The fall of the ruble this summer has had a notable impact on the economies of Russia’s neighbors. For example, the exchange rate of Kazakhstan’s tenge, which was recently at its highest level since 2016, declined sharply in mid-August. And when Russia’s Central Bank raised its key interest rate on August 15, the ruble continued to decline for several days after recovering some of its value. The National Bank of Kazakhstan was clear about what it believed to be the reason for the decline, calling it a “reaction to the weakening of the ruble”. Meduza looks at how the ruble’s exchange rate affects the currencies of other countries in the Commonwealth of Independent States (CIS) – and why it could lead to an exodus of labor migrants from Russia.
What factors affect the exchange rates of CIS currencies?
The economies of the CIS countries have many similarities but can be divided into three broad categories:
- Some CIS countries, such as Azerbaijan and Turkmenistan, regulate the exchange rate of their national currency. This means that the exchange rates of the Azerbaijani manat and the Turkmenistani manat are firmly fixed and rarely change, Meduza analysts pointed out.
- Government partially Regulates currency exchange rates in CIS countries such as Uzbekistan and Tajikistan.
- Finally, countries like Armenia and Kazakhstan have floating exchange rates (like Russia). This means that the value of their national currencies is primarily determined by supply and demand on the exchange market. It also depends on market factors: for example, TENG follows changes in oil prices.
What is the relationship between the ruble and the currencies of Russia’s neighbors?
Russia is one of the largest economies in the region and a major trade partner of the Eurasian Economic Union (EAEU) and several CIS countries. Furthermore, the Russian ruble is the major currency used in trade between EAEU member states. In addition, a significant part of international settlements within the EAEU are conducted in the currency of Russia; The ruble still makes up more than 70 percent of the currency used in both imports and exports. It suggests, in particular, that companies in Kazakhstan, Kyrgyzstan, Armenia and other countries buy rubles to do business with Russia.
Additionally, many migrants from Central Asia and Armenia travel to Russia for work. They get their pay in roubles, which they often remit back home. This, in turn, also strengthens the CIS countries’ dependence on the ruble (we’ll explain how below). A major financial firm told Meduza that in Tajikistan, for example, remittances account for about a third of GDP.
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And rubles are brought to the CIS countries not only by labor migrants, but also by Russian emigrants. This increased significantly following the start of Russia’s full-scale invasion of Ukraine and had a significant impact on exchange rates; Other national currencies began to strengthen as newly arrived Russians sold their rubles and bought local currencies, increasing the market supply of rubles. As a result, in 2022, three non-Russia CIS member countries entered the list of top 10 currencies against the US dollar: Armenian Dram, Georgian Lari and Tajikistani Somoni.
Russians continue to flow into Armenia and Georgia, and Dram and Lari remain strong in 2023 as a result. However, Tajikistan has seen the opposite: since the beginning of the year, the US dollar exchange rate for the somoni has risen by 8 percent. This can be largely attributed to Somoni’s strong reliance on the ruble, which is the currency that many of the country’s labor migrants are sending back home.
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Is this dependence really strong enough to determine the exchange rates of the CIS countries?
Undoubtedly, the ruble affects the currencies of some of its neighbors, but not all and not directly. The most dependent are the smaller economies that have close ties to Russia. Freedom Finance Global analysts told Meduza that for other countries, the volatility of the ruble is just one of many factors that indirectly affect the exchange rates of their currencies.
According to the economist of a large financial company, Tajikistan is the country whose currency exchange rate is most easily affected by the ruble due to the high flow of remittances coming into the country.
Additionally, the ruble influences the economies of Armenia and Georgia, but the exchange rates of these countries’ currencies are sensitive to many other factors as well. For example, in Armenia, the economy is greatly affected as the inflow of cash from expatriate members increases significantly during difficult times such as wars and epidemics. As a result, drama is far from the most stable currency in the post-Soviet space; Its exchange rate against the ruble has increased by 50 percent over the past five years. Meanwhile, in Georgia, the constant influx of tourists is a powerful factor—one of many factors that act as a counterweight to the ruble’s depreciation.
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The situation in Kazakhstan is more difficult. Like Russia, Kazakhstan is a major exporter of oil. As a result, the value of the Kazakhstani tenge largely depends on changes in oil prices. Aliya Moldabekova, deputy chairman of the National Bank of Kazakhstan, said in 2019 that the exchange rate of the ruble and the price of oil are the two fundamental factors that affect the teng’s exchange rate.
