Moldova: Compensation of employees and Personal transfers, inflow of foreign cash via informal channels

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Moldova: Compensation of employees and Personal transfers, inflow of foreign cash via informal channels

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Introduction

• The Balance of Payments Division of the National Bank of Moldova (NBM) applies a comprehensive model to estimate cash brought into the Republic of Moldova by individuals.
• The estimated data are included in the balance of payments in the items related to personal remittances.

Scope

• Objective: Estimating the size of foreign cash “brought in pockets” in the Republic Moldova, to be included in the remittances-related items of the balance of payments.
• Drivers for the estimation exercise:
  • the increasing outflow of economic migrants in the beginning of the 2000’,
  • low financial literacy of migrants and their low confidence in the banking system,
  • high dollarization of some domestic markets (e.g. real estate),
  • flows of foreign exchange captured by some data sources that are not directly related to balance of payments statistics and that could not be explained.
• Evolution: The judgmental model became more detailed and was linked to other statistics (e.g. migration statistics, labor force statistics). The last developments consist in the distribution of cash remittances by main geographical regions.

Method

• Judgmental macroeconomic model (based on the balance technique).

Data sources

• Statistics collected by the National Bank of Moldova:
  • International Transactions Reporting System - Summary report on international banking transactions,
  • Money transfers of individuals (made through licensed banks, money transfer operators and postal offices),
  • Assets and liabilities in foreign currency of authorized banks of the Republic of Moldova - data on foreign cash holdings,
  • Cash receipts recorded in/ released from the accounts of individuals of authorized banks,
  • Transactions made by foreign exchange offices of authorized banks,
  • Currency sale / purchase transactions made by independent foreign exchange offices,
  • Foreign currency cash taken out from/ brought to Moldova by authorized banks.
• Data sources for key household spending categories where foreign exchange in cash is typically used, collected by other national authorities:
  • Transactions with real estate (Agency for Land Relations and Cadastre)
  • Average market prices of real estate (Real estate agencies)
  • Number and value of cars imported by individuals (Customs declarations database)
  • Migration and labor force statistics
  • Labor Force Survey (National Bureau of Statistics)
  • Population Census (2004, 2014)
  • Specially Designed Surveys (CBX-AXA, IOM)
• Other data sources:
  • number of residents and non-residents who crossed the border (Frontier service)
  • available statistics of partner countries (e.g. Russia - money transfers, working permits)
  • economic situation in partner countries of interests for Moldovans.

Compilation Practices

• Approach: To estimate informal inflow of remittances in cash (other entries than via licensed banks, money transfer operators and postal offices), analyze main possible types of spending of total cash from remittances.
• Elements analyzed:
  • evolution of resident individuals' deposits (new deposits in FX cash and withdrawal of deposits),
  • evolution of cash in foreign currency held by licensed banks (including the export-import of cash in FX by banks),
  • turnovers of foreign exchange offices,
  • evolution of real estate and motor car markets,
  • estimated spending of cash for education, medical assistance and traveling abroad,
  • propensity to save of individuals receiving remittances and the evolution of households' consumption.
• Estimation technique: Cash remittances are derived as the difference between all estimated foreign exchange spending (outflows) and the known (from formal channels) remittances inflows.

Linkages Across Statistical Domains

• The estimates are incorporated in items related to personal remittances in balance of payments and in the national accounts (the rest of the world).

Current Challenges and Conclusions

• Model limitations:
  • The model relies on many assumptions and individuals’ behavior may change over time.
  • Empirical verification of assumptions is important and requires periodical appropriate surveys; however, specialized surveys are conducted very rarely.
• Data coverage issues:
  • No comprehensive and reliable counterpart data are available.
  • Moldova’s balance of payments and remittances statistics do not include data for a part of territory called Transnistria, which is not under control of Moldovan authorities.
  • Counterparts’ statistics include data for the whole territory, creating incomparability.
  • In 2011 the NBM made an attempt to reconcile its data on remittances with Russia; that attempt was successful despite inconsistencies.
• Other challenges:
  • The geographical distribution of cash received via informal channels remains a challenge.
  • Because the model estimates total inflow of remittances from the perspective of a demand (spending)-based approach, it is impossible to distinguish between flows coming from informal, underground or illegal activities.

Annexes

• International accounts: compilation methodology and data sources (reference provided by the National Bank of Moldova).

References

• Informal Economy Reports