The cost of corruption in the Republic of Moldova and who covers it

Publishing date: Tuesday, 21 November 2017
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This comment paper gives a brief analysis of the cost of corruption in the Republic of Moldova, on the basis of the available meta analyses. Every year the Republic of Moldova loses from 8% to 13% of the Gross Domestic Product due to corruption, with about MDL 11.8-17.7 billion lost in 2016 only. These amounts exceed all the expenses made in 2016 for all pensioners and their social care allowances.

Corruption is a ‘bad version of Robin Hood’, who steels from the many for self-use and the use of own group. Corruption can be defined as a process by which the current and future wealth and public/common benefits are unfairly distributed to some individuals or groups of individuals. In other words, corruptible people take advantage of corruption acts on the account of the many. So, the great majority of people are the one that should be interested the most and, subsequently, should be the driving force in changing this state of being. The main obstacle in this regard is the fact that citizens cannot always link corruption acts with the real losses caused to each of them. In most cases, in the citizens’ view, the scale and impact of corruption narrows down to individual experiences of bribe-giving, however, even though, the losses from bribery are important, they are quite far from picturing the real corruption.

Moldova’s total losses from corruption can be estimated at 8% to 13% of GDP. It is quite difficult to assess the losses from corruption and there are no conclusive data in this respect now, neither at global, nor at local level. At the same time, there are a number of estimates that can help show at least the scale of losses caused by this phenomenon. The estimated costs of corruption vary depending on the applied methodologies, however all of them lead to the conclusion that corruption is a barrier to economic development. Thus, a study conducted in 2005 reveals that globally the increase of corruption by about one percentage point reduces GDP growth by 0.13 percentage points. As regards the corruption level in the Republic of Moldova (the same period), it constituted 0.12 p.p. or an annual average reduction of GDP per capita by USD 387 (prices of 1995). The cost of corruption is frequently estimated at 5% of the global GDP. On the account of this estimation and recognizing the direct link between the Corruption Perceptions Index (CPI) and losses from corruption acts, Moldova’s losses caused by corruption would constitute about 8.7%. In such conditions, the total loss incurred in 2016 amounts to MDL 11.8 billion. This amount exceeds all the expenses made in 2016 for all pensioners and their social care allowances. In addition, a recent estimation of this phenomenon in EU countries suggests that total losses in EU countries account for 4.9%-6.3% of the global GDP of the EU-28. The cost of corruption (based on CPI) is even higher in such countries as Romania – 15.6% of GDP, Bulgaria – 14.22%, Greece – 13.76% and Latvia – 13.16%. In this context, given the relatively similar conditions between these countries and the Republic of Moldova, we can assume that the total losses from corruption would be of at least 13% of GDP or MDL 17.7 billion in 2016.

The amount of bribes paid is higher than annual expenses for all the roads across the country. According to a sociological research made by TI-Moldova, over MDL 1.27 billion or over 1.1% of GDP were paid in 2014 as bribes, of which MDL 899 million were paid by households and MDL 387 million by businesses. At international level, the payments made as bribe are estimated at about 2% of the Gross Domestic Product (GDP), but if considering that Moldova is among the countries with a high level of corruption, most likely the amount of total bribe is even higher. Thus, in 2016, the annual direct losses of the budget (or annual revenue of bribe takers) were estimated at 1.1%-2% of GDP, or MDL 1.5-2.7 billion in absolute terms. So, the annual direct losses caused by bribe account for 3.1%-5.6% of the National Public Budget (NPB), this amount covers from 22% to 40% of the pensions or is the equivalent of all expenses for roads made in 2016. In fact, this amount is most likely even higher, because the surveys do not include the transactions made by truculent and closed corruptible groups, which, despite their smaller number, entail higher amounts.

Year after year, the corruption-related losses in the public budget are equal to half the amount of all the pensions. Budget expenses are another major source of corruption. In 2016, the expenses from the National Public Budget (NPB) amounted to MDL 48.5 billion, of which MDL 18.4 billion – expenses for goods and services, MDL 8.9 billion – expenses for staff and MDL 15.9 billion – social expenses. In public procurements, the cost of corruption accounts for about 20%-30%, while the level of losses related to expenses for labour remuneration and social payments have been less studied so far. At the same time, we know that corruption exists in both sectors (people employed only on the paper, who do not comply with the requirements, etc. or bribes given in exchange of allowances and a higher pension). Given the 10% incidence of corruption related to social and unemployment payments, and if we admit that the level of payments is, at least, the same as the average weight of bribe in the amount of sanctions, which is 16.6%, then the cost of corruption in these areas may be estimated at 1.7% of these expenses. Under these circumstances, the total damages caused by corruption in executing budget expenses would be, at least, of MDL 4.2 billion annually or about 50% of the annual expenses for pensions.

Political class and bureaucrats are entrusted to manage property worth much over MDL 150 billion every year. In the Republic of Moldova, corruption is also widespread in public enterprises management, rental of real estate, privatisation, establishment of public-private partnerships, etc. The amount of real estate and financial assets recorded in the Public Property Register (movable and immovable property, shares in publicly owned enterprises) constitutes about MDL 80 billion (according to the public property balance as of the end of 2016). In addition, we should add here natural resources too (land fund, forests, water, mineral deposits, airspace), the use of which is insufficiently monitored by the society. According to some estimation, the economic value of forests, alone, would be of MDL 22 billion10. Corruption in public property management is even harder to estimate because it implies a number of transactions involving some small circles of actors, usually, closely related to political parties and/or circles from law enforcement bodies and justice sector. On the basis of the little information available in the public space (‘Metal Feros’, Chisinau International Airport, privatisations) about losses due to corruption in the property management area, we can say they are quite significant, but even a rough estimation is not available now.

The losses due to corruption are much higher than the benefits obtained by the parties to the corruption act. An important point to note is that the damages caused by corruption are not only the direct and immediate losses, in other words, not only the ones that can be appreciated when the corruption act takes place. They have a multidimensional effect that can be felt long after the corruption act. The total costs of corruption exceed a lot all the benefits obtained by beneficiaries of corruption acts, which is a net loss for the society. To illustrate it in an example, a person who acquired a plot of land by bribing the authorities is, as a rule, less competitive than the ones who did not bribe, hence the land will not be use in most effective way. Thus, usually it is not possible to recover in full the damages brought to the society, even if confiscating all the goods resulting from corruption. Moreover, in the long run, the damages caused by corruption tend to become more generalized and extended, affecting even those people who took part in corruption act. This translates into in poor services in health care, education, personal security and the security of family members, etc., when beneficiaries of corruption acts use such services (including capital preservation) in the developed countries, with a lower level of corruption.

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 Infographic (ru)