What Explains Central Asia’s 2022 Remittance Boom?

In 2022, there was no shortage of economic and financial woes across the world, many rooted in disruptions due to the war in Ukraine or China’s only recently lightened zero COVID rules. For Central Asia and the region’s millions of migrant workers, 2022 had the makings of a disastrous year. In May 2022, the World Bank remarked that “remittance flows to many Central Asian countries, for which the main source is Russia, will likely fall dramatically [in 2022].”

The May report continued, ominously: “Near-term projections for remittances to the [Europe and Central Asia] region, which are expected to fall by 1.6 percent in 2022, are highly uncertain, dependent on the scale of the war in Ukraine and the sanctions on outbound payments from Russia.”

Reports early in 2022 were bleak. In a March 2022 analysis, a pair of World Bank economists estimated that for Kyrgyzstan remittances could decline by up to 33 percent in 2022 as a result of the war.  

And yet, as the end of 2022 approached, data revealed a surprising reality: Remittances were estimated to have grown by more than 10 percent for low- and middle-income countries in Europe and Central Asia.

The World Bank’s Migration and Development Brief, published in late November 2022, notes: “Perhaps the most unexpected turnout is evident in Europe and Central Asia, where, instead of a decline due to the Russian invasion of Ukraine, remittance flows are expected to increase by 10.3 percent in 2022 following a strong 16 percent advance in the previous year.”

The 16 percent growth in remittances witnessed by Europe and Central Asia’s low- and middle-income countries in 2021 was, in large part, a rebound from the 2020 decline of 8.9 percent. It’s worth noting that the World Bank categorizes Kyrgyzstan, Tajikistan, and Uzbekistan as “lower-middle-income,” and Kazakhstan and Turkmenistan as “upper-middle-income.” While the bank lumps Europe and Central Asia together, much (though not all) of Europe falls into the category of “high-income” countries. 

Globally, remittances are estimated to have grown around 5 percent in 2022. What explains Europe and Central Asia’s boom, when a bust was previously expected?

In the spirit of accountability, the World Bank recognized and assessed the assumptions it had made in its earlier estimates in the November briefing:

“The earlier basis for weaker remittance flows in 2022… was grounded in three assumptions: (1) the Russian ruble was forecasted to depreciate by about 30 percent against the US dollar in 2022 (based on Consensus Forecasts figures); (2) the Russian economy would suffer a substantial decline amid Western sanctions in the wake of the invasion; and (3) disruptions to the transfer of hard currency abroad would follow Russia’s ban from the global SWIFT payments system. On balance, a drop in remittances from Russia by as much as 40 percent had been posited for 2022, yielding a sharp decline in transfers to Central Asia. None of these factors appears to have been realized, due to unforeseeable developments over the course of the year.”

The Central Asian states are heavily reliant on Russia for remittance generation. As a share of total remittances, transfers from Russia in the 2019-2021 period represented 97.8 percent of remittances sent to Kyrgyzstan and 54 percent of those sent to Uzbekistan. The World Bank now estimates that in 2022, that percentage decreased slightly for Kyrgyzstan, to 95.4 percent, but exploded for Uzbekistan, with remittances from Russia soaring to 80 percent of all remittances received. 

For both Kyrgyzstan and Tajikistan, specifically, remittances from Russia are critical. Using GDP for comparison reveals the value of remittances to these countries: the value of remittances to Tajikistan in 2022 is estimated to hit 32.1 percent of GDP; for Kyrgyzstan that figure is 31.3 percent of GDP.

In the March 2022 issue of The Diplomat magazine, I explored the reasons Central Asians continue to migrate to Russia. “Although from a Western perspective, Russia is hardly an economy or a sociopolitical environment to envy,” I concluded, “from Central Asia it doesn’t look so bad.”

The World Bank’s data appears to bear that out. The bank’s May 2022 assumptions were reasonable, but just as the war in Ukraine generated significant risks it also represented an immense opportunity if the right conditions were met. 

While inflation, and the rising prices that it generates, exert downward pressure on the real incomes of migrant workers, the appreciation of the ruble in 2022, the World Bank noted, “translated into higher value, in U.S. dollar terms, of outward remittances from Russia to Central Asia.” 

Remittance flows also grew in part due to Russians relocating, completely or at least financially, to Central Asia. Russian individuals sought, the World Bank notes, to “place their hard currency assets in neighboring countries that offer visa-free entry.” In addition, “A sizeable proportion of smaller Russian companies are also relocating and moving their businesses to Central Asian countries.” This may explain the sharp rise in remittances from Russia headed to Uzbekistan, which positioned itself as a safe haven of sorts for Moscow’s tech workers in particular. 

Although the Russian economy has been unquestionably damaged by international sanctions, the war has also generated increased demand for workers in Russia (and limited supply from Ukraine and other European countries). Although Central Asians migrating to Russia run the risk of being convinced or coerced into joining the war effort, whatever the job the money still seems to make its way back to the region. 

The unique conditions of 2022 are unlikely to persist into 2023. It’s difficult to envision the ruble appreciating in perpetuity, for example. And the longer-term impact of Russians and Russian companies relocating to Central Asia is not clear, as many have merely used Central Asia as a transition point. The World Bank’s recent report notes that new arrivals from Russia have conflicting impacts: “The new arrivals from Russia have resulted in soaring housing markets and inflation at the same time as supporting a mini-economic boom in recipient countries.” 

The World Bank projects remittance growth to slow to 4.2 percent in 2023. That figure, of course, is subject to change as reality plays out. Where the final score lands is yet to be seen.