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Conflict in Ukraine: Remittances to Kyrgyzstan likely to decline by 33 percent

As a result of conflict in Ukraine, remittances to Kyrgyzstan are likely to decline by 33 percent instead of an originally projected growth rate of 3 percent in 2022. The policy brief of the Global Knowledge Partnership on Migration and Development (KNOMAD) of the World Bank says.

As authors of the document say, many countries in Central Asia are highly dependent on remittances from Russia. For example, in the Kyrgyz Republic, the share of remittances from Russia was 83 percent of the total remittance receipts during Q1-Q3 of 2021. During the same period, Azerbaijan, Armenia, Tajikistan, and Uzbekistan received more than 50 percent of their remittance inflows from Russia. Remittances provide a financial lifeline to many of these countries.

Remittance flows to many Central Asian countries are likely to be affected adversely by the conflict in Ukraine.

Based on an initial assessment of the first-round effects of a decline in economic activity in Russia and a weakening of the ruble against the U.S. dollar, the revised projected growth rates of remittances in this region in 2022 are expected to average around −25 percentage points.

For example, in the Kyrgyz Republic remittances in 2022 are likely to decline by 33 percent. Azerbaijan, Armenia, Tajikistan, and Uzbekistan are also likely to experience a major decline in remittance flows in 2022.

There will be a two-fold impact on remittance flows to Central Asia. A weakening of economic activity in Russia would dampen the employment and incomes of migrant workers and their ability to send remittances.

The second channel of impact would be through a weakening of the ruble against the U.S. dollar, which would reduce the nominal U.S. dollar value of remittances sent in rubles. As of March 3, 2022, the ruble had depreciated by nearly 25 percent against the U.S. dollar. It is likely that the weakness of the ruble will continue in 2022 despite the recent sharp increase in oil prices.

The sanctions on the Russian banking system in the form of exclusion from the SWIFT network for fund transfers is likely to directly disrupt remittances through formal channels, which could lead to a partial shift to indirect and informal channels.

As the authors of the policy brief say, these short-term projections have a high degree of uncertainty around them, dependent on the scale of the military conflict in Ukraine and the effectiveness of the sanctions on outward payments from Russia.

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