Declining Russian Economy Presents Serious Threats to Neighboring Countries

Russia is the destination for many immigrants from the former Soviet republics and nearby countries seeking more lucrative jobs and to send remittances back to their home countries. Tajikistan, for example, depends on remittances from Russia for almost 25% of its GDP. However, after the crash of the Russian Ruble, real money worth from Russia has fallen and remittances are expected to continue to fall as Russia falls into recession in 2015. This poses a serious problem for countries that highly depend on this income, and there is a  possibility that it will lead to regional instability. In 2014, Tajikistan is reported to have lost $4 billion in remittances from Russia.

The causes of the decline of the rouble have been well documented: sanctions over the Ukraine crisis and a collapse in the price of oil from approximately $100 to $60 in the last couple of months. These two elements have led to a fall in Russian national output for the first time since 2009, and it has tipped Russia’s economy in the direction of recession for 2015. While these effects have been widely reported, the appreciation of CIS (Commonwealth of Independent States) countries’ currencies versus the Russian rouble has not. In 2014, most currencies in the CIS have appreciated versus the rouble, save for the Ukrainian hryvnia and the Belarusian rouble, signifying that not only are remittances from Russia falling, but their values are falling vis-à-vis local currencies. For example, in 2013, Uzbeks, who brought in approximately 4.9 trillion Soms in 2013Q4 are expected to bring in 3 million for 2014Q4 – a 39% fall.  Within the same World Bank report, it is noted that Tajikistan and Kyrgyzstan’s remittances income are worth more than their Central Bank reserves (504% and 102% respectively). A fall in this vital source of revenue could not only cause economic downturn, but it could affect the balance of payments of these states and offset serious economic malaise.

Economic misfortune in Russia is also influencing immigrants to return to their home countries. For many, the jobs they occupy in Russia are not conducive to pleasant lives, but the income was incomparable to those of their home country and thus they had an incentive to stay and continue supplying their families. However, now that earnings are far less stronger than before, many might reconsider the benefits of continuing to live in Russia. Nonetheless, the prospects of returning home are not bright either, due to low employment availability and lower wealth levels. In any case, the return of immigrants en masse is unlikely precisely because of that, but the effects can be virulent in their home countries. Some observers have alerted that dictatorial regimes in Central Asia such as the one in Uzbekistan – lead by Islam Karimov – might be in for some turmoil at home. The fall in remittances will deplete GDP and cause unhappiness among the population, which might lead to popular unrest toward the government.

The region will be shackled by poor economic performance for the next year, even as the Eurasian Economic Union officially takes hold. Belarus, Russia, and Kazakhstan began the Union as a counter institution to the European Union that would represent the socioeconomic and political cohesion of Eurasia. Armenia and Kyrgyzstan are also poised to join; however both of these countries have also begun to suffer due to the depreciation of the ruble.