The Russia-Ukraine crisis is squeezing Central Asian economies

On the last Monday of every month, Moscow-based Faridun Abdulloev wires half of his monthly pay to his wife in Dushanbe, the capital of Tajikistan. A mid-level manager at a construction firm, Abdulloev is usually able to send across $500 — enough to cover his family’s household expenses, his son’s private school fee, and a monthly installment on a home loan.

But in late January, the 34-year-old worriedly called his wife before transferring money. The Russian rouble had crashed 8 percent against the United States dollar since December and 15 percent since October — all even as prices in Moscow have climbed steeply in recent months. He would be able to send home only $450, he told her. Then, he shared a deeper fear with her. “I told her things might get so bad that I might have to come back,” he recalled in a phone interview with Al Jazeera.

I told her things might get so bad that I might have to come back.

by Faridun Abdulloev, migrant worker in Moscow

Abdulloev is among millions of Central Asian migrant workers in Russia who risk becoming collateral victims of the ongoing tensions between Moscow and the West over Ukraine. The Kremlin has positioned more than 100,000 soldiers and heavy weaponry along its neighbour’s borders, sparking fears of an imminent war. The US has responded by preparing a set of sledgehammer sanctions aimed at deterring Russian President Vladimir Putin from any invasion of Ukraine.

Yet while the measures Washington is proposing are targeted at Moscow, they could also end up crippling the economies of Tajikistan and the Kyrgyz Republic while also significantly hurting Uzbekistan, because these nations depend on money sent home by citizens working in Russia.

The blow to remittances

More than 3 million migrant workers from Uzbekistan, nearly 1.6 million from Tajikistan and 620,000 from the Kyrgyz Republic entered Russia between January and September 2021, according to data from the ministry of internal affairs in Moscow. Put simply, one in 10 citizens from those three countries works in Russia. Remittances — mainly from Russia — constitute 30 percent of the gross domestic product of Tajikistan, 28 percent for the Kyrgyz Republic and almost 12 percent for Uzbekistan, according to the latest World Bank data.

But the mere threat of sanctions has already sent the rouble tumbling, cutting the value of the earnings and savings of migrant workers.

In the past, experts have found that remittances to Central Asia take big hits when the Russian economy faces crises, including after 2014 when Washington imposed economic curbs following Moscow’s annexation of Crimea. And this time, the US and its allies in Europe are warning of unprecedented measures if Putin proceeds with military aggression. Some of the proposed sanctions could effectively block the pipeline of remittances that keep Central Asian economies humming.

“A decline in remittances is likely to lead to economic, fiscal, and social pressures in Central Asian countries particularly dependent on remittances,” Tigran Poghosyan, the International Monetary Fund’s resident representative to the Kyrgyz Republic, told Al Jazeera.

A decline in remittances is likely to lead to economic, fiscal, and social pressures in Central Asian countries.

by Tigran Poghosyan, IMF resident representative to the Kyrgyz Republic

Among the economic penalties that the US is considering against Russia are sanctions targeted at that country’s major banks. Such a move could send the Russian economy — and the lives of ordinary people — into a tizzy, potentially raising the costs for Putin. It could also devastate millions of families in remittance-dependent former Soviet republics.

The country’s four biggest banks control 55 percent of financial sector assets. And more than half of all wages and pensions in Russia are paid out through Sberbank, the nation’s largest bank. If the proposed sanctions bring these banks to their knees, it’s unclear whether workers like Abdulloev will even receive their salaries. And if banks in other countries snap ties with their Russian counterparts to avoid sanctions themselves, international money transfers — at least through legal mechanisms — might become next to impossible, experts say.

“I’ll return to Dushanbe and drive a taxi,” said Abdulloev, speaking with the help of an interpreter. “But there’s no way I will be able to support our life or our dreams for our son.” He and his wife have discussed moving their son to a public school. And the home loan they need to repay? “I don’t even want to think about it,” said Abdulloev, who has worked in Russia since 2017.

Squeezed by geopolitical tensions

This isn’t the first time that Central Asian migrants have found themselves squeezed in the geopolitical battles between Russia and the West. The sanctions imposed by the US in 2014 halved Tajikistan’s incoming remittances between 2013 and 2016. Uzbekistan saw its remittances plummet by nearly 30 percent, and the Kyrgyz Republic by 25 percent, in a year.

“The overall level of remittances shrinks when Russia has an economic crisis,” said Caress Schenk, associate professor of political science at Nazarbayev University in Astana, Kazakhstan’s capital.

But previous crises could pale in comparison to the punishment that the West is readying for Russia if it invades Ukraine. In the past, sanctions have largely been targeted — focused on individuals and entities believed to be close to Putin, or those involved in Moscow’s actions in Ukraine. This time, the sweeping nature of proposed economic measures could dry up remittances to Central Asian republics like never before.

The overall level of remittances shrinks when Russia has an economic crisis.

by Caress Schenk, associate professor of political science, Nazarbayev University

For these nations, the timing could not have been worse: Before current tensions erupted between Moscow and the West, remittances had just started recovering from the blow delivered by the COVID-19 pandemic.

Uzbekistan, for instance, saw a 23 percent increase in money sent from Russia in the first half of 2021. Some countries, like resource-rich Uzbekistan, might weather the coming storm better, Schenk told Al Jazeera. But for the most part, “these economies are already challenged”, she said.

They rely on remittances as a major source of foreign currency, said Poghosyan. For many poor families, money sent back home by relatives working in Russia is “their main source of income”, he said.

Backup plans

Not all migrant workers in Russia are pressing the panic button just yet. Ahmadjon Usmanov, an Uzbek taxi driver in Moscow, said he believes that Putin’s administration will take steps to insulate migrant workers from the worst effects of any new sanctions. Russia’s economy depends on foreign workers, whose absence during the pandemic — when many went home — slowed the country’s recovery. “They can’t afford to have all of us leave again,” said Usmanov to Al Jazeera.

His backup plan? To join a growing set of the region’s workers who in recent years are heading to Kazakhstan instead of Russia. Turkey, South Korea and the United Arab Emirates are also emerging as alternative destinations, said Schenk.

But these countries are not yet in a position to compete with Russia for Central Asian workers, she said. Migrants often rely on existing networks of compatriots in new countries, making Russia particularly attractive. Russia’s migrant labour economy also largely works through informal mechanisms, Schenk said. “This makes it comparatively easy for migrants to work informally or without documents than in a country that relies on formal procedures,” she said.

And in the immediate neighbourhood, there’s no other economy that can absorb so many migrant workers. That’s why millions of migrant workers are repeatedly drawn to Russia, despite its frequent economic challenges and — in recent years — growing instances of xenophobia.

“All we can do is wait and watch,” said Abdulloev. “At the end of the day, our fates will be decided in Moscow and Washington.”