What is the impact of COVID-19 on remittances in Republic of Moldova?

July 17, 2020

The impact of COVID-19 on cash flows in the Republic of Moldova and access to remittances were subjects of discussion during the meeting of the working group for the analysis of the socio-economic impact of the pandemic, held on 15 July 2020. The working group is coordinated by the United Nations Development Programme (UNDP) on behalf of the United Nations country team.

Fewer remittances entered the Republic of Moldova in the period March - April 2020, due to the COVID-19 crisis, while experts predict a decrease of up to 16-17% for this year.

Quarantine restrictive measures, declining incomes, job losses, but also economic uncertainty have discouraged citizens from sending money home. Experts believe that while remittances constitute about 15-17% of the country's annual GDP, their reduction would have serious socio-economic effects.

"In March-April there was a slight decrease of 12% in the flow of transfers. In May we already see a significant increase in transfers - 25%, due to a change of channels, towards official ones. Those who previously sent the money through carriers or other means have switched to official money transfer systems, after movement restrictions have been set," stated Cristina Harea, Deputy Governor, National Bank of Moldova.

Facilitating the population's access to remittances

Experts also note that it is difficult to estimate a real figure for the remittances amount, as some citizens still prefer to send money through informal channels.

To maintain the flow of remittances, Switzerland, the United Kingdom, the World Bank, IOM, UNDP and UNICEF have called on the Moldovan authorities to adopt a set of measures that will make remittances more accessible to the population.

"The Call to Action encourages policymakers, regulators and remittance service providers to improve access for migrants and wider diaspora communities to physical or digital remittance services. Among other recommendations, it calls on policy makers to declare the provision of remittance services as an essential service and on service providers to reduce or waive remittance transfer costs as a gesture of solidarity during the ongoing crisis. The development and scaling up of mobile and digital transfer channels are also part of the proposed measures in the Call to Action. Furthermore, regulators are encouraged to provide regulatory guidance to remittance service providers and facilitate their access to liquidity and license renewal," noted Haspeter Wyss from the Global Program "Migration and Development", Swiss Agency for Development and Cooperation SDC.

Increasing financial literacy and migrants' access to simpler and cheaper means of transferring money, would encourage diaspora investment in the national and local economy. Financial institutions are encouraged to advise customers to invest money in entrepreneurship activities.

"We would be interested in the subject of financial literacy. We want to involve commercial banks in various activities so that they offer better advice to their customers, for those to use their remittances not only for consumption,” stated Lars Lonnback, Chief of the International Organization for Migration Mission in Moldova.

Use of remittances in entrepreneurial activities

Migrants can be encouraged to invest remittances in entrepreneurial activities also through government programs. Anna Akhalkatsi, World Bank Manager for Moldova, reiterated the need to use innovative financial instruments, reduce transaction costs, and boost remittance competitiveness:

"It is critical for us to find a way to ensure the flow of remittances. In Moldova, the model is generally based on consumption. We will have to ensure not only the flow of remittances through the official banking sector, but to see how we use them productively, so that they do not have only a survival effect. To allow the Republic of Moldova to grow sustainably.”

Dumitru Vicol, an economist at a bank in the UK, currently working remotely in Chisinau, sees the pandemic as a chance to build back better: “It is understandable that the decline in remittances will affect people depending on these revenues, but we should also look at the opportunities that can compensate for these shortcomings. The pandemic has shown that we can have different working arrangements, that we can shift gears, that we can save money.”

UNDP's "Migration and Local Development" project, financially supported by Switzerland, involved the diaspora in solving problems in their hometowns. Migrants have contributed with remittances to local development projects. In 2015-2018, the model was successfully piloted in 38 localities in the country, being taken over by over 100 communities in the country.

According to the International Organization for Migration, over 237 thousand families in the Republic of Moldova receive money from relatives working abroad, and almost half of them depend entirely on these financial sources.

"Remittances make up 50% of the disposable income of those households receiving remittances, and 30% of those in rural areas would fall below the poverty line if they did not receive them. Those in rural areas depend more on remittances. We need to support these people, by increasing their level of financial literacy,” noted Chris Perkins, Head of Programs Section, British Embassy in Chisinau.

As a consequence, the decrease in remittances would lead, in particular, to an increase in poverty in villages, areas already with a low level of population welfare. At the same time, the reduction of financial flows from citizens working abroad could have serious socio-economic effects at the level of the entire country.