Comments on the Government Decision No. 225 of March 12, 2018 to approve the Program on Road Fund distribution for the national public roads in 2018 and the Program for the periodic repair of national public roads (within localities), local, communal roads and streets.
In all certainty, the road sector is a priority for the Republic of Moldova. We all want better roads, including in rural areas. Would this mean that any allocation in this sector is justified, without taking into account the capacity to spend resources? Of course not. It is obvious that the need itself cannot be equated with the implementation of road repair projects at any price and in any circumstances. Moreover, the inappropriate implementation, in a hurry, surpassing the normal capacity to carry out the works, unduly increases the costs of the works, the quality suffers, and corruption gains its momentum. Finally, we face a situation when the resources were spent, but to no avail, the roads are still in bad shape.
In the following, we will analyse, the initiative of the Democratic Party of Moldova (PDM) on local road repairs, from a budgetary standpoint. To begin with, we will present what resources have been allocated to the road sector in the State Budget approved for 2018.
In total, for the development of roads in the state budget for 2018, MDL 4,069 mil. was allocated. This amount is distributed as follows:
i. projects financed from external sources - MDL 2 314.2 mil. (investments of MDL 2 244.5 mil. and MDL 69.6 mil. for other services), road rehabilitation and construction (projects after which the roads start a new life cycle):
· Road Sector Support Program – MDL 2 187,9 mil.;
· Rehabilitation of local roads project– MDL 126,3 mil.;
ii. Road Fund allocations for road maintenance and repair of national roads – MDL 972,5 mil.;
iii. transfers from the State Budget to Local Public Authorities (LPAs) – MDL 743,4 mil.:
· To level I LPAs – MDL 280,9 mil.;
· To level II LPAs – MDL 462,5 mil.;
iv. for the development of road infrastructure within the projects developed by the Ministry of Regional Development and Environment – MDL 39,0 mil.
In accordance with the approved budget, local public authorities (LPA) were to receive transfers amounting to MDL 743.4 mln. and conduct tenders for road repairs following the objectives and priorities of each authority in the road sector. Also, for the execution of the Road Fund, the Government was to adopt a decision determining the distribution of the money from the Road Fund, a technical procedure executed every year. In this regard, the Government approved on March 12, 2018 Decision no. 255 for the approval of the Program on Road Fund distribution for the national public roads in 2018 and the Program for the periodic repair of national public roads (within localities), local, communal roads and streets. But this document contains something more.
In fact, the Government Decision (GD) comes to support and/or implement the PDM initiative on local roads. Thus, the GD has the primary objective of approving a new Program (which is not clear when, how and by whom it was developed) for repairing local roads, communal roads and streets, using for this purpose a part of the resources from the Road Fund. According to this GD, out of MDL 972.5 million approved for the Road Fund, MDL 492.0 million is to be spent for the maintenance of national roads within the localities. That is, approximately 51% of the Road Fund is allocated for national roads within the limits of localities, for about 264 km.
If we take into account that the length of national roads in the Republic of Moldova is about 5 866 km (express roads (M) 606,6 km, Republican (R) 1987,9 km and regional (G) 3271,4 km), then it is quite difficult to understand what is the logic of the authorities regarding the maintenance of national roads. The Road Fund was created primarily to prevent the deterioration of rehabilitated or new built roads, and where costs are allocated in accordance with maintenance and repair plans to prevent their deterioration and to ensure quality conditions of circulation. However, with such an approach, a new rehabilitation of already rehabilitated roads will be needed soon, not to mention the ensuring stable quality of the roads.
The second program approved by GD no. 225, "The periodic repair of national public roads (within localities), local, communal roads and streets" practically does not have budgetary coverage. It provides repair works totalling MDL 1,601 mil., out of which MDL 903.0 mil. for the streets and communal roads, MDL 206.4 mil, for local roads, and national roads (within or passing through localities) MDL 492.0 mil. The last amount is provided in the Road Fund, but the remaining amount (MDL 1 109.4 mil.) is allocated without indicating the budgetary source. In the GD decision it is mentioned that the financing of the works for the local roads and for the streets and the communal roads will "be carried out by the Ministry of Economy and Infrastructure on the account of the means of the state budget, as the necessary financial resources are accumulated". It is noted that this provision does not indicate the source of the State Budget from which these works will be covered. It is a general and unnecessary provision, which would not normally be accepted by the Ministry of Finance. The State Budget approved for 2018 does not contain resources dedicated for these expenditures. So, in conclusion, we can say that this Government Decision on the part of the work worth MDL 1 109.0 mil. at the time of its approval did not have budgetary coverage.
Another possible interpretation of the Local Road Repair Program approved by this Decision would be that some of the work in the program will be covered from the State Budget transfers to the LPAs. In this case, the works financed by special transfers from State Budget will be done by the LPAs. Taking into account that the amount of special transfers for roads from the State Budget is MDL 734.0 mil., and MDL 492 mil. are covered from Road Fund, this would mean that the volume of works not covered in the approved State Budget would be MDL 366.0 mil., out of the MDL 1,601 mil in the announced program.
We can conclude that Government Decision no. 225 was not well founded, was not discussed with the local authorities, and the approved expenditure program are not fully covered in the approved State Budget for 2018. Also, this decision violates the provision of Art. 17, paragraph (2) of Law no. 181/2014 on public finances and budgetary-fiscal responsibility, which states that decisions cannot be implemented during the current budget year, if it is leading to "an increase in budget expenditure if its financial impact is not foreseen in the budget." This GD can be put into practice only after the Government's budget redistribution within the limits set by law no. 181/2014, or by amending the law on the state budget for 2018. The GD can be implemented only in the part related to the distribution of resources from the Road Fund.
It is also important to keep in mind that local roads fall under the competence of LPAs of Level I and II. In this respect, the implementation of such a program can only be done successfully through the direct implementation of the projects by the LPAs. Therefore, the best approach to implementing the program would be by supplementing special transfers to LPAs. Thus, the analysis of the content and the manner in which GD no. 225 points to its populist and electoral character.
The process of allocating resources for the maintenance of national roads must be based exclusively on objective criteria, with the main purpose of maintaining the good quality of roads, traffic conditions and avoiding premature road deterioration. Expert-Grup has warned in several studies on issues related to Road Fund management (see studies in 2015 and 2012). The establishment of the Road Fund was a step forward in road financing, but its operation does not correspond to good practices. Fund resources continue to be allocated non-transparently, there is no separation of supervisory and management role, participation in fund management of non-governmental representatives is formal etc. With the approval of the Law no. 181/2014 on public finances and budgetary-fiscal responsibility, there is a clear tendency to liquidate it and finance the sector through the budgetary programs mechanism. Both approaches can be successful if they are applied consistently and correspond to actual development of public finances. However, as can be seen from GD no. 225, the current political class can accept any model of budgetary planning, only if political control over financial allocations is maintained.