Is Chisinau Ready for the Capital Market?

The development needs of Chisinau City are enormous. According to some estimates, total capital investment needs amount to about $3 billion for the next 13 years. This is a huge amount for the capital city of one of the poorest countries in Europe where the average hourly wage is 70 times lower than in Denmark. Some people prefer to label this estimate as “impossible” or “unreal,” and accept the status-quo. I prefer to approach this figure as a price tag for a better life in Chisinau. Then, the question is: can we afford a better life, and if yes, how?

This happens to be the central issue of a study I’m currently doing for Chisinau City. How can the City finance its development needs? According to the principles of fiscal theory, capital investments with a life cycle that spans across several generations of users should be financed equitably by taxpayers of each generation. It is not equitable for the current taxpayers to pay fully for the schools, roads, bridges that will be also used by future generations. This is the main idea behind municipal bonds: first, the City issues bonds to collect debt to build capital public goods, and then it repays the interest and principle of this debt over a longer period of time. As a result, users from subsequent generations share the cost of the public good from which they benefit.

Is Chisinau ready for this new practice? Not really. It has never issued municipal bonds. It lacks institutional capacity in this area. The current management of municipal finance (mainly budgetary revenues and expenditures) has many shortcomings. Fiscal policies are developed and lobbied at the national level. Nevertheless, Chisinau must start building these capacities and getting ready for entering the capital market. Hopes of becoming a modern European city cannot be supported by the revenues of the present generation alone.