Remittance flows to several Central Asian countries appear to be declining precipitously in the first half of this year, raising concerns that these flows are less resilient in the Europe and Central Asia region than in other developing regions. Remittance flows in US dollar terms to Kyrgyz Republic, Armenia, and Tajikistan declined by 15 percent, 33 percent and 34 percent respectively in the first half of 2009 compared to the same period last year.
Most of remittances to these three Central Asian countries come from Russia. From a survey of central banks that we conducted last year, Russia reportedly accounts for more than four-fifth of remittance inflows in Kyrgyz Republic and Armenia, and it was the top source country for remittances to Tajikistan. Driven by increasing emigration, primarily to Russia, remittance flows more than doubled in Kyrgyz Republic and Tajikistan US dollar terms between 2006 and 2008, while personal transfers through banks in Armenia increased by some 70 percent.
These remittance flows from Russia tend to be denominated in rubles. Because of the financial crisis, the ruble lost 25 percent of its value in the first half of 2009 compared to its average value in the corresponding period the previous year.
If measured in ruble terms, remittances to Kyrgyz Republic actually increased 17 percent in the first half of 2009 on a year-on-year basis! In Armenia, the year-on-year fall was only 8 percent, and in Tajikistan by 10 percent (see chart 1). Only in Tajikistan, the decline on a year-on-year basis appears to be steep because of the unusually high level in 2008, when remittances surged “abnormally”. Also the high degree of seasonality tends to overstate the extent of the decline. As chart 2 shows, remittances are recovering, following a similar trend in 2007.
Going forward, we expect remittances to be resilient relative to other flows such as FDI and private portfolio flows. We expect remittances to the Europe and Central Asia region to fall by 15 percent in US dollar terms in 2009, and recover by 3 percent in 2010 (see Migration and Development Brief 10).