Net money transfers to Moldovan households decreased by 8.9% y/y to $279mn in Q2, according to central bank data. Money transfers from the EU showed signs of recovery in H1 after the plunge last year, but transfers from CIS region still account for some two-thirds of the total.
Total money transfers had contracted by 7.8% y/y to $224.7mn in Q1 and the overall decline rate was 8.4% y/y in H1. The plunge started last year continues but at a slower rate, while the volume of transfers remains robust and in line with the large share of the workforce working abroad.
On average, the money received by Moldovan households from abroad plunged last year by 30% y/y to $1.13bn (the decline was only 16.5% y/y when expressed in euros). This was still an impressive 17.4% of GDP and financed a large part of the 30% of GDP ($1.94bn) foreign trade gap.
Notably, Moldova operates in two foreign currency environments: the former Soviet economies where the benchmark currency is the US dollar and the EU economy. Most of the country’s exports and imports are with the EU countries, while most of the wage remittances still come from the CIS (mainly Russia). The euro’s weakening versus the US dollar last year has increased the country’s ability to finance the trade gap despite the sharp plunge in remittances (since the revenues were mainly denominated in US dollars while the trade gap was mainly denominated in euros). The local currency’s devaluation has also played a key role in smoothing the external balances and avoiding a BoP crisis, also providing economic impetus.
The currency structure of the money transfers to Moldovan households, available only for the money sent though banks (more than 80% currently, from more than 90% before 2015), shows a certain strengthening in the remittances from the EU – 2.0% y/y in Q2 and 1.1% y/y in Q1. Non-euro remittances, including the US dollar-denominated and ruble-denominated transfers, have on the other hand contracted by 6% y/y in Q2 and 5.4% y/y in Q1.
However, remittances denominated in US dollars – mainly from Russia and other CIS countries - remain close to half of the total compared to slightly more than one third of the remittances denominated in euros. Including the ruble remittances, the total transfers from the CIS area are around two third of the total transfers to Moldovan households.