Front Matter

Copyright Page

© 2022 International Monetary Fund WP/22/50

IMF Working Paper

European Department

The Nexus Between Public Enterprise Governance, Financial Performance, and Macroeconomic

Vulnerabilities: An Application to Moldova Prepared by Amgad Hegazy and Arturo Navarro*

Authorized for distribution by Ivanna Vladkova Hollar

March 2022

IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

ABSTRACT: Strong governance frameworks for public enterprises have long been an anchor of stability and efficiency underpinning their financial operations and performance. Cross-country experiences with the adoption of robust legal, regulatory and institutional arrangements—in line with international best practices— proved critical in reducing well-known risks and vulnerabilities from such companies, clarifying the role of the state, improving the management of state assets, and ensuring a level playing field for the private sector to prosper. Moldova’s large public enterprise sector of over 900 companies faces elevated risks that amplify fiscal and macroeconomic vulnerabilities and undermine market competition, productivity, and private investment. Moldova stands to greatly benefit from strengthening its public corporate governance regime to put its public enterprises on a stronger footing, address vulnerabilities, and improve market structure.

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Title Page

WORKING PAPERS

The Nexus Between Public Enterprise Governance, Financial Performance, and Macroeconomic Vulnerabilities: An Application to Moldova

Prepared by Amgad Hegazy and Arturo Navarro1

Contents

  • I. Background, Context, Motivation

  • II. Public Corporate Governance Frameworks and Corporate Perormance: The Nexus Between States Linkages, Fiscal Costs, and Maco-Vulnerabilities

  • III. Overview of Moldova’s State-owned Enterprise Sector

  • IV. International Best Practices in Governance of Public Enterprises: How Does Moldova’s Existing Framework Compare?

  • V. Analyzing Moldova’s Public Enterprise Sector

  • A. Assessing Financial Performance

  • B. Assessing Financial Risks and Vulnerabilities

  • VI. Stress Testing Public Enterprises and the Links to Macroeconomy-wide Vulnerabilities: The Role of Contingent Fiscal Liabilities

  • VII. Reforming Moldova’s Public Enterprises: A Roadmap to Strengthen Governance

  • References

  • BOXES

  • 1. Corporate Vulnerabilities and Financial Flows to the State – A Two-Way Street

  • 2. Institutional Set-up of Public Enterprises

  • 3. Breakdown of ROE

  • 4. Too Big to Fail? Pulling the Plug on the Government’s Direct Support Schemes for Public Enterprises: Moldova’s State Roads Administration (Public Works)

  • 5. Stress Testing the Financial Performance of the National Railway Company

  • ANNEXES

  • I. Benchmarking Methodology

  • II. How Does Moldova’s Existing Governance Framework Compare to International Best Practices?

  • III. Cross Country Experiences in Public Enterprise Reforms

The Nexus Between Public Enterprise Governance, Financial Performance, and Macroeconomic Vulnerabilities: An Application to Moldova
Author: Mr. Amgad Hegazy and Arturo Navarro