At the same time, Kazakhstan exports more goods than it imports from Russia. As a result, fluctuations in the ruble can have an adverse effect on the value of the teng. For example, a strong appreciation of the ruble in 2022 weakened the tenge and pushed up prices in Kazakhstan. In other words, the relationship between the ruble and the tenge is less straightforward than it may initially appear, one expert told Meduza.
An economist from the Bank of Russia told Meduza that the EAEU currency most dependent on the Russian ruble is the Belarusian ruble. Another economist agreed: Russia is Belarus’ largest trading partner, and many Belarusians travel to Russia for work, so there is indeed a dependency.
Also, the values of the two currencies do not always show a tight correlation, as the country’s Central Bank does not set the Russian ruble’s exchange rate, while the Belarusian National Bank often intervenes in its currency’s exchange rate, according to Freedom Finance Global analysts. told Meduza.
How does a weak ruble cause an exodus of migrants from Russia?
The recent fall in the value of the Russian ruble has a direct bearing on the willingness of expatriates to travel to the country for work. This is because not only the ruble fell against the US dollar and the euro, but also against the currencies of other CIS countries.
Since the beginning of 2023, the ruble has depreciated by 22 percent against the Kyrgyzstani som; Its exchange rate against the Uzbekistani som has fallen by 18 percent; And its exchange rates against the Armenian dram and the Kazakhstani tenge have depreciated by 25 percent.
This has reduced the income of expatriates who are paid in roubles, making working in Russia a less attractive option for them.
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According to Bakhrom Ismailov, the head of the Uzbekistani diaspora in Moscow, Russia could lose a third of its migrant workers due to the ruble’s falling exchange rate. In a recent interview, Anton Glushkov, head of Russia’s National Builders’ Association, said that the collapse of the currency would make Russia a less attractive market, especially for migrant construction workers. Most of the employees are stuck here for now, but this may change in 2-3 months, he said.
In 2021, the average monthly wage for migrant workers in Russia was 47,100 rubles (about $640), according to data from Moscow State University and the organization Federation of Migrants of Russia. The most lucrative industry for migrant workers that year was construction and repair, with an average monthly wage of 54,000 rubles ($734).
In 2022, the number of labor migrants to Russia will increase by 33 percent (about 847,000 people) compared to the previous year.
There are two main factors behind this huge increase:
- First, by the end of the pandemic, the number of immigrants to Russia had nearly quadrupled, and did not begin to recover until 2021.
- Second, the ruble was strong. In 2022, the ruble appreciated due to a higher number of Russian exports and lower imports. That summer, the value of the dollar on the Moscow Stock Exchange fell to 50 rubles, and only at the end of the year it again approached 70 rubles.
An economist at a Russian bank told Meduza that expatriates working in Russia may actually leave in response to the ruble’s falling exchange rate. According to him, the devaluation of the currency will further aggravate the already acute shortage of workers in Russia.
But the devaluation of the ruble is not the only factor preventing potential migrant workers from coming to Russia, nor is it the most important. Due to Russia’s full-scale war against Ukraine, many migrants justifiably worry that they could be mobilized and sent to the front, according to an economist at a large financial company. Although organizing a citizen of a foreign country is difficult, the risk is real – and expatriates are taking note.
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Will a Decline in Immigration Be Bad for Russia?
In a word, yes. Russia’s labor shortage is becoming a problem for the economy, and the outflow of migrants will worsen the situation.
As opponents of the war leave the country and hundreds of thousands of others are drafted and sent to the front, Russia’s working-age population continues to dwindle. Last year, the number of workers under the age of 35 decreased by 1.3 million people – the largest decrease in Russia’s modern history (except for 2020, when pandemic restrictions were in force).
Unemployment reached a record low of 3.1 percent in June 2023. About 42 percent of Russian companies reported personnel shortages in July, according to data from the Gaidar Institute for Economic Policy, although 35 percent of businesses were reporting shortages as early as April.
In 2022, despite the influx of migrants, their numbers will be 15.3 percent lower than in 2019, the last year before the pandemic. And a potential outflow due to a loss of income threatens to worsen the situation.
Migrant workers have several options to choose from, including fast-growing Turkey as well as South Korea, according to an economist at a leading financial company. Russia will have to start competing for expatriates, including raising their wages, he said. It is not clear whether there will be anything to protect them from the risk of mobilization.
by interpreter artur arutunov
translation by Sam Brazile
Source: meduza.io
