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International Technical Meeting on Measuring Remittances

World Bank Washington, DC

The implications of the recent financial crisis The implications of the recent financial crisis on the measurement on the measurement

of remittances in Moldovaof remittances in Moldova

June 11-12, 2009

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Geographical LocationStrategically located at the crossroad

between Eastern and Western Europe

Capital: Chisinau 785,087 people

Area: 34,000 km2Population 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

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Emigration prerequisites

the largest share of non-urban population in Europe

classified in the second group of countries regarding the population density, among Denmark, Poland, the Czech Republic and Armenia

strong economic, cultural, and personal ties with the countries of the former Soviet Union

free movement (without visas) within CIS and before 2007 with other South-East European countries

absence of language barriers with CIS countries and Romania

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Labor migration profile

Main countries of destination:

Russia – about 60%;

EU countries – 27%,

o.w. Italy – approximately 18%, the rest - Spain, Portugal, Ireland, Greece, Romania, and other

other countries –Israel, Turkey, Ukraine etc. 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 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)

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Gross Remittances to GDP ratio

0

5

10

15

20

25

30

35

40

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

%

0

100

200

300

400

500

600$US

Remittances/GDP

Remittances per capita (right axis)

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Gross remittances and trade deficit

0

10

20

30

40

50

60

70

80

90

100

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

%

0

1000

2000

3000

4000

5000

6000$US million

Exports of goods and services

Imports of goods and services

Remittances/ deficit in goods and services acoount (left axis)

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Remittances vis-à-vis other inflows

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2000 2001 2002 2003 2004 2005 2006 2007 2008

Foreign direct investment (net) External loans (drawings)

Inflow of governmental transfers Remittances

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Why this method was chosen?

No relevant statistics on the number of migrants working abroad illegally

Varied data on ratio of money transferred through non-official channels

No applicable counterpart statistics on remittances to Moldova

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Main Steps and Data Sources for Remittances

Estimation   Main steps in remittances estimation Data sources

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

Banks’ balance sheet - data on deposits of individuals in foreign currency

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.

.

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Remittances and formal personal transfers

0

500

1000

1500

2000

2000 2001 2002 2003 2004 2005 2006 2007 2008

$US million

Remittances

Personal transfers from abroad via banks

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Shortcomings of the estimation model and ways of improvement

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.

more variables should be added at the side of expenditures in foreign

exchange cash, like current expenditures and other durable consumer

goods.

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Why ITRS is the basis for the remittances compilation? the money transfer operators in Moldova work exclusively through banks;

banks are supervised by the NBM, which is authorized to audit the reporting, that means that the quality of reports is satisfactory;

closed ITRS system – there are no thresholds on data reporting, that means that banks and economic agents report all transactions no matter the value;

transfers made through the MTCs are identified separately in the ITRS;

quick collection of detailed country and currency breakdown data;

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;

it is stressed that reporting to the NBM is entirely distinct from tax and customs obligations.

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Drop in the value of personal transfers received via banks

US$ million

-50

0

50

100

150

200

250

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

2007 2008 2009

Money transfers from abroad by natural persons Net offer of foreign currency by individuals to banks

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Source Period Number

(thous. persons)

Evolution

IOM - CBS-AXA Survey July - August 2008 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

Dimensions of labor force left abroad register a drop

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Shortcomings of an ITRS in the case of personal transfers/remittances compilation

batching of small amounts of individual transfers into single payment. This

results in misclassification of the sending country. Geographical

breakdown is distorted;

possible reporting of “net” amount instead of gross flow;

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

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Personal transfers from abroad by region

0

100

200

300

400

500

600

Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q 1 2009

$US million

European Union CIS Other countries

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Personal transfer from abroad by main countries

US$ million

0

20

40

60

80

100

120

Jan

Feb

Mar

Apr

May Jun

Jul

Aug Se

pO

ctN

ovD

ec Jan

Feb

Mar

2008 2009

Russia

US$ million

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

Jan

Feb

Mar

Apr

May Jun

Jul

Aug Se

p

Oct

Nov

Dec Jan

Feb

Mar

2008 2009Israel United KingdomIreland SpainPortugal

US$ million

0

20

40

60

80

100

120

Jan

Feb

Mar

Apr

May Jun

Jul

Aug Se

pO

ctN

ovD

ec Jan

Feb

Mar

2008 2009

Russia

US$ million

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

Jan

Feb

Mar

Apr

May Jun

Jul

Aug Se

p

Oct

Nov

Dec Jan

Feb

Mar

2008 2009Israel United KingdomIreland SpainPortugal

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q 1 2009

European Union CIS Other countries

Geographical structure of personal transfers from abroad

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Personal transfers via banks for investment in real estate

US$ million

0

2

4

6

8

10

12

14

16

18

Q I 2006 Q II2006

Q III2006

Q IV2006

Q I 2007 Q II2007

Q III2007

Q IV2007

Q I 2008 Q II2008

Q III2008

Q IV2008

Q I 2009

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Financial account transactions related to remittances 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 non-resident. Practically all of them are made by non-residents from countries other than CIS. Sharply dropped in the Q1 2009 due to the financial crisis.

According to the recent NBS survey on the Labor Force Migration – complementary to the regular Labor Force Survey - made in Q2, 2008 the share of remittances used for real estate purchase is about 20% of the total amounts received.

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.

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Conclusions

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.

As the factors that influenced migration and remittances are changeable the methods of their estimation can not be permanent. They need periodical revisions.

Even if the data sources used for estimations seem to be reliable, use of additional data sources for the validation of assumptions is necessary

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Thank you for attention!Thank you for attention!