Study on Political Clientelism in the Management of Public Funds (Updated edition)

The updated edition of the ‘Political clientelism in the management of public funds’ Study was drafted under ‘Inform, Empower, Act! Civil Society for good budgetary governance in Moldova’ project. The analysis is part of component 3 of the project ("Act") and is part of the research activities aimed at promoting changes in the process of allocating financial resources from central to the local level. It is based on the study, developed in 2020 based on a specific methodology by a team of consultants of the Expert-Grup Independent Think-Tank and the Institute for European Policies and Reforms (IPRE). 

The purpose of the paper is to identify the phenomenon of political clientelism in allocating funds from the central budget to local public authorities and to assess its extent both at the aggregate and individual level for different types of funds. Thus, the main goal of the study is to identify indices of political clientelism for each transfer instrument and to calculate the aggregate index of political clientelism for 2018-2021. 

The paper is structured in three basic chapters, as follows:

Chapter I — describes the general approach to ‘political clientelism’ used in the study. It also presents the situation of mayors in terms of their affiliation to the ruling parties. At the end of the chapter, the methodology of the whole research is presented, including how to calculate the Political Clientelism Index.  

Chapter II. It is the main component of the study and presents the forms of political clientelism and the indices identified in the management of public money. It covers both the classical funds that are set up within the state budget (National Environmental Fund, Moldova Social Investment Fund, Regional Development Fund) and other mechanisms for allocating public money to level-one local public authorities. It is about the allocations for implementation of specific programs (e.g. ‘Good Roads’ Program), the transfers approved on MPs’ proposal in the context of the state budget approval, or the allocations from the Government’s Emergency Funds.

Chapter III. Presents the overall results of the Political Clientelism Index for 2018–2021. It also highlights several conclusions about this phenomenon and proposes several recommendations to improve the situation in terms of authorities taking responsibility in allocating and using public funds.  

Executive Summary

Political clientelism is considered to be a common practice in relation to public finances. For the purposes of this research, political clientelism is analysed based on a broad definition, focusing on economic benefits. Thus, various instruments for allocating public funds to level-one LPAs (mayoralties) are assessed from the perspective of deciding on their distribution. The study also presents an index of political clientelism for each tool, as well as an overall aggregate index. 

Mayors’ migration from one political party to another is a common practice in the Republic of Moldova. On the one hand, this denotes the presence of corruption in the political environment, on the other hand, it stimulates and amplifies the level of political clientelism in the use of public funds. The migration of mayors intensified in an unprecedented way during 2015-2019, being a direct result of the political movements at the central level that started shortly after the Parliamentary Elections of 30 November 2014. Obviously, the migration of mayors has only one direction – towards the ruling party. After the 2015 local elections, 471 of 898 elected mayors have changed their party affiliation, some of them even three times. Following the 2019 local elections, the mayors’ political migration has slowed down, so that there are few examples of changes in political affiliation.

The research methodology was based on both a qualitative and quantitative review. Thus, the quantitative review considered the programs for distributing financial resources to each locality/commune. The evaluation focused on examining how financial resources were allocated from the central level to level-one local public authorities with the identification of specific indices of clientelism. For this, we’ve selected six instruments used to allocate funds in 2018-2021 and, namely:

1. Transfers for capital works and other general-purpose transfers from the state budget to local budgets through the State Budget Law;

2. The ‘Good Roads’ Program;

3. National Ecological Fund;

4. National Regional Development Fund;

5. Moldova Social Investment Fund;

6. Energy Efficiency Fund.

Subsequently, political clientelism was analysed from multiple dimensions that take into account: (i) the political affiliation of mayors, (ii) the number of mayoralties that benefited from appropriations, and (iii) the number of people living in communities that benefited from appropriations. In addition, the quantitative aspect of the study was to come up with an Index of Political Clientelism for each fund, as well as an Aggregate Index of Political Clientelism.

The aggregate calculated indices for 2018-2021 revealed that despite the manifestation of clientelism in the distribution of public funds, this phenomenon tends to decrease. If the aggregate index of political clientelism grew in 2019 compared to 2018, in 2020 and 2021 it decreased significantly. In 2019, compared to 2018 the index increased from 2.3 to 2.7 and in 2020 and 2021 values of the index were much lower, amounting to only 1.1 and 1.4 respectively. Thus, if in 2018, an inhabitant of a government-affiliated locality could have benefited from an allocation 2.3 times higher than a person living in a locality not affiliated with the government, then in 2021 an inhabitant of a locality where the mayor is government-affiliated, was already 2.6 times more advantaged than a person from the other category of citizens. A cause for this decrease can be associated with the change in government strategy in the context of the 2020 elections (presidential elections) and 2021 (early parliamentary elections). Thus, to expand its electoral base throughout the country, the government decided to allocate funding in as many localities as possible, regardless of the political ‘colour’ of the local authorities. 

