CIS Economic Update - When the Remittances Dry Up

The Covid-triggered lockdowns this spring battered economies across the globe and left many migrant workers out of work. In the CIS region, remittances sent home by migrants working in Russia represent a significant share of income and an important source of hard currency for a number of countries. In this note, we examine the drop in remittances out of Russia from a number of different angles. > Russia major source of remittances; several FSU countries among most dependent on remittances globally. Last year, $13.5 bln was sent from Russia to FSU countries, the majority coming from migrant workers. Tajikistan and Kyrgyzstan were two of the top three countries globally by the share of remittances in GDP (around 29%). In 2Q20, money transfers from Russia plunged 22% y-o-y. We expect remittances to come in 14% lower this year.> Wider current account deficits, but effect on GDP varies. The lower remittances widened current account deficits, exerting additional pressure on local currencies and also reducing household consumption. But this dampened imports of consumer goods, which in turn softened the blow to the trade balance and hence GDP growth. It turns out that countries with a high share of imports in the economy (such as Tajikistan) end up seeing a smaller effect on GDP, because the relatively significant drop in imports offsets the lower remittances. > External financing. The drop in remittances is but one of a number of interrelated economic difficulties that compelled a number of countries to seek external financing. While funding has largely been provided, we think some countries (Tajikistan comes to mind first) may need more in order to combat higher deficits. > The social question. The decline in remittances tends to disproportionately affect lower-income households - both via lower incomes and higher unemployment - thus increasing inequality. This can have a fraying effect on social cohesion and, eventually, political stability, during what is already a fraught time.