The Nexus Between Public Enterprise Governance, Financial Performance, and Macroeconomic Vulnerabilities: An Application to Moldova
IMF Working Papers, March 4, 2022
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- The Nexus Between Public Enterprise Governance, Financial Performance, and Macroeconomic Vulnerabilities: An Application to Moldova
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Bibliographic details
- Authors: Amgad Hegazy, Arturo Navarro
- Published: March 4, 2022
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400202612.001
Summary and main conclusion
- 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 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.
Moldova’s public enterprise sector and vulnerabilities
- Moldova’s large public enterprise sector of over 900 companies faces elevated risks that:
- amplify fiscal and macroeconomic vulnerabilities,
- undermine market competition,
- undermine productivity, and
- undermine private investment.
Key thematic findings
- Relationship between governance and financial performance:
- Robust legal, regulatory and institutional arrangements are critical to improving financial operations and performance of public enterprises.
- Macroeconomic and fiscal linkages:
- Weak public enterprise governance amplifies fiscal and macroeconomic vulnerabilities through contingent liabilities and distorted market conditions.
- Market structure and private sector effects:
- Poorly governed public enterprises can erode a level playing field, reducing private sector competition and investment.
Policy implications and recommendations (high-level)
- Strengthen Moldova’s public corporate governance regime to:
- clarify the role of the state vis-à-vis public enterprises,
- improve management of state assets,
- reduce fiscal and macroeconomic vulnerabilities associated with public enterprises, and
- enhance market competition and conditions for private sector investment.
- Align legal, regulatory, and institutional arrangements with international best practices to reduce risks and improve public enterprise financial performance.
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- Working Paper