• Central Asian countries, particularly Kyrgyzstan, Tajikistan, and Uzbekistan, heavily rely on remittances from migrants working in Russia, making them vulnerable to the ruble’s fluctuations.
• The ruble’s fall has been accelerated by Russia’s invasion of Ukraine and the resulting economic conditions, despite strong oil prices which previously aided the ruble’s recovery.
• If the ruble continues its downward trend, many migrants might consider leaving Russia, which could further impact the remittances received by Central Asian countries.

Bakytbek Ysmanov, a 64-year-old native of Kyrgyzstan, has been working in Russia for 15 years.

In the past 12 months he has watched the ruble fall by 28 percent against his homeland’s national currency, the som, with that slide in value picking up pace this summer.

That is a big problem for Ysmanov because he needs to pay off a mortgage in soms that he has on a home in the southern Kyrgyz city of Osh.

“Maybe I will have to work 15 hours [a day now] and find other jobs, too. Maybe I could work construction for four or five hours and then go out to drive a taxi again,” Ysmanov told RFE/RL’s Central Asian Migrant Unit.

“You work until 11 or 12 at night. When you feel sleepy, you just wash your face with cold water and continue working. What can I do? I have a mortgage to pay,” Ysmanov said, adding that he hoped Kyrgyz banks would soon offer debt prolongation options for migrants working in Russia.

This week the plummeting ruble showed a flicker of life on the back of a giant emergency rate hike overseen by Russia’s central bank after it had dipped below the psychologically important threshold of 100 rubles to the dollar.

And it’s not just officials in the Kremlin who breathed a sigh of relief.

For Central Asian countries, the ruble has outsized importance due to the region’s level of economic integration with Moscow and because of the millions of migrants from the region — chiefly from Kyrgyzstan, Tajikistan, and Uzbekistan — that earn money in Russia.

But while the currency might have reached its bottom in the near term, stabilizing at around 93 to the dollar after the hike, its longer-term health remains a major source of concern for a landlocked region perennially exposed to Russian crises.

In the meantime, the cheap ruble is already wreaking havoc in Central Asian economies and contributing to a significant fall in the amount of money sent back to the region.

Between Depreciation And The Devil

The Russian currency’s monthslong decline stretching back to the end of last year is partly due to government spending on the war in Ukraine, where Russian forces have been in a slow retreat since the full-scale invasion began in February 2022 as they now battle a fierce Ukrainian counteroffensive.

What makes this particular ruble depreciation so notable, however, is that it comes at a time of robust prices for oil, which have traditionally helped the currency bounce back.

On August 15, Russia’s central bank hiked its base rate by an eyebrow-raising 3.5 percentage points to reach 12 percent, helping to stop the ruble’s rot.

But there has been no spectacular recovery like there was in the weeks and months immediately after Moscow launched its war against Ukraine.

And the days of the ruble going from freefall to the world’s best-performing currency overnight — a development attributed to stringent capital controls and a trade surplus buoyed by high prices for Russian exports — now seem a very long way away.

Indeed, the ruble is so cheap that it is posing a dilemma for neighboring countries caught between a potential flood of Russian imports and politically contentious decisions to allow their own currencies to follow suit.

Oil-rich Kazakhstan’s tenge depreciated 6 percent on August 16-17, RFE/RL’s Kazakh Service reported, with the rate reaching 467 tenge to the dollar at currency exchanges on August 17.

In the recent past, the tenge has traced the ruble’s performance quite tightly.

Kazakhstan is a member of the Eurasian Economic Union dominated by Russia and, like Moscow, Astana’s growth prospects are tied to prices for its energy exports.

But last year saw the tenge “successfully decouple” from the ruble, in the words of the economics-focused Telegram channel Tengenomika, as Russia’s share of Kazakhstan’s imports fell from over 40 percent in 2021 to 26.7 percent in 2022.

How long that can be sustained is unclear.

In a Facebook post this week, Kazakh political commentator Serik Belgibay fumed that the ruble was “burying” Kazakhstan’s economy and leaving the country with “two options, both bad.”

“[We can] leave everything as it is. Then the cheap ruble will gradually kill domestic production. Or [we can] allow the tenge to devalue to the level of five tenge to the ruble. This would further impoverish our citizens and cause prices to rise,” Belgibay vented.

