Russia’s coming crisis puts $13bn of remittances at risk

Bloomberg

Russia’s deepening economic crisis is on the verge of spilling into some of the most remittance-dependent economies in the world.
Migrant workers from the former-Soviet Union send $13 billion home each year from Russia, where they are allowed to work visa-free. But now that money is starting to dry up due to lockdowns in Moscow and St. Petersburg that have halted construction projects and sapped demand for taxis.
Total remittances from Russia could drop by more than 30%-40% this year, according to Eldar Vakhitov, an emerging-market analyst at M&G Investments in London. The central bank says the self-isolation measure could knock 1.5%-2% off economic growth in 2020 but a worst-case scenario being discussed by the Russian government last month put the
potential drop at 5%-10%.
“The decline in remittances from Russia can’t be compensated,” said Eldar Vakhitov. “Instead the countries will have to use their reserves or request additional IMF and bilateral support.”
The ruble has slumped 16% against the dollar this year, more than any of the former-Soviet currencies. That has weakened the value of any money that is still being sent home.
Unistream, a Russian electronic transfer provider popular with migrant workers, said payments were already down over 30% in March, compared with a year earlier. An order from President Vladimir Putin for people to work from home came at the end of that month and was recently extended until May 1.
The central bank in Georgia, which also sends migrant workers to Italy, expects total remittances to fall by almost a third this year. The International Monetary Fund is giving $121 million of emergency funding to Kyrgyzstan to help cover a $400 million balance-of-payments gap, partly caused by the drop in remittances.
Uzbekistan is probably in the strongest position because it has low debt levels and large currency and gold reserves, according to Vakhitov.
As the poorest of the Former-Soviet republics, Tajikistan is likely to be hardest hit. Yields on the country’s only dollar bond surged above 17% last month as investors grow increasingly concerned about its ability to pay them back.
“Russia’s slowdown is going to spell major problems for Tajikistan and Kyrgyzstan, including liquidity risks in the banking sector and mass unemployment,” said Edward Lemon, a DMGS-Kennan Institute Fellow at the Daniel Morgan Graduate School in Washington, D.C. “They can’t fill the gap. It’s going to be very difficult for them to create sufficient jobs.”