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Macroeconomic impact of the money sent from abroad
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The money wired by the guest workers home have become an important factor influencing macroeconomic environment of the Republic of Moldova. For the great majority of families deprived of sufficient income to cover their daily needs those money help them stay afloat. Therefore, when considering this issue we should take into account two implications: macroeconomic and social one.
According to some prudent estimates this income amounts to 250 million USD. In this case, “prudent” stands for “money wired from abroad to resident natural entities via banking system alone”. In reality though, considering the amount of dollars and Euros that “get” to Moldova in cash, the amount of guest workers’ income might be double. To put it differently Moldova gets a cash flow of around half a billion USD.
Due to their nature these money are primarily intended for spending (which is quite logical if we take into account the reasons that determined those people to leave their country in the first place, namely difficulty to find a decent job at home). From now on, the revenues start influencing the consumption and to a lesser degree macroeconomy. In macroeconomic terms, we may say that the generating demand curve has veered to the right. Under “other” factors we might mention GDP growth or soaring imports.
GDP growth in the last 2–3 years was quite satisfactory. However if compared to the soaring demand in products, domestic producers do not cover the existing demand. As a result a growing number of imported products are shipped to meet the demand. The scheme attached perfectly illustrates this tendency. In fact the guest workers savings have a twofold impact: on the one hand, they boost consumption, on the other, they increase the supply of foreign currency on the exchange market, thereby leading to the appreciation of national currency. In its turn the “strong” Lei affects exporters while helping importers. Therefore, importers get a double incentive (soaring demand plus “cheap” foreign currency), while exporters a double weakness (their profit from exports is “devoured” by the strong Lei).
On the other hand, a close look at the structure of imports would highlight soaring imports of equipment, computers, etc., which is not exactly a bad thing. Technologies, which are almost non existent in Moldova, boost productivity. Neither are exporters evenly affected. The most affected were the exporters who were contracted in USD. Exporters to European market, who were contracted in Euro, did not incur any loses. Consequently, another positive outcome might be considered the geographical re-orientation of the exports.
One of the secondary outcomes of this phenomenon is the fact that bank deposits are mainly in dollars. Free from the influence of the National Bank policy, the savings of a considerable part of the population are in Euros. When wired home those money are mainly converted into Moldovan Lei so as to purchase goods and services. The remaining money, irrespective of how insignificant, are deposited in banks. Hoarding a portion of the savings does not involve exchange system, however when deposited in bank accounts contribute to the growing number of dollar accounts.
In general, the macroeconomic impact of the guest workers’ income might be viewed as a marginal benefit (national currency stability, boosting domestic production due to soaring demand), whereas the negative impact might be viewed as a fundamental one (inflation, trade balance deficit, dollarisation).
Continual heavy reliance on the guest workers’ income might prove to be a fatal one for Moldova. Economy’s vulnerability might come to light in case EU or other countries where Moldovans work, mainly illegally, impose some restrictions on labour force migration. The over-appreciated currency, coupled with trade balance deficit are just two of the factors that might lead to a crisis. The considerable inflow of foreign currency, which for one reason or another might drop, would indeed trigger such a process.
Moldova is not the only country facing such problems. This is a quite common phenomenon in quite small and insufficiently big transition economies. It is characteristic to countries that are “not exactly doing well” in economic terms and have both a small population and GDP, so that the impact of the income wired to the country is considerable. In Europe Albania, Armenia and to a lesser extent Bosnia share the same fate with Moldova, while it is also common in the Caribbean islands.
It is all-too-clear that such a phenomenon could not be extinguished by means of administrative measures. The social aspect of the problem (let us not forget that a considerable percentage of Moldovans live below the poverty line) excludes any decisions establishing bureaucratic obstacles to the population migration. Decision-makers in international monetary institutions recommend adopting some economic policies favouring those incomes to be channelled towards investment rather than consumption. For this to happen, I believe, a favourable business environment is a must. In my opinion, it would firstly boost economic growth, so that labour market in Moldova provides enough opportunities to Moldovans, before they try their chance abroad. At this stage it is difficult to imagine other solutions.