In Uzbekistan, the cost of the dollar at currency exchanges has risen around 3 percent in the last week, with the central bank blaming “significant depreciation of the currencies of [Uzbekistan’s] main trade partners.”

Uzbekistan’s som currency “will be relatively stable till the end of the year and in the medium-term perspective,” the central bank predicted rather optimistically.

Decision Time For Migrants?

In more impoverished Tajikistan and Kyrgyzstan, national currencies have lost less than 1 percent of their value against the dollar since the beginning of the summer, while posting gains of around 14 percent against the ruble.

But for many families in two of the world’s most remittance-dependent nations, where cash transfers from Russia typically equal more than a quarter of the GDP, the weak ruble is nothing to celebrate.

On August 15, citing interviews with Uzbek diaspora leaders, the Russian business daily Vedomosti speculated that a potentially massive migrant exodus from Russia might be imminent if the ruble doesn’t start rising in value soon.

The publication quoted an online poll of 23,000 mostly Uzbek migrants in which over half said that they were actively considering this option.

Recent years have contained no shortage of unpleasant surprises for Central Asians working in Russia.

The pandemic was brutal, with sudden layoffs sending nationals from the region back home in their tens of thousands to economies where jobs were few.

But those disruptions have arguably been eclipsed by blowback from the Ukraine invasion, which has seen migrants aggressively targeted in a Russian military recruitment drive.

The ruble, for a time, was a bright spot.

Having plummeted to around 150 to the dollar in the weeks following the invasion, the currency soared well above its prewar level of around 75 to the dollar, peaking at just over 52 in June 2022.

This contributed to record-breaking remittances for Central Asian countries, confounding predictions made by the World Bank and other international institutions at the beginning of the war.

But 2023 is probably going to be a different story.

While not all of Central Asia’s central banks publish regular data on money transfers, the latest data suggest that families across the region are already receiving much less from their relatives abroad than they did last year.

This month, for instance, the Kyrgyz central bank published figures that showed $163.5 million was transferred to Kyrgyzstan from foreign countries in June 2023, with transfers from Russia accounting for more than 90 percent of the total.

That figure is just over half of the figure posted in the same month last year and also significantly smaller than figures for more typical years like 2021 ($266.9 million), 2020 ($277.9 million) and 2019 ($191.6 million).

Source: Oil Price

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Kazakhstan, the giant of Central Asia, has been bolstering its connections with neighboring nations and major economies across Asia and Europe

The global trade landscape is quickly evolving as international supply chains reconfigure themselves following the retreat of globalization, driven by the deepening bifurcation of the international arena between U.S.-led and China-led subsystems. Such a time of rapid change calls for future-oriented leadership informed by strategic foresight and diplomatic acumen. This is particularly true for countries that may find themselves in delicate geo-economic positions, such as Central Asian states.

Investments in infrastructure are essential for the economic growth of these countries.

According to the Asian Development Bank’s (ADB) 2017 report, “Meeting Asia’s Infrastructure Needs,” infrastructure investment needs in Central Asia increase to $38 billion annually, or 7.8% of the region’s gross domestic product (GDP) if those necessary for climate change mitigation and climate change adaptation are included.

Responding to these challenges, one central Asian country – Kazakhstan – managed to position itself as a pivotal player on the Trans-Caspian International Trade Route (TITR), a project reshaping trade dynamics between Asia and Europe through a network of railways and seaways to facilitate faster and more efficient trade. The TITR is a rail freight corridor linking the People’s Republic of China and the European Union through Central Asia, the Caucasus, Türkiye and Eastern Europe. The project is expected to bring significant economic benefits to the country, boosting trade and attracting foreign investment. It will open new avenues for economic growth, create jobs and foster innovation. It has the potential to make Kazakhstan a highly attractive destination for businesses seeking to install themselves in Central Asia to tap into the vast Asian markets.

