Central Asian Echoes of the Russian Rouble

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The Russian currency has lost more than half of its value against the American dollar since October 2014. Although much of this has been caused by a drop in oil prices, this devaluation is not likely to be fixed when the oil price rises. The sanctions imposed on Russia, following the turmoil in Ukraine, will have a long-term effect on the economy, meaning that Russia can no longer borrow money on international markets. Unlike previous monetary crises in Russia, the rouble’s plummet is dramatic and will impact not only Russians’ well-being. This economic turmoil will no doubt echo in the Central Asian countries, whose economies have become heavily dependent on the remittances sent by migrants working in Russia.

According to the World Bank, Tajikistan is dependent on remittances for 42% of its GDP with most of this coming from Russia. Kyrgyzstan’s GDP owes 32% to Kyrgyz migrants sending money back home while Uzbekistan has 12% of its GDP that depends on migrant transfers. According to Reuters, there are 1 million Kyrgyz citizens working in Russia, while Tajiks are estimated to be over 1 million people. Uzbek labour migrants are estimated to be at about 4 or 6 million people.

As the Russian economy tumbles into recession, millions of Central Asian migrants have seen their real wages decrease rapidly. This has led to a decline in the amount of money transfers from Russia to the countries of Central Asia. The EBRD reports that the first quarter of 2014 already saw an 8% decline in the amount of remitted funds. Data from Russia’s Central Bank showed that during the third quarter of 2014, the funds Uzbeks sent to their families had dropped by 9% compared to the same period of 2013. Migrants are now facing an uneasy choice. Many are considering returning home unable to send more money than it is costing them to live in their migrant country. However, the situation is aggravated by the decision of Russian government to make new and expensive work permits compulsory for those who wish to work in the country. Should the migrants wish to return to Russia at some point, this could be harder to do with the new regulation in effect. At the moment, however, surveys indicate that people intend to go back home if the Russian economy does not pick up.

Some analysts warn that the mass exodus of Central Asian migrants to their countries could lead to an increase in revolutionary potential. In fact, Central Asia has benefitted from migration as it helped to solve the unemployment matter on domestic markets. Should a large number of workers return, the respective governments will have to tackle the challenge of accommodating them in their struggling economies. A few analysts worry about the fact that the migrants have enjoyed respective freedoms of Russia. It is feared that this could potentially bring a massive political turbulence in Central Asia.

Without underestimating the risks, one has to bear in mind each Central Asian country’s specifics and the extent that the rouble devaluation will have on each to see where revolutionary turmoil is likely.

Following the announcement of an imminent Russian recession, the Kyrgyz Republic’s currency dropped 15% in late 2014. This country of less than 6 million has seen two presidents overthrown since 2005. The last revolution followed after many unemployed men returned home from the 2008 recession in Russia. Frustrated about the lack of opportunities they took to the streets and overthrew President Bakiev. Today Kyrgyzstan remains one of the poorest countries in Central Asia, and the IMF expects consumer prices in the country to grow 8.9% in 2015 compared to 6.6% increase in 2014. It’s worth mentioning that Kyrgyzstan is one of the most open countries in Central Asia despite having had numerous setbacks in its democratization. This, however, does not fix its poverty problem and it means the country is not immune to turmoil should things go out of control. Given the previous revolutionary experience of the population, one cannot exclude another power change.

Tajikistan is another poor country of the region, not least due to a civil war that rocked the country between 1992 and 1997. It is also expected to suffer if millions of migrants return and do not find a job. In 2014 the devaluation of rouble led to an increase in consumer prices in Dushanbe and other cities, following Tajikistan’s somoni drop of a relatively mild 5.5%. It has been calculated that the Tajik growth will slow down to 6.5% this year (from 7.4% in 2014) due to remittances’ decrease in the January-September period. Should large numbers of people return, it will be a burden to Tajikistan’s struggling economy. The government will have to adopt prudent strategies to manage this issue effectively.

Uzbekistan has the largest population in Central Asia and is considered by some experts as a country with an increasing revolutionary potential due to an expected migrants return. While the World Bank attributed only 12% of Uzbekistan’s GDP to remittances, the real share could be higher as money is often brought either in person or sent via friends. After the rouble devaluation, Uzbekistan’s som dropped by 9% in the last few months. The country, however, has a more diversified economy and the state control is strong, which so far has dissuaded the Uzbeks from attempting any dramatic changes. It could probably take a few highly unproductive agricultural years to force Uzbeks onto streets. That said, Uzbekistan
remains vulnerable should the Russian recession linger on. There is no doubt the Uzbek government will have to think of a plan to tackle the challenges of losing the usual cash flow.

Turkmenistan is not so dependent on the Russian market and it has relatively few Turkmens migrating to Russia as workers. In a surprise move the country devalued its rather stable currency against the US dollar by 18% percent in early January. At first glance this seemed normal after the Russian rouble shockwave and the fall of oil prices. However, the devaluation was reportedly a deliberate government measure to sell more gas to China at lower prices. Another opinion states that the government simply ran out of cash and chose to devalue knowing that it was unlikely to cause any civil unrest. A small dependence of Turkmenistan on migrant remittances from Russia means that the country’s revolutionary potential is rather insignificant.

Kazakhstan, whose economy is closely linked to Russia, was negatively affected by the rouble’s drop. The National Bank devalued the currency by 19% in February 2014 causing Kazakhs to protest at the government’s decision. Throughout 2014 Kazakh officials had to recalculate the budget and implement rapid measures to keep its national currency (tenge) up. While the government urges people not to worry, many say they do not want to keep cash in tenge anymore. Kazakhstan does not have massive amounts of migrants in Russia, being itself a host to a number Central Asian workers. However, a decline in living standards could lead to social unrest in unfortunate circumstances. The relative well-being of Kazakhstan may prevent people from massive protests, yet it may mean that the patience threshold of people could be lower than that of other Central Asian populations. The government knows this, therefore, Kazakhstan has recently modified its laws on trade unions, which in effect limit the freedom of assembly rights.

In summary, the Russian recession will affect the quality of life in Central Asia more so for those dependent on immigrant remittances and increase the risk of social unrest in the region. The devaluation of local currencies related to the rouble’s fall will also keep consumer prices high, which could lead to forms discontent. However, one should not jump into conclusion that Central Asia as a whole will necessarily experience massive political turbulences such as revolutions. Suffice to say that some countries are more vulnerable than others. The outcome will depend on how the events unfold and the strategies used by governments to combat the issue.

Bearing the risks in mind, one has to remember the personal preferences of the workers from Central Asia who can opt to stay and be patient instead of going back home with no guarantee of return to Russia at a later date. Despite the economic downturn, Russian construction projects are not yet halted for 2015. The country will also need migrants to launch its lavish infrastructure projects for the 2018 World Cup. It is fair to say that Central Asian migrants could opt for “wait and see” tactics until the situation resolves.

By Zaynab M. Dost

 

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