The double whammy of international sanctions imposed on Russia after it annexed the Crimea and the collapse of oil prices have wounded the economy, but with nearly $400bn in reserves the Kremlin has been able to cushion most of the blow. The same is not true for its neighbours in the CIS, which are getting crushed as exports evaporate and the all important remittances from guest workers dwindles. Remittances from Russia to the former Soviet republics are down by two fifths and currently at their lowest level since 2006.
In 2015, Russia was the world's second-largest producer of petroleum and natural gas, and the oil and natural gas sector accounted for approximately 8% of Russia's gross domestic product (GDP), according to IHS Markit. However, in conjunction with both lower oil prices and international sanctions, Russia has recently experienced five consecutive quarters of decline in GDP, representing that country's deepest economic downturn since 2008-09, the US Energy Information Administration (EIA) said in a report on August 3.
Russia’s economy relies heavily on immigarnts from the former Soviet republics and will become even more dependent now that the recent spurt in population growth is expected to reverse for the next several years. But those republics are even more dependent on the money that migrant workers send home.
Migrants make up about 8% of Russia’s population, according to the UN, with the vast majority coming from the former Soviet republics and Central Asia in particular.
Remittances from Russia to other countries have tumbled in the last few years, declining by 40% from 2014 to 2015 to roughly $19.7bn, the lowest amount since 2006, according to the World Bank.
In 2015, Armenia, Azerbaijan, Georgia, Kyrgyzstan, Tajikistan, Ukraine, and Uzbekistan all received at least 50% of their remittances from Russia, the EIA reports. And this money makes a up a significant share of GDP in these mostly small and unreformed countries. The share of remittances as measured against GDP ranged from 3% in Azerbaijan to 33% in Tajikistan in 2015, the EIA says. In dollar terms the average decline was about a quarter to $800mn in 2015.
Of course the migrants are actually paid in rubles and the devaluation that followed the fall of oil prices has reduced the value of the money these workers send home. From 2014 to 2015, the average annual dollar/ruble exchange rate rose from RUB38.6 to RUB61.3, amounting to a 59% depreciation in the RUB, the largest since 1999. The ruble has recovered some of the ground lost since then but the value of the ruble against the value of the local currencies in the former Soviet republics is still down by at least a third in most countries.
The least affected was Azerbaijan where the ruble lost 18% against the Azerbaijani manat, reports EIA. The hardest hit was the Uzbekistani som, which lost 30% against the ruble. The numbers look more dramatic when state in dollar terms, as most of these economies are so dependent on the Russian economy, some of the sting has been taken out by concurrent knock-on devaluations in these countries.
In addition to reducing economic activity, declines in remittances can affect a country's oil consumption, which is often sensitive to the level of income received from both domestic and international sources. Annual oil consumption across the seven countries that receive most of their remittances from Russia grew by an estimated 18% in 2014 and then declined by about 1% in 2015.
The upshot is the entire region is now looking at its lowest growth rates in two decades for this year, according to the International Monetary Fund (IMF).