Beyond economics, the TITR has already elevated Kazakhstan’s political stature. The EU and European Bank for Reconstruction and Development (EBRD) have formally recognized this shift. At a recent joint conference in Almaty, with wide participation from many Central Asian players, these two entities selected what they call the “Central Trans-Caspian Network,” running through southern Kazakhstan, as the most sustainable of three container-transit options for linking Central Asia and Europe. The EU and EBRD foresee a sevenfold increase in transit volumes from 18,000 “20-foot equivalent units” (TEUs, a standard industrial measure) to 130,000 TEUs by 2040. The EU and EBRD’s study is country-specific and proposes seven soft connectivity measures and 32 hard infrastructure investment needs across five Central Asian countries. The study provides for such practical measures as digitalization of transport documents, improvement of interoperability, enhancement of the public-private partnership (PPP) environment, facilitation of trade, liberalization of markets, improvements to tariff-setting mechanisms and the increase of funding for asset maintenance. Country-specific priority investment needs for Kazakhstan include Almaty-Khorgos and Aktau-Beyneu railway double-tracking, expansion of several terminals and railway stations, and Aktau port capacity expansion, among other projects.

The involvement of the EBRD in this study also represents a “seal of approval” for international financial institutions to participate in building out the corridor. The detailed EU-EBRD work identifies specific projects in specific geographical regions and already represents a preliminary feasibility study for them. It outlines key actions for developing the network and its integration with the EU’s Trans-European Transport Network (TEN-T), which covers all 27 EU member states.

The last 20 years have brought significant changes to Central Asia’s economic development, with the hydrocarbons sector, in particular, giving these economies a new shape, for example, in the strategic importance of Kazakhstan and Azerbaijan in world energy markets. Kazakh President Kassym-Jomart Tokayev stressed the need for economic reforms and growth, and noting a record growth of investment to $28 billion in the past decade, he reiterated the need for flexibility and adaptation to the country’s realities, proposing to ease the tax burden for new projects.

Playing a central role in a project of such scale and significance will enable Kazakhstan to reinforce its position as a key player in regional affairs. The country has already demonstrated its ability to foster cooperation and manage complex projects, establishing its reputation as a reliable and influential partner in global trade initiatives.

The Central Asian giant has been strengthening its ties with neighboring countries and major economies in Asia and Europe. The TITR’s implementation will further accelerate this trend. It is not just about facilitating trade but about building long-term, mutually beneficial relationships. As a key link in the TITR, Tokayev’s Kazakhstan is becoming not only a participant in global trade but also a significant influencer. The TITR promises long-term benefits for Kazakhstan, including sustainable development and increased regional cooperation. By promoting trade, it encourages the efficient use of resources and the adoption of sustainable practices. The shared interests and mutual dependencies that the TITR has already fostered make Kazakhstan a regional development and cooperation leader.

The TITR thus manifests the country’s strategic vision, boosting Kazakhstan’s economy and elevating its status not just on the regional but on the global stage. The country has already progressed significantly on an initiative known as “Digital Kazakhstan,” which seeks to transform how citizens, businesses and government bureaus interact. The strategy employs modern technologies like AI, 5G and Smart City to boost R&D, e-commerce, venture financing and fintech development.

Since Tokayev assumed power, Kazakhstan has undergone several reforms aimed at developing an entrepreneurial culture, attracting investments in the tech industry, and laying the foundation for Kazakhstan to serve as a technological hub in Central Asia.

Source: Daily Sabah

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Prime Minister Alikhan Smailov signed a decree on approval of the comprehensive action plan to combat the shadow economy for 2023-2025, the Prime Minister’s press service reported on July 26.

By 2025, Kazakhstan plans to reduce the shadow turnover in wholesale and retail trade to 5%, which stood at 6.7% last year. The government intends to bring this figure in transport and warehousing to 2.4% from 3.2% recorded in 2022.

The plan, drawn by Kazakhstan’s Financial Monitoring Agency and government stakeholders, includes systemic measures to improve tax and customs administration, ensure effective competition and budget distribution, and protect the population from illegal businesses.

These actions will make customs inspections more effective, optimize customs procedures and develop additional measures for administrative offenses.

The plan compiled as part of the President’s election program provides for reducing informal employment and suppressing illegal activities. Kazakhstan is set to increase the share of small and medium-sized businesses in the GDP from 36% in 2022 to 37.5% in 2025.

Source: Astana Times

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