Current estimates suggest that whereas, worldwide, remittances will decline by between 5 percent and 8 percent in 2009, Europe and Central Asia will be the most severely affected region with a fall of between 10 percent and nearly 13 percent.¹ For countries with heavy dependence on remittances and migration, the effects of the crisis will thus be magnified. Economic migration and remittances are important to many transitional countries and, indeed, in 2006, Tajikistan and Moldova received the highest levels of remittances in the world (as a percentage of GDP), with Kyrgyzstan in fourth place.² In addition to examining some of the recent data on migration and remittances in the region, this article proposes some possible responses to the socio-economic problems that could result from falling remittance incomes and large numbers of returning migrants.

Agriculture has traditionally served as a safety net in Moldova, providing subsistence and cash income from sales of fresh and lightly processed products.
© Julie Pudlowski/UNDP Moldova

Migration and remittances in Moldova
Moldova’s economy has been strongly driven by remittances. The number of Moldovans working abroad increased from some 56,000 in 1999 to 340,000 in 2007 (from a population which, in 2007, was 3.8 million).³ Total remittances were US$ 1.5 billion in 2007 (36 percent of Moldova’s GDP) and were growing in the first half of 2008 prior to the economic crisis.

Migration has mainly been from rural areas. Of the migrants who, in 2006, were abroad, had recently been abroad, or who planned at that time to migrate, 38 percent were from Chisinau (the capital city) and other urban areas, while 62 percent were from rural areas or small towns of fewer than 10,000 people.⁴ Some 67 percent of those who were abroad at that time were from rural areas.⁵ Many migrants are young, with an average age of 35 in 2006 and over 37 percent aged below 30. Further, of those who in 2006 were planning to migrate, over 44 percent were below 30 years.⁶
Nearly 52 percent of the Moldovans abroad in 2006 worked in Moscow, with 59 percent in Russia as a whole. Italy received the second largest group of migrants (17 percent). The number of migrants from Moldova in CIS countries (principally Russia) has increased sharply in recent years, especially in the construction industry.




Female migrants working in the caring profession will probably be less affected by the downturn than male construction workers.
© UNDP Moldova

Effects of returning migrant
and remittance shocks
Falls in remittances and the large-scale return of migrants could add pressures which, even in the context of the severe downturn, are not felt, or felt to a lesser extent, in the region as a whole. In practice, the trend in remittances may take time to become clear. And while there are likely to be downward pressures, there is also evidence that, worldwide, remittances tend to be resilient and to fall less sharply than might be expected in a downturn. This is partly because sums sent home are often small (typically around 5 percent of income) with the result that payments can often be sustained even when incomes fall.⁷ Further, remittance flows are dominated by payments from long-standing migrants who, because they are often well established in their place of migration, may be better placed to find alternative sources of income if they lose their job.

In addition, female migrants working in the caring professions will probably be less affected by the downturn than male construction workers. The effects of demographic change in Western Europe and North America and high domestic costs of care of the elderly mean that demand for female migrants in the caring professions is likely to be sustained even in a downturn and may thus contribute to the resilience of remittances.

Remittances will nonetheless shrink if people, having lost their job, then return home (although there may be a short-term increase as those returning repatriate savings). The return of migrants, may, however be lagged and so turn out to be gradual rather than a major wave. This is partly because of migrants’ adherence to the place of migration, usually because the bureaucratic and start-up costs associated with migrating are substantial. Migrants’ commitment to stay may be further strengthened by new immigration controls with, for example, Australia, the United States, Spain, Italy and Malaysia all recently imposing new regulations.⁸

The effects of falling remittances are likely to be felt nationwide but, where (as in Moldova) migration has been principally from rural areas, it seems probable that they will be felt disproportionately there. If so, there is the prospect of increases in rural poverty. This was already a concern in Moldova, despite good growth performance between 1999 and 2004 which moved 40 percent of the population out of poverty, representing the largest reduction in poverty (in percentage terms) in the Europe and Central Asia region over this period.⁹ Nonetheless, about 26 percent of the Moldovan population in 2007 remained poor, with about two-thirds of the poor living in rural areas.¹⁰ A similarly rural concentration of impacts from returning migrants is likely if there is disproportionate return to rural areas. This conclusion must, however, be tempered by evidence that migrants have used remittances to buy urban residential property¹¹ and/or if migrants return to urban areas because of better job prospects.

