Posted by Yugo Koshima[1]
Assets owned and managed by the government are fundamental to the provision of key public services. They can also become a source of revenue or financing, providing additional resources to the budget. Unfortunately, inefficiency in asset management has proved a headache for many governments. Worldwide, many cases have been reported of the mismanagement of public assets or government shareholdings in state-owned enterprises.
Nonfinancial assets comprise a large part of government wealth. On average of 15 countries included in the IMF’s Public Sector Balance Sheet database, nonfinancial assets amount to 121 percent of GDP, of which lands comprise about one-fifth. The privatization and leasing of government-owned lands have been an especially high-risk area and a plentiful source of financial irregularities. Moldova, a country in Eastern Europe, is no exception to this. As a legacy of its past communist regime, around half of the country’s lands are still owned by the government. This figure is probably underestimated because many lands are yet to be registered or appraised. These lands include not only those beneath natural resources (e.g., forests or water basins) and infrastructures (e.g., roads) but also residential and commercial assets, which can generate monetary profits.
To protect government lands from misuse, useful lessons can be learned from the avoidance schemes that are widespread in Moldova. In February 2018, the Court of Accounts published an audit report on the management of government-owned lands. The report estimated that the revenue loss from irregularities and avoidance schemes in the management of local government lands was about 1.9 percent of GDP in 2018. The own revenue of local governments would have been doubled if these lands had been properly managed.
Examples of abuse include the following:
In none of these three cases did local government seem to take any action against the lessees, to take back ownership of the asset concerned, or to enforce the concession agreement and stop the abusive construction. Indeed, many local governments exercise weak controls over the management of their lands, or do not even recognize the lands’ existence. In fact, around one-third of lands in Moldova have not been delimited (i.e., measured) or registered at the real estate agency.
There is no easy solution to preventing misuse of government lands. In Moldova, the central government has recently launched a mass delimitation exercise to measure and register all lands in the country by 2023. In addition, controls over the leasing of lands exercised by the central government’s Public Property Agency have been strengthened. However, these controls do not apply to local governments, which have an autonomous status. Audit reports are not a sufficient safeguard. Some other mechanism will need to be found to monitor and take remedial actions against land irregularities at the local government level.
[1] Yugo Koshima is an Economist in the IMF’s Fiscal Affairs Department.
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