1. Transfers for capital works and other transfers for general purposes from the state budget to local budgets through the State Budget Law (transfers from the state budget to the local budgets) can be formulated as part of budget approval by the Government and Parliament. Thus, in addition to general and special purpose transfers proposed by the Ministry of Finance, MPs often come up with proposals to supplement the funds in the case of certain local public authorities. These amendments can be a potential form of political clientelism along with favouring funding for certain LPAs where mayors are affiliated with the governing party or coalition. Obviously, not all proposals are taken into account, especially those of the opposition.

In the process of data analysis, we identified that the tendencies to favour the mayoralties affiliated with the government in a non-electoral year, as well as to support the mayoralties not affiliated with the government in an electoral/pre-electoral year, are detrimental to the efficiency and timeliness of public funds use. In general, the approval of funding takes place in a political context, without taking into account the requirements of efficiency and timeliness. In essence, the transfers from the state budget to local budgets function as a ‘bonus’ in the political parties’ toolkit for attracting votes, contrary to the requirements of efficiency, transparency, and timeliness.

The way Annex 5/7 of the State Budget Law is being compiled, in the part related to transfers for capital works, is a form of bypassing the requirements of efficiency and timeliness in the use of public funds and needs to be excluded from the Government’s and Parliament’s practice and prohibited by law. This form of approving expenditures is non-transparent and favours inappropriate influences, as well as lobbying of interests either in the Government or in Parliament. Instead, the approval of funding projects for capital works can be redirected through the existing procedures/institutions with the establishment of clear expenditure framework requirements, the purpose of investments, eligible local public authorities, a transparent process of application, by pre-selection and selection of winning projects, as well as by establishing the co-financing requirements. The last requirement does not require a large share of co-financing – a symbolic one of 5-10% is enough – but makes the local public authority responsible and ensures that a medium- and long-term approach to securing funds for the maintenance of these investments will be taken by the beneficiary mayoralty.

2. The Road Fund and Road Rehabilitation Programs involve the largest volume of financial resources of all the instruments analysed. In recent years, domestic financial resources of about MDL 2 billion have been allocated through Road Programs (10 times more than through FEN or NRDF). At the same time, given the importance of roads for rural localities, this tool is often used during the election campaign, which also implies a certain dose of political clientelism. Thus, during 2018-2020, in addition to the annual program on distributing the Road Fund resources, another program was included that provides for the periodic repair of national, local, communal public roads and streets (‘Good Roads for Moldova’). In general terms, the program provides the list of national roads to be maintained with the funds allocated under the first program, adding to it the list of local, communal roads and streets to be repaired from the State Budget sources. 

In the context of the parliamentary elections of February 2019 based on a mixed electoral system, programs such as ‘Good Roads’ have shown money being allocated in clear accordance with certain political interests. Not all mayoralties in the country benefited from financial allocations under the program; out of 898 existing mayoralties, only 703 received funding in 2018 and 855 in 2019, of which 454 were government-affiliated mayoralties in 2018 and 515 in 2019. At the same time, in the case of government-affiliated mayoralties, there is an average amount of MDL 808 per capita in 2018 and MDL 876 per capita in 2019 while in those not affiliated, the situation is completely different – only MDL 330 per capita in 2018 and respectively, MDL 516 per capita in 2019.   The situation changed in 2020, in the context of the presidential election campaign. Taking into account its specificity and the need to ‘gain the loyalty’ of all mayors, appropriations were provided to all mayoralties. Moreover, all mayoralties received appropriations almost equal to the number of inhabitants, which results in a much lower level of political clientelism. Subsequently, in 2021 this program was dropped.

The analysis found that the level of political clientelism in the allocation of resources under the ‘Good Roads’ Program was moderate, with a significant decrease in 2020. The clientelism index for 2018 amounted to 2.3 units, but it increased to 2.6 in 2019 and dropped to 1.1 in 2020. This means that in 2018 the chances of an inhabitant from a settlement led by a government-affiliated mayor to be allocated resources under the ‘Good Roads’ Program were 2.3 times higher than of an inhabitant from a settlement the leadership of which was not affiliated with the government. In 2019, the chances of an inhabitant from a settlement led by a government-affiliated mayor to be allocated resources were 2.6 times higher than of an inhabitant from a settlement the leadership of which was not affiliated with the government, while in 2020 chances were approximately equal.

3. National Environmental Fund exposed to the risk of being used for political purposes. This risk is determined by the fact that membership of the NEF Board of Administration is dominated by representatives of institutions under political control (6 members of the Board of Administration are representatives of ministries and State Chancellery and only one member represents environmental civil society organisations). Due to this, there are multiple risks that the funds allocated from NEF will rather be distributed according to political criteria. Also, unlike other Funds, in the case of NEF, there is neither a separate entity nor independent mechanism that would ensure clear and impartial rules in the process of contracting projects and disbursing funds. At the same time, because NEF procures works and services using the public procurement mechanism, the possibility of politically motivated deals between those who allocate money, mayors, and those who execute the works is quite high. In 2018, but especially in 2019, the Government actively used the National Environmental Fund to promote its political interests, Fund’s resources were distributed mainly to the communities led by mayors affiliated with the governing parties. In 2020 and especially in 2021, there was a decrease in the manifestation of political clientelism within the NED appropriations. In order to mitigate risks associated with the manifestation of political clientelism, it would be appropriate to consider reforming the Board of Administration of NEF, inter alia by lowering the share of the staff politically appointed under this structure.

