Transfers from abroad to Moldovan households soared by 34.6% to $1.63bn in the 12 months ending April 2021, according to official data from the National Bank of Moldova (BNM).
Expressed in euros, the increase is a more modest 25.5% y/y to €1.50bn — still outstanding for a period when transfers from abroad (mainly wage remittances) were expected to evaporate amid the financial difficulties faced by Moldovans working abroad. The effect was rather the opposite as the households back home were facing even tougher financial problems.
Out of the total transfers in the 12-month period, just over two-thirds (€1.05bn) was in euros, 35% more compared to the previous 12-month period. Only €43mn worth of transfers were in Russian rubles (-20%).
The transfers to Moldovan households typically finance a significant part of the country’s trade deficit. But driven by subdued demand, Moldova’s imports contracted by 6.5% y/y in the 12-month period ending March 20201 (latest data available) to €2.6bn. The trade deficit coverage ratio of the transfers to households thus strengthened, easing the central bank’s exchange rate management mission despite the scarce transfers from international financial institutions and development partners, which was visible in the stability of the local currency.
However, the BNM’s focus on the US dollar as target foreign currency resulted in a slight depreciation of the local currency against the euro particularly during the fourth quarter last year and to some extent in 2021. This may have prevented a sharper return to trade deficits in recent months, toward the end of the crisis period. Thus, Moldova’s imports increased by only 4.0% y/y in Q1, which prevented significant deterioration of the deficit (which still expanded by 11% y/y to nearly €700mn after more favourable dynamics posted over the previous quarters.