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International Economic Relations

Moldova is a country of migrants. Moldova's leading industry is emigration, legal and illegal, mostly to Russia and the EU. According to the World Bank, remittances from these workers accounts for 27.5% of Moldova's gross domestic product (GDP). Although this is a plus for reducing welfare, such activity provides little impetus to the domestic economy since less than 7% finances business investment.

According to official government estimates, more than 600,000 Moldovans are living and working abroad, although the actual figure differs according to different sources and likely tops one million. Migrants are also a major source of income for the national economy, with remittances from those abroad estimated at $300 million per year. Managing Moldova's migrants, many of whom are abroad illegally, is a major challenge for IOM and its partners in the international community and Moldovan government. IOM supports policies that promote orderly and safe migration, respecting human rights while creating sustainable domestic and social polices that promote economic alternatives to seeking work abroad.

The migration-development nexus (the linkage between outward migration and poverty reduction/economic development) is characterized through three factors - of "recruitment, remittances and return", where the latter especially is of great value to Moldovan context as an untapped development resource. In previous efforts to combat irregular migration the focus of international humanitarian interventions was primarily on the areas of migration control and regulation (national capacity building for border control, eliciting illegal migration channels, etc.), while the economic aspect of migration - remittances was not fully utilized, partly due to the lack of sound data and research on the subject.

Addressing this gap is a key element in the future development of migration management systems and the Moldovan economy in general, as it would provide objective data/information and serve as a solid platform for future definitive analysis and policy building. Remittances can play a major role as a poverty-alleviating tool in Moldova, since they are 15 times the social assistance budget and are estimated to be around 380,000,000 USD in 2004.

The challenge is to harness this capital through a fitting micro-economic model and have some bearing on the three pillars of poverty reduction (pro-poor sustainable economic growth, social development and promotion of good governance). Migration in Moldova, as an area previously framed in regulative and controlling terms must be integrated into policy discourse on poverty reduction and interlaced within future national migration concepts/methodology and technical assistance projects in the sphere of economic development.

Spurred by soaring consumption and higher energy prices, imports have been growing more rapidly than exports. The country lacks diversification in terms of sector development and export markets. In 2007, the country's trade deficit was $2.3 billion (compared with $1.6 billion in 2006).

As the European Union expanded to Moldova's border, 2007 saw record high inflows of foreign direct investment (FDI) at $450 million, and in 2008 FDI grew to approximately $650 million. However, cumulative FDI since independence is only $2.3 billion, far below the country's needs. Sporadic and ineffective enforcement of the law, corruption, economic and political uncertainty, and government interference discourage greater FDI inflows.

The Republic of Moldova depends totally on the gas supplied by "Gazprom", a company controlled by the Russian state. The Russian capital represents 11.3% of foreign investments into the Moldovan economy and has a quasi-total control over the economy of Transnistria. In addition, the Russian market continues to be very important for Moldovan exports, with 17.4% of the total.

In 2005, Russia enacted a ban on Moldovan agricultural products and in 2006, it banned imports of Moldovan wines. Although Russian President Putin announced an end to the wine ban in November 2006, actual resumption of wine exports came a year later. The resumption of wine exports to Russia was a positive development, but full recovery of trade volumes will take time. The portion of the Russian market will probably increase due to the resumption of exports of the Moldovan wine to this country. The wine ban was particularly painful because, prior to the ban, Moldovan wines accounted for one-third of the country's exports and 80% of wine exports went to Russia. Some Moldovan wineries have been successful in finding new, alternative markets for their products. The current Central European Free Trade Agreement (CEFTA) and EU autonomous trade preferences are incentives for further market diversification.

In January 2006, Russian energy giant Gazprom temporarily cut off natural gas deliveries to Ukraine and Moldova--which is almost completely dependent on its neighbors for energy--and subsequently doubled the price of gas to Moldova. The prices of Russian gas increased to U.S. $170 per one thousand cubic meters in 2007, U.S. $192 in the first quarter of 2008, U.S. $212 in the second quarter of 2008, and U.S. $280 by the end of 2008. The prices will increase until 2011, reaching parity with the average EU price.

The International Monetary Fund (IMF) and World Bank resumed lending to Moldova in July 2002, and then suspended lending again in July 2003. In early 2006, Moldova reached agreement with the Paris Club on rescheduling Moldova's foreign debt. In addition, in the spring of 2006, the IMF reached an agreement with the Moldovan Government for a Poverty Reduction and Growth Facility designed to bolster foreign reserves against external shocks with a 3-year, $180 million program that includes a new IMF loan to the National Bank of Moldova.