4. Since the second half of 2020, the National Regional Development Fund has been managed by the Ministry of Infrastructure and Regional Development through Regional Development Agencies (RDAs). At the same time, the pre-approval of the projects to be financed is given by the National Coordination Council for Regional Development (NCCRD) and is included in the single program document (SPD). Being a politically controlled mechanism, the way in which projects are approved raises several questions, including the reliability and usefulness of some projects. Both the Court of Accounts and the most recent parliamentary hearings present multiple cases in which the projects to be funded were chosen without a clear justification and with clear political interest. Moreover, the usefulness and sustainability over time proved to be reduced, which even led to the failure to finish the work.

For this fund, we noted a high index of political clientelism: 2.2 in 2018, 2.3 in 2019, and lower than 1 in 2020 and 2021. Thus, we concluded that an inhabitant from a government-affiliated mayoralty benefited from a double advantage in monetary terms, compared to an inhabitant from a not-affiliated mayoralty in 2018 and 2019, while this situation reversed in the next years.

The moderate political clientelism index also suggests some issues regarding the decision-making process by favouring the projects of government-affiliated mayoralties. This index suggests that NRDF management needs to be adjusted and improved, including by focusing more on efficiency and timeliness criteria when deciding to include NRDF-funded projects in SPD. It is also necessary to revisit such important subjects, such as the separation of public policy development and evaluation from the implementation function, including in the NRDF management.

5. Moldova Social Investment Fund is managed, to some extent, by a distinct entity, separate from the political environment. MSIF management mechanism also presupposes the existence of specific procedures for the selection of projects, as well as for the disbursement of funds. MSIF resources are mainly made up of external funds through funding projects and programs (e.g. ‘Program of technical and financial assistance provided by the Romanian Government for preschool institutions in the Republic of Moldova’). As a result, the financial resources available are much more limited than in the case of other funds and depend on the Government's relationship with certain external partners. At the same time, the external source of funds implies a lower level of favoritism and political clientelism than in the case of other funds – however certain manifestations could be observed, especially during the electoral period of 2019.

The analysis of data reveals a low index of political clientelism for MSIF in 2018 – 2019, amounting to 1.3 and lower than 1 in 2020. These figures suggest that projects funded by MSIF might sometimes have a slight trend towards favoring certain politically affiliated mayoralties. At the same time, the presence of co-financing for implemented projects is an additional element that diminishes the risks of political clientelism. MSIF could consider these indices as a ground to review some internal processes on the distribution of funds to localities. 

6. The Energy Efficiency Fund is intended for energy efficiency projects and distributed based on calls for project proposals from the interested authorities. EEF is made up of state budget appropriations, as well as resources from external funds provided under assistance projects or foreign loans. The EEF is managed by the Energy Efficiency Agency which implements specific procedures for project appraisal and allocation of funds. At the same time, the annual resources available are limited compared to other funds (e.g. MDL 40 million in 2019 and MDL 29 million 2020), and the clear project scope (energy efficiency) narrows the framework for political clientelism.

Analysis of the data submitted by the Energy Efficiency Agency (EEA) revealed the lowest and the most constant index of political clientelism in 2018 and 2020 – it was very close to 1. This fact shows that the distribution of funds within EEA, including the projects financed by the Energy Efficiency Fund (EEF), is the most neutral among all funds analysed in this study. Even if EEA implemented a small number of projects during 2018-2021, it is clear that the money was distributed relatively equally among mayoralties beneficiaries of EEF and EEA funds.

Thus, the clear rules for the selection of projects based on performance, the internal selection procedures, the transparency of the selection process, as well as the co-funding requirement for energy efficiency projects and the autonomy of authority in charge of funds management, with a minimal influence of political factor, contribute to more efficient use of funds, meeting the requirements for resource efficiency and investment timeliness.

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This publication was developed under the project ”Inform, Empower and Act! Civil Society for Better Budgetary Governance in Moldova”, which is implemented by Expert-Grup Independent Think Tank as the main partner, in consortium with the Konrad Adenauer Foundation (KAS, Germany), Eastern Europe Studies Centre (EESC, Lithuania) and the Institute for European Policies and Reforms (IEPR). The project is co-financed by the European Union and the Konrad Adenauer Foundation. The opinions expressed are those of the authors and do not necessarily represent the views of the European Union and the Konrad Adenauer Foundation.

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