Disproportionate deterioration in youth unemployment is also possible. While youth unemployment is comparatively low in some, although not all, countries with high migrant populations,¹² this has been achieved partly through exporting labour in the form of migrants. With opportunities for migration diminished, young people will be forced to rely on domestic labour markets at a time of falling labour demand. There they will have to compete with returning migrants, who may have better skill sets (by virtue of having worked overseas) and more extensive experience. In other words, a generation of ‘frustrated migrants’ is likely to be created amongst the young, at the same time as competition is increasing in domestic labour markets. The resulting possibilities for social unrest are evident.

Rural poverty effects may also be exacerbated by transition in agriculture, which in many transitional countries has served as a safety net,¹³ providing subsistence and cash income from fresh sales or lightly processed products. Labour inflow to rural areas now threatens to clash with agricultural commercialization that is making agriculture more of a business than a safety net or a way-of-life.¹⁴ Indeed, in Moldova, the combination of labour outflow from agriculture in recent years (with linked growth in labour productivity), low rates of agricultural growth, and rising rural poverty all argue against the capacity of agriculture now to re-absorb unskilled labour.¹⁵

Possible responses
The likelihood of disproportionate effects on rural areas suggests geographical targeting of responses, which are likely to be both short- and medium-term. The former will principally seek to mitigate the immediate shocks, while actions in the medium- and longer term will be aimed at avoiding further deterioration in rural poverty and achieving improved labour market outcomes. In addition, however, labour supply actions will also be required in addressing youth unemployment.¹⁶

In the short run, providing temporary safety nets through public works would help cushion both the return of migrants and those newly unemployed domestically. Finding suitable public works which are consistent with participants’ skills has often been a problem with such measures in the past, but this may be lessened where a significant proportion of returning migrants have building skills (as seems probable given the decline in construction in the region).¹⁷ The speed of response may also be increased by building on existing donor-funded and managed programmes which already have implementation structures in place.¹⁸

In the medium term, increasing employment in the non-farm rural economy is likely to be essential. Indeed, the current underdevelopment of this sector in transition economies offers opportunities for growth and labour absorption. Ironically, limited access to finance in rural areas before the crisis may have had the advantage of making growth in the rural non-farm economy less dependent on bank lending than in other sectors, since there is little or no experience of reliance on cheap credit.

Growth is likely to come from two sources: small enterprises in the service sector in the form of small-scale, low-barrier-to-entry enterprises; and food processing. But while there has been growth in rural service industries in many countries, de novo agroprocessing has been slow to emerge. Further support to the development of food processing may therefore be required. Poor investment climates are a major contributor to underperformance but, in addition, agroprocessors are generally small and, like most small firms in transitional countries, face constraints in finance, management, marketing, logistics and corruption. Importantly, they also face problems of technology and, although small-scale affordable technology exists (principally from Chinese and Indian suppliers), small processors in the region rarely have the opportunity to buy from these sources. Partly as a result, use of second-hand machinery, with attendant problems of reliability and quality, is widespread.

Combating rural poverty may also require labour supply interventions, particularly if the effects of the crisis are disproportionately felt by young people. The young already face the usual labour market disadvantages of lack of experience and employers’ distrust. Many countries have programmes aimed at youth entrepreneurship, with the aim of allowing young people to pursue alternative careers. Complementing this with internship and retraining programmes may be necessary if sharp increases in youth unemployment rates are to be prevented.

Nick Maddock is Rural Development Policy Specialist for the UNDP Bratislava Regional Centre. Lovita Ramguttee is Assistant Resident Representative for UNDP Moldova.