assistance and twining projects of the EU, which are considered as traditional projects, implemented in 2009-2014, and are associated with the sector budget support provided in the four audited sectors.
Deficiencies of EU assistance
According to the European Court of Auditors, the EU faces problems in the process of implementing its assistance owing to the political crises, macroeconomic imbalance, weak governance and reduced capacities of the local public administration.
The Court notes that the main shortcoming of the European Commission is related to the conceptualization and, respectively, implementation of the assistance projects. The given observation can be interpreted as an allusion to the fact that the EU assistance does not precisely reflect local realities. This supposition is also confirmed by the Court’s option that the EU programs were not sufficiently aligned with Moldovan strategies. Also, the Commission could have responded more quickly when risks associated with the support materialized.
A separate aspect underlined by the Court is that the Commission did not fully use its power to set preconditions for payment, many of the requirements being too simple (publication of reports – public finance; adoption of legislation – justice). The Commission could have been more stringent when assessing whether conditions had been fulfilled and the granting of additional incentive‐based funds was not fully justified. The Court recommends the Commission to use the OECD instruments to establish measurable indicators for assessing the conditions met by the beneficiary country (actions versus obtained results).
Also, the Court criticized the application of the ‘more for more’ principle. Thus, this considers that the provision of funds as a stimulus for the alleged progress made wasn’t justified. It gave as an example the additional assistance of about €90 million in budget support allocated in 2012-2014. The Court reiterated that financial stimuli were provided even if Moldova wert through an ‘institutional collapse’ in 2013. That year, the Government headed by Vlad Filat was dismissed mainly by the votes of the Democrats and Communists (March 5, 2013) and the country entered a cyclone of successive political crises.
Finally, the Court ascertains that while projects generally delivered the expected outputs, the results were not always sustainable. It refers to the project concerning the capacity of the State Chancellery and the EU High Level Policy Advice Mission to the Republic of Moldova (2010, 2012, 2013 until now). Therefore, it recommends adopting ‘exit strategies’ on the competition of projects so as to ensure the sustainability of the implemented projects.
Position of European Commission and European External Action Service
In response to the conclusions of the European Court of Auditors, the European Commission and the European External Action Service said the budget support for Moldova was stopped until this fulfills the general conditions related to macroeconomic stability and budget transparency. The Commission also reiterated that the agreement with the IMF is an essential condition for resuming budget support.
The Commission contradicts the Court as regards the aligning of the EU support with local strategies. It explains that the situation in Moldova is volatile owing to internal and geopolitical factors. That’s why the Commission tends to be flexible and distances itself from superficial approaches. In the same connection, the Commission notes that the budget support provided by tit combines a number of interdependent elements (financing actions, institutional capacity, political dialogue and performance indicators).
The Commission also reacted to the Court’s objections concerning the application of the ‘more for more’ principle. It specified that the decisions to offer stimuli were taken based on internal analyses and with the approval of the EU member states (which can block such decisions if they consider them inopportune or risky).
The Commission stresses that it applies stricter measures to attenuate risks associated with the provision of budget support in accordance with the new approach of May 2012: eligibility criteria concerning transparency and surveillance, official risk assessment process, including more rigorous criteria on public finance management.
Situation in banking system remains in the center of attention
The Court’s report brings back into focus the banking frauds that were revealed in November 2014, even if their symptoms were evident in 2012-2013.
In its response to the European Court of Auditors, the European Commission explains that the first decisions to suspend the budget support for Moldova were adopted in December 2014, at the level of the Commission’s Budget Support Steering Committee. Among the decisions adopted then were to review the methods of providing support in 2015 and to introduce additional risk mitigation measures. The meeting of the Budget Support Steering Committee followed in February 2015, where the risk level in the case of Moldova was discussed. This determined a more attentive monitoring of the budget support transactions on the part of the Commission. Only afterward, was the EU Delegation to Moldova empowered to ensure more attentive monitoring of the risks associated with the financial assistance. Consequently, the budget support for 2015 was reduced substantially compared with the previous years.
In its response, the Commission also reminds that the signing of an accord with the IMF was set by it as a key condition in July 2015 for resuming budget support.
The Commission says the Moldovan authorities, together with the international partners, cooperate with a view to establishing a mechanism for recovering all the stolen funds. Moreover, it assures that the banking frauds affected the depositors in Moldova, not yet the money of the European taxpayers.
Instead of conclusion…
The EU budget support is implemented in Moldova with particular deficiencies related to the setting of conditions, ensuring of sustainability and insufficient utilization of the traditional assistance (twinning, technical assistance). But these aspects should be analyzed separately, avoiding the tendency to generalize.
Evidently, the arguments of the European Court of Auditors are pertinent and result from the Moldovan realities, where the political situation is changing, while the European bureaucracy is not always able to anticipate the developments. From this viewpoint, the Court’s recommendations to the Commission must be taken into account and implemented as soon as possible.
First of all, the prevention and mitigation of risks based on the early warning system at the EU level should be used more actively and strictly. The local players (civil society) could also be involved in this process. Secondly, the EU support must be connected to very precise reform agendas, credible and feasible local strategies.
Thirdly, the conditions and ‘more for more’ principle imposed by the EU should imply attitude and well-defined, strict, swift and proportional actions so as to effectively constrain the Moldovan authorities to fulfill the commitments.
Ensuring of the European support’s sustainability in all the projects coordinated by the EU is a crucial element without which the reforms done in Moldova can be discredited, as the image of the European institutions that spend European funds in Moldova can be.
The enhancements of the efficiency of EU budget support is essential for doing essential reforms with a major impact on the people, preventing simultaneously new system crises like that in the banking sector.
Dionis Cenușa is a politologist, holding an MA degree in interdisciplinary European studies from the College of Europe.
Areas of interes: European integration, European policies, EU's foreign policy, migration and energy security.
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