International Technical Meeting on Measuring Remittances World Bank

International Technical Meeting on Measuring Remittances World Bank Washington, DC The implications of the recent financial crisis on the measurement of remittances in Moldova June 11 -12, 2009 1

Geographical Location Strategically located at the crossroad between Eastern and Western Europe Capital: Chisinau 785, 087 people Area: 34, 000 km 2 Population of the right-side territory of Moldova: 3. 57 million GDP for 2008 – US$ 6, 048 million GDP per capita –US$ 1, 694 External debt per capita – US$ 1, 156 2

Emigration prerequisites p the largest share of non-urban population in Europe p classified in the second group of countries regarding the population density, among Denmark, Poland, the Czech Republic and Armenia p strong economic, cultural, and personal ties with the countries of the former Soviet Union p free movement (without visas) within CIS and before 2007 with other South-East European countries p absence of language barriers with CIS countries and Romania 3

Labor migration profile p Main countries of destination: Russia – about 60%; EU countries – 27%, o. w. Italy – approximately 18%, the rest - Spain, Portugal, Ireland, Greece, Romania, and other countries –Israel, Turkey, Ukraine etc. p Sector of employment and duration of staying in host country: CIS countries – construction, seasonal migration EU and other countries – house-keeping and other services, long-term staying p Methods used for money transferring: formal methods (bank transfer, money transfer operators, post offices) - about 65%; informal methods (money brought personally, by drivers, train attendants, friends) - 35% Source: NBS, Labor Force Migration in the Republic of Moldova (Based on data collected as a module of the second quarter 2008 Labor Force Survey, April 2009) 4

Gross Remittances to GDP ratio 5

Gross remittances and trade deficit 6

Remittances vis-à-vis other inflows 7

Why this method was chosen? p No relevant statistics on the number of migrants working abroad illegally p Varied data on ratio of money transferred through non-official channels p No applicable counterpart statistics on remittances to Moldova 8

Main Steps and Data Sources for Remittances Estimation Main steps in remittances estimation A Measurement of remittances flows passing via banks International Transactions Reporting System (ITRS) B Measurement of remittances flows passing through banks assumed to be cashed ITRS C Measurement of net foreign currency in cash released by banks to residents Information on sales/purchases of foreign currency in cash by banks. Information on export / import of foreign currency in cash by banks. D Measurement of residents’ expenditures on the markets where transactions are mostly made in foreign currency Information on transactions with real estate: number of transactions, average market prices of real estate, investment in new real estate. Information on the number and value of cars imported by individuals. E Evaluation of consumption behavior of households receiving remittances Labor force survey, specially designed surveys on labor migration, Household budget survey F Comparative analysis of the A-E steps results. Adjustments to remittances made via banks. The results are presumably equal to personal remittances in cash through informal channels. A-E steps results. . Data sources Banks’ balance sheet - data on deposits of individuals in foreign currency 9

Remittances and formal personal transfers 10

Shortcomings of the estimation model and ways of improvement p the model relies on many assumptions about the payment behaviour of households relative role of national currency, ratio of cash and banks transfers, etc. Payment behaviour may change over time. Empirical verification of assumptions is important and requires periodical appropriate surveys to be conducted. p more variables should be added at the side of expenditures in foreign exchange cash, like current expenditures and other durable consumer goods. 11

Why ITRS is the basis for the remittances compilation? p the money transfer operators in Moldova work exclusively through banks; p banks are supervised by the NBM, which is authorized to audit the reporting, that means that the quality of reports is satisfactory; p closed ITRS system – there are no thresholds on data reporting, that means that banks and economic agents report all transactions no matter the value; p transfers made through the MTCs are identified separately in the ITRS; p quick collection of detailed country and currency breakdown data; p typical frequency of aggregate data availability – monthly. Since November 2008 banks also report the data on transactions with non-residents on a daily basis. These are the most timely data which are used for estimates; p it is stressed that reporting to the NBM is entirely distinct from tax and customs obligations. 12

Drop in the value of personal transfers received via banks 13

Dimensions of labor force left abroad register a drop Source IOM - CBS-AXA Survey Period July - August 2008 Number (thous. persons) Evolution 430 -18% IOM - CBS-AXA Survey March 2009 353 Labor Force Survey (NBS*) 3 quarter 2008 340 - 17% Labor Force Survey (NBS) 1 quarter 2009 272, 5 Source: Survey conducted in March 2009 by International Organization for Migration (IOM)-Center for Sociological Investigations and Marketing (CBS-AXA) *National Bureau of Statistics 14

Shortcomings of an ITRS in the case of personal transfers/remittances compilation p batching of small amounts of individual transfers into single payment. This results in misclassification of the sending country. Geographical breakdown is distorted; p possible reporting of “net” amount instead of gross flow; p the funds transferred using money transfer companies are not exclusively remittances/personal transfers but can include travel transactions, financial account transaction related to investment etc. Solution of the problems – ask banks to report on geographical and other details at the moment of remittances withdrawal 15

Personal transfers from abroad by region 16

Personal transfer from abroad by main countries 17

Geographical structure of personal transfers from abroad 18

Personal transfers via banks for investment in real estate 19

Financial account transactions related to remittances p Since 2006 formal personal transfers from abroad clearly identified in the ITRS as intended for “real estate acquisition” or with a high value are recorded under Direct investment – in national economy –liability to nonresident. Practically all of them are made by non-residents from countries other than CIS. Sharply dropped in the Q 1 2009 due to the financial crisis. p According to the recent NBS survey on the Labor Force Migration – complementary to the regular Labor Force Survey - made in Q 2, 2008 the share of remittances used for real estate purchase is about 20% of the total amounts received. p Associated problems of recording: - underestimation of investment made from remittances. -with regard to the possible return of long-term migrants to home country and the consequent change of residency the problem of estimating other adjustments in the international investment position appears. 20

Conclusions p Migration and remittances are country specific issues, depend on many factors such as geographical location, legal regulation of cross-border movement in host countries, language barriers, education level of migrants, etc. That is why countries should take into consideration their own specifics while elaborating estimation methods. p As the factors that influenced migration and remittances are changeable the methods of their estimation can not be permanent. They need periodical revisions. p Even if the data sources used for estimations seem to be reliable, use of additional data sources for the validation of assumptions is necessary 21

Thank you for attention! 22