With Russian growth data in the first half of this year showing signs of recovery, the remittance-dependent former Soviet republics of Uzbekistan, Kyrgyzstan and Tajikistan are starting to see an upswing in money received from Russia via money transfer operators.
At the start of the Russian financial crisis in 2014, remittances were equivalent to about one third of Kyrgyzstan’s GDP, while accounting for 46.6% of GDP in Tajikistan. In Uzbekistan, remittances are equivalent to 13-15% of the country's GDP and make up a large portion of the population’s foreign exchange earnings. Historical data shows that remittances to the three Central Asian countries plunged following both recessions in Russia in the last decade and grew along with the country’s recovery from the 2008-2009 crisis.
Since Russia is home to the majority of Uzbek, Kyrgyz and Tajik migrant workers, Russian central bank’s first half data paints a favourable picture for the remittance-reliant trio. Money sent to Uzbekistan and Tajikistan in the first half declined by 15.1% y/y and 14.1% y/y respectively, but the drop is still an improvement over the respective 55.2% and 58.3% annual crash seen in H1 2015. Moreover, Kyrgyzstan saw an annual increase of 11.8%, marking a turning point from the 39.6% y/y nosedive in H1 2015, and demonstrating that at least one of the three countries could be on the path to recovery.
“[The latest improvements in money transfers] are, undeniably, tied to stabilising economic conditions in Russia,” Moscow-based analyst from the CIS Institute Aza Migranyan confirmed to bne IntelliNews.
The stark difference between Kyrgyzstan and the other two countries is tied to the former’s accession to the Eurasian Economic Union (EEU) in August 2015. EEU has eased the mobility of Kyrgyz migrant workers, while simultaneously issuing new deportation regulations targeted at workers from non-EEU countries.
Russian and Kyrgyz media reported in January that the number of Kyrgyz workers in Russia was on the rise, while at the same time the number of Uzbek and Tajik workers was falling. Over 1mn Kyrgyz citizens, or one-sixth of the country’s population, are currently working abroad, according to data announced in the Kyrgyz parliament on September 19.
Russia has updated its legislation since then. “The forming of [new] institutions aimed at better regulating the [non-EEU] category of labour resources, such as the licensing mechanism and the worker-training mechanism, has allowed for a legalisation of a part of the [Uzbek and Tajik] migrant labour force,” Migranyan noted. Prior to acquiring legal status, such migrant workers could possibly face limited job prospects, which could be another reason for Uzbekistan and Tajikistan to lag behind Kyrgyzstan.
The contraction in remittances to the region is in large part caused by the weakening of the Russian ruble, which depressed the dollar value of the money migrants sent home. Migranyan point out, “the [first half recovery] was also thanks to stabilisation of the exchange rate of the ruble.”
“Migrant work in Russia has been a particularly appealing option for Kyrgyz citizens, due to the strengthening of the Kyrgyz som against the dollar,” Migranyan suggests. The som was on a rollercoaster in 2015, depreciating by 28.87% along with the ruble - yet it has strengthened by 10.54% since then. That, in turn, further served to pull Kyrgyz workers back to Russia.
“While it’s impossible to forecast further improvement [in remittance-recoveries] in 2016, it can generally be expected that the trend [reached in the first half] will remain stable,” Migranyan believes.
In the best-case scenario, if OPEC agrees on oil output freeze in November, setting off a positive chain reaction in the Russian economy, the Kyrgyz remittances may surge, while Uzbek and Tajik transfers could potentially turn positive.
Otherwise, Russian GDP growth in y/y terms could move into moderately positive territory in the second half of the year, Sberbank argues, while reiterating that the economy is still expected to grow 0.3% y/y this year, “which would be an improvement over the 0.9% drop in 1H16”.
The recession could be over, with the economy returning to growth by year-end, UralSib Capital agrees. “We believe the economy shifted from deep recession in 2015 to stagnation in 1H16 and as the commodity markets stabilise Russia will gradually move from stagnation to moderate growth in 2H16,” the bank said.