Russia’s rouble crisis poses threat to nine countries relying on remittances

Russia’s rouble crisis is posing a major threat to countries along its southern fringe, whose economies rely heavily on billions of dollars shipped home every year by their own citizens working within Russia.

The 50% drop in the rouble has not only decimated the value of remittances sent home by workers from the Caucasus and central Asia, but is discouraging migrants from staying in Russia to earn a salary for themselves and their families. According to data projections by the Guardian, based on World Bank figures, nine countries that rely heavily on cash sent home from Russia for their economic buoyancy could collectively lose more than $10bn (£6.6bn) in 2015 because of the weak Russian currency.

“I’ve sacrificed starting a family, I’ve sacrificed any kind of normal life to work here, and now I’m only able to send home a few hundred dollars a month,” said Aziz, who works at a car repair plant in northern Moscow. His regular job and some moonlighting as a cab driver has typically earned him around £600 per month to send home to his parents and sisters, who live in the Fergana valley in Uzbekistan. Now he is lucky to earn half that sum. “I’m starting to think there is not much point in staying. Life is miserable enough here anyway, the only reason to be here was for the money. I think it could be time to go home.”

Aziz is not the only person thinking about leaving. As the economic situation in Russia deteriorates, authorities have also introduced a new harsher system for obtaining work permits for migrant workers. Currently, there are millions of citizens of former Soviet countries working illegally in Russia.

“So far people are not leaving en masse, mainly because they are worried they won’t be able to come back,” says Gavkhar Dzhurayeva, who runs an organisation offering free legal support to migrant workers. “However, lots of people are talking about it, if things don’t improve.”

The tendency could be problematic for Russia too, which is expected to rely on immigrant labour for the formidable building projects as the country prepares to host the 2018 World Cup.

According to the World Bank, 21% of Armenia’s economy, 12% of Georgia’s, 31.5% of Kyrgyzstan’s, 25% of Moldova’s, 42% of Tajikistan’s, 5.5% of Ukraine’s, 4.5% of Lithuania’s, 2.5% of Azerbaijan’s and 12% of Uzbekistan’s, rely on remittances.

These are some of the highest rates in the world. Of the five countries globally whose GDP is most reliant on these payments, three are former Soviet republics. In most of these cases money from immigrants in Russia comprises a significant portion of these inflows. About 40% of remittances to Armenia, Georgia, Moldova and Ukraine are from Russia, rising to 79% for Kyrgyzstan.

Already, the sharp decline in the rouble has forced currency devaluations in Turkmenistan this month, and speculation that Kazakhstan’s tenge may need a further devaluation against the dollar after a 19% move last February.

The economies of the region are strongly tied together, with Belarus sending more than half of its exports to Russia, and the nascent Eurasian Economic Union supposedly tying together Russia, Belarus and Kazakhstan as a single bloc. Armenia and Kyrgyzstan have also joined. In addition to the plummeting rouble, these countries will also have to deal with a potentially huge shortfall in remittances, which cannot but have an effect on GDP.

In October 2014 the World Bank estimated that remittances for the year to the nine countries mentioned earlier would have totalled $33.3bn by the end of 2014. Of this figure, about $19bn would have been outflows from Russia.

At the time of the World Bank estimate, one US dollar exchanged for 40 roubles. By the end of the year, the currency had lost about 50% of its value. If that new rate held steady throughout this year – and remittances were otherwise unchanged – their value would drop precipitously in 2015, to just $7.6bn.

It is also worth noting that the figures given are the official numbers, sent via bank transfers. The real amounts, which include wads of dollars brought home in person by migrants or given to friends to carry, are likely to be much higher.

A weak rouble over a sustained period of time would have a minimal impact in the Baltics, but in several other countries the effects could be felt far more. In those countries where GDP relies so heavily on migrants sending money back home, a prolonged currency crisis throughout 2015 would, all other factors remaining the same, potentially even lead to double-digit economic contraction.

Most vulnerable are the central Asian countries of Kyrgyzstan, Tajikistan and Uzbekistan, where the ailing economies and dictatorial political systems are in large part propped up by the money from its nationals working in Russia.

In Uzbekistan, ageing dictator Islam Karimov said in 2013 that migrant workers who went to Russia were “lazy” and should find a job at home, but in reality, there is little work in Uzbekistan, where £100 per month is considered a good salary and many towns simply have no opportunity for work at all. Regional experts say that if the money flow from migrant labourers dries up, rulers like Karimov would be in serious trouble.

“If oil continues falling and the rouble continues falling, then migrants will begin to return home,” says Daniil Kislov, who runs fergana.ru, a central Asia news portal. “There are 2.4 million Uzbek migrants in Russia, and those are just the official figures. These people and their families are all surviving because of money made in Russia. Essentially Russia has saved Uzbekistan and Tajikistan from revolution, and if all these people return it will cause a social explosion. Not today, but maybe in a year, or two, or five.”

Source: The Guardian