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Agricultural Solutions to Poverty in Moldova

Poverty in Moldova
Over the past decade, Moldova had remarkable progress in the form of economic growth, the reduction of poverty and greater shared prosperity. However, poverty in Moldova is at one of the highest rates in Europe.

The World Bank reports that Moldova’s economy had rapid growth over the past decade, with an average growth rate of 5% per year. In addition, the poverty rate dropped from 60% to 27% between 2000 and 2004 and reached 11.4% in 2014. While impressive, these data points fail to demonstrate the instability caused by the very factors that spawned this progress.

Economic growth was largely driven by an increase in private consumption. However, this does not necessarily signal that Moldova’s economic situation improved, as this growth is primarily funded by remittances. In 2014 remittances accounted for 26 percent of Moldova’s GDP and were received by more than 25% of households. The decline in employment from 55% in 2000 to 40% in 2014 further demonstrates that while Moldovans may have more money and are actively participating in the economy, the past decade’s growth was not spurred by internal progress.

Any steps taken to create such progress face significant obstacles due to spatial and cross-group inequalities as access to assets, services and economic opportunities varies greatly across the population. The lack of progress toward expanding economic opportunities within Moldova pushed many to leave the country. The lack of employment opportunities was particularly damaging to rural areas, where the slow-growing farming industry remains the primary sector. Limited access to markets and non-farm jobs fostered a system where residents of rural areas are persistently poorer.

Declining fertility and the increasing emigration of the young population left the state with a rapidly aging population and a shrinking workforce. This means that pensions, which were a significant generator of income growth over the past decade, are no longer a viable tool for lifting households from poverty.

Rural areas are home to most of the poorest 40% of Moldova’s population. Residents of these areas have significantly less education and typically have inadequate access to healthcare. Even when health services are physically accessible, many lack insurance and either refuse to pay for care or are driven further into poverty in Moldova by high out-of-pocket costs.

Many believe that the 2014 association agreement with the European Union, which opened up trade opportunities, will stimulate Moldova’s domestic economy in preparation for greater dependency on exports. However, this fails to account for the significance of Moldova’s small scale farming sector which, by design, does not have access to the same opportunities as industrial farms.

Recommendations for leveling these inequalities and avoiding economic stagnation include strengthening the domestic labor market, addressing corruption in the business environment and improving the government’s social assistance scheme. Perhaps most important is the advice of Alex Kremer, World Bank Country Manager for Moldova, who urges that “enhancing the livelihoods of small farmers is paramount” for Moldova to foster internal economic progress.

Given the persistent spatial inequalities in living conditions and the fact that agriculture accounts for such a large portion of employment, it is important to note that the causes of poverty in Moldova remain much the same as they were a decade ago. To eradicate them once and for all, Moldova must invest in its human capital by improving living conditions across the rural-urban divide and foster quality education and healthcare services.

Alena Zafonte

Photo: Flickr