In the past years Moldova has become too dependent on the money people from abroad send to the country, experts say. “It’s like living on drugs and it’s called remittances,” says economist Ionita Veaceslav, who works for a social economic think thank IDIS Viitorul in Chisinau. He expects Moldova to be in troubled water within a few months.

Estimates maintain at least a quarter of the work force is not inside the country’s borders. Many of them work in Russia and Western Europe, sending money to relatives back home. In 2007 remittances were good for a stunning 36 per cent of Moldova’s GDP. This makes the country together with Tajikistan the leader in the world when talking about dependency on money from people working abroad.

Remittances become bigger part of Moldovas GDP, see here the exact percentage per year.

But since the economic crisis the money flow has been drying up. In the last three months remittances decreased by 30 per cent, according to statistics of the International Organization of Migration.

Dependency on abroad

“The Moldovan economy developed a growth model based on consumption and imports,” say Ghenadie Cretu, economist at International Organization of Migration (IOM). The past years this model worked okay. Since 2001 the GDP has increased by at least 5 per cent a year.

But both Cretu and Veaceslav believe it is dangerous to let your economy grow using remittances. “In our language we have this saying which fits perfectly,” says Veaceslav. “Our economy is like ‘a rain puddle’. When there is rain, it’s there. But when it stops raining, the puddle dissapears. That’s our economy. If people stop sending money, there is no economy.”

One out of four households in Moldova is dependent on remittances send from abroad. Almost everybody knows at least a handful of people who are working abroad. Their importance is big. The remittances are mainly used for daily needs, like buying food and clothes, paying the rent and improving the house.

Consequences of the crisis

But with the remittances decreasing, expenditure is going down. For half of the households which are dependent on money from abroad, it makes up half of their budget. “And now people just stop spending,” Veaceslav says.

This has big consequences for the Moldovan state budget, which is sixty per cent dependent on taxation, in the form of VAT on consumptions and imports. Both are going down rapidly, as Moldovans were used to fund them by remittances. For the government this was a reason to request all the authorities to cut back the expenses by 20 per cent.

“This will mean that the government soon can not pay the salaries to public workers,” believes Cretu. “Probably people working as doctors and teachers won’t get their money within the coming weeks, and also pensions won’t be paid.”

Veaceslav also believes that this is only the beginning of the crisis in Moldova. “The big problems will start in September, when more people won’t receive their salary as the whole state will collapse because of the lack of incomes.”

Again a crisis

Big economic crises are not new for Moldova. After it’s independence from the Soviet Union in 1991 the economy went into free fall, making it the poorest country in Europe. The bottom was hit in 1998, when the country’s main export market failed during the Russian financial crisis.

But when working abroad was the solution to fight the crisis ten years ago, they are now causing troubles. “Many Moldovans are now returning home because they can’t find work,” says Cretu. At the same time he sees seasonal workers are not leaving for Russia, which they normally did.

” After 1998 the remittances were a capital infusion for the country,” says Veaceslav. But many of the countries where many Moldavians work – Russia, Italy, Spain and Portugal – have been hit severely by the crisis.

The only way out of this is with international financial help, thinks Veaceslav. “But I doubt if the EU and others are willing to lend us money. I don’t think anyone trusts this Communist government.”