BACKGROUND: The Russian economy ground to a halt in 2014 as the U.S. and EU imposed sanctions on Russia over the conflict in Ukraine. In addition, falling oil prices led to the worst currency crisis since 1998. Russia is the world’s second largest host country for labor migrant workers, after the U.S. The vast majority of migrant workers are citizens of former Soviet republics, whose knowledge of Russian language, as well as visa-free travel, has made working in Russia easy for migrant workers. Central Asians, particularly from Kyrgyzstan, Tajikistan and Uzbekistan, account for a large share of migrant workers in Russia. They are mostly employed in the construction and service sectors, the sectors most negatively affected by Russia’s economic slowdown.
New regulations that came into effect on January 1, 2015, imposed increased costs and bureaucratic hurdles for migrant workers from outside the Eurasian Economic Union (EEU), including Armenia, Belarus, and Kazakhstan in addition to Russia. Kyrgyzstan is expected to join later this year. Citizens of the EEU are exempt from the new rules, which require migrants to pass Russian language and history tests, buy health insurance, and pay higher fees for work permits. In addition, citizens of non-EEU countries can no longer travel to Russia using domestic ID cards. Instead, they are required to use international passports, which are more expensive for labor migrants. The Russian government adopted the new regulations due to the economic slowdown, as well as an increase in negative sentiment toward labor migrants in Russian society.
According to statistics from the Russian Federal Migration Service, the number of migrants from Tajikistan and Uzbekistan fell while the number from Kyrgyzstan increased slightly in January 2015 compared to January 2014. The official number of registered migrants from Uzbekistan fell from 2.32 million to 2.22 million, and the number of registered Tajik migrants fell from over 1 million to 999,000. In contrast, the number of Kyrgyz migrants rose from 524,900 to 545,000. The migrant laborer population from the EEU states increased substantially, particularly from Belarus (32 percent) and Armenia (10 percent), due to simplified regulations for citizens of EEU member states. This factor suggests that the new regulations are negatively influencing the flow of migration from Central Asia to Russia.
The slowdown in the Russian economy and the new tighter rules for migrant workers will potentially further reduce remittances sent by Central Asian migrants to their respective countries. The collapse of the construction sector, a major source of migrant employment, has led to substantial job losses. The ruble’s depreciation against the US$ reduced the value of remittances sent to home countries.
According to the latest statistics from Russia’s Central Bank, remittances sent to Uzbekistan from Russia decreased more than 9 percent, from US$ 2.3 billion to US$ 2.1 billion, in the third quarter of 2014. So far, remittances from Russia to Tajikistan have remained constant at US$ 1.4 billion. However, future statistics will most likely indicate a reduction of remittances due to the new migrant labor regulations, the worsening economic outlook, and the sharp devaluation of the ruble in late November and early December 2014.
IMPLICATIONS: The slowdown of money transfers to Central Asia and the further projected decrease in remittances has far-reaching implications for the region, particularly for Kyrgyzstan, Tajikistan and Uzbekistan. According to World Bank estimates, total remittances constituted about 52 percent of Tajikistan’s gross domestic product (GDP), thereby making Tajikistan the most remittance-dependent country in the world. Remittances make up over 30 percent of Kyrgyzstan’s GDP and about 11 percent of Uzbekistan’s GDP. The official estimates of the remittances for all three countries may understate true remittance numbers.
The drop in remittances will impact the Central Asian economies negatively. According to the Asian Development Bank’s estimates, economic growth in Kyrgyzstan slowed to 3.6 percent in 2014, from 10.9 percent in 2013, due to the weakened economies of Russia and Kazakhstan, Kyrgyzstan’s major trading partners and sources of remittances. Kyrgyzstan’s projected GDP growth for 2015 in is only 1.7 percent. Inflation in Kyrgyzstan is likely to exceed 10 percent in 2015. Tajikistan’s economy slowed to 6.7 percent in 2014 from 7.4 percent in 2013. The GDP forecast is 4.8 percent for 2015 and the projected inflation rate is at around 10 percent. Although Uzbekistan’s GDP growth looks impressive at 8.1 percent, the inflation is projected at about 10 percent.
Reduced remittances will exacerbate the already falling standards of living in all three countries and put further pressure on their respective currencies. Their projected currency devaluations will make imports more costly, thereby increasing the rate of inflation and further reducing the population’s already low purchasing power. In particular, low income households will be hit hardest economically.
Returning laid-off migrant workers will add to the large ranks of unemployed in their home countries, further fueling socio-economic discontent and increasing the risk of unrest. According to the International Labor Organization’s (ILO) estimates, the rate of unemployment in the total labor force is 8 percent in Kyrgyzstan and 10.7 percent in both Tajikistan and Uzbekistan. Based on the same ILO estimates, the youth unemployment is 15.7 percent in Kyrgyzstan and Tajikistan and 20.3 percent in Uzbekistan. The true number of both estimates could be much higher.
Due to the worsening economic outlook, there is a risk for unrest in Central Asia. The highest potential for instability is in Kyrgyzstan, where citizens enjoy more political freedoms than in other parts of Central Asia. The country has an established history of unrest since independence, with the latest ethnic clashes taking place in Osh in 2010. Kyrgyzstan’s forthcoming accession to the EEU later this year will most likely temper protest sentiment depending on Russia’s economic performance. Socioeconomic discontent and potential for unrest will likely grow in Tajikistan and Uzbekistan as well. However, the risk of unrest in Tajikistan and Uzbekistan is not as high as in Kyrgyzstan. The governments of both countries do not tolerate manifestations of dissent and are likely to crack down on any form of public protest, particularly in light of the overthrow of the Ukrainian president by popular protests in late 2013.
CONCLUSIONS: The economic slowdown in Russia due to Western sanctions over the Ukraine conflict, falling oil prices, and a substantial drop in the value of the Russian ruble have led to a fall in remittances sent to Kyrgyzstan, Tajikistan, and Uzbekistan. In addition, tighter regulations enacted in early January 2015 will make it more difficult for migrant workers from Central Asia’s non-EEU countries to work in Russia legally, thereby further reducing remittances to three most remittance-dependent states in the region. Reduced remittances from Russia will have far-reaching economic, political, and social implications for Central Asia.
Image Attribution: Peretz Partensky