War in Ukraine - Effects on Remittances in Central Asia

The countries of Central Asia retain their strong economic ties with the Russian Federation. The historical partnership among the states and their citizens allow migration among the states to be fluid. Russia is the hub for the majority of migrants from Central Asia due to cultural familiarity, language, common history and comparatively softer administrative procedures. Even though the numbers are not official, it is predicted that around 7-8 million foreign workers are residing in the Russian Federation, mainly from Uzbekistan, Tajikistan and Kyrgyzstan.


Workers who migrated from Central Asia work mainly in the construction, transportation, agriculture, and service sectors in addition to higher skilled occupations. We observe a rise in the unemployment rate in Russia as a consequence of sanctions applied. Considering the Central Asian countries being remittance-dependent economies, in the near future, we may expect to see the negative impacts on their economies and a shift in the migration route of Central Asian workers. In 2020, Kyrgyz and Tajik economies heavily relied on remittances, consisting of around 30 per cent of national GDP, being larger than exports of goods produced in Kyrgyzstan and Tajikistan. Similarly, more than half of total remittances to Uzbekistan and Kazakhstan originated from the Russian Federation.



Taking into consideration the influence and importance of remittances in mentioned economies, the banks of the Central Asian countries are mainly using Russian banks for intermediary banking. Problems with settlement have caused remittances to stagnate and push the business actors to come up with solutions. We have seen shortages of foreign currency and in parallel local authorities taking steps to neutralize the problem. As a money transfer company, in the short term, we have launched new services to avoid interruptions. To exemplify, direct integrations with local banks allowed us to send remittances directly to cards in Azerbaijan and Uzbekistan in local currency. Similarly, at UPT, we are now directly sending funds to bank accounts of Georgia in local currency. Considering the potential shift of migration route from Russia to Turkey, we have increased our Russian-speaking staff as a preventive measure to avoid a potential problem with the increasing demand. On the other side, remittances to Ukraine are higher than ever. The country is receiving aid from all over the world during the conflict, and its diaspora is effectively financing their relatives through remittances. In Ukraine, considering daily life and its challenges, remittances sent by UPT can be withdrawn by mobile applications.



However, we observe unintended outcomes of the situation too. Digital transformation has begun with the pandemic and the importance of digitalization is even higher nowadays in the region. Local banks and finance organizations are pushing all their resources for the transformation. Diversifying the remittance routes and establishing new partnerships has never been more strategic for local actors. This may result in a more integrated and more competitive market.


While the globe was recovering from the effects of the pandemic, the upcoming food shortages and energy crisis will also play their role in the region. The Russian Federation plays a significant part in the export of energy which is exported by Turkmenistan, Uzbekistan and Kazakhstan. Sanctions on energy or simply Russia’s decisions over energy export may also damage the economies in the region. We will need to analyze the potential outcomes of such actions separately.



To sum up, the volatility in local markets caused by the crisis in Ukraine and sanctions on Russia needs to be closely observed, as sharp declines can result in change of migration routes, and as a business sector, we shall be prepared for changes.


In this light, it is imperative to regularly monitor migration and remittance flows considering that remittances contribute to the sustainable livelihoods of migrants and their families in their countries of origin, and much more besides.