Page 19 - bne magazine September 2023

bne September 2023 Companies & Markets I 19
reach $3.1bn. An overwhelming 87% of this total amount originated from Russia. This upswing can be attributed to a substantial 72% increase in the number of migrant workers relocating to Russia, resulting in a compensatory rise in ruble volumes despite currency weaknesses.
However, the second quarter painted a different picture, with remittance volumes nearly halving in comparison to the previous year. Between April and June remittances dwindled from $5.06bn to $2.85bn. The situation exacerbated in
June, with transfers plummeting by a staggering 2.26 times compared to the same month in 2022.
Russia remains the primary source of remittances, contributing around 80% of the total revenue during the first six months of the year. The head of the Central Bank, Mamarizo Nurmuratov, anticipates a continuation of this downward trajectory. He forecasts remittance volumes to hover around $11-11.5bn by year-end, reflecting a substantial decline of 32-35% compared to 2022. Nurmuratov attributes the anticipated drop in revenues from Russia to the devaluation of the ruble, further exacerbating the economic challenges for Uzbekistan.
Starting to feel the pinch
After the violent swings of last spring, central banks across the region are taking a little more time to wait and see whether the collapse of the ruble is a longer-term trend or simply a short-term reaction to the oil sanctions that will wear off in the second half of this year.
However, the soum has started to slide in recent days as a reaction to the ruble devaluation. The country is the largest recipient of remittances from Russia, in monetary terms, and, according to latest data, the value of remittances accounted for 21% of GDP in 2022, up from 13% in 2021.
Uzbekistan Som - US Dollar Exchange Rate (Since Reforms Started) 12000 10000
8000 6000 4000 2000
2015 2017 Source: Trading Economics
2019 2021
2023
The issue is expected to become an even bigger consideration, as the number of Uzbek workers moving to Russia is growing fast, up 72% year on year in Q1, as Russia tries to attract more Central Asian workers, thanks to the extremely tight Russian labour market, and has made the procedure easier and localised.
The government has been reluctant to devalue the currency too much this year (until recently) because it has steadily devalued since the ending of the dual-currency system in 2017 and because of reforms to make the economy more competitive.
The problem is that the currency devaluation is one of the main drivers of the persistently high inflation rate (since 2017) and part of the government’s programme to cut the rate to below 10% is (or was) to maintain a stable currency. Now the monetary authorities have to reflect on the reality of the impact on remittances and because Russia is the country’s second-largest trade partner, to which it sells food and textile products.
Cross-border remittances transferred to Uzbekistan grew 2.1 times y/y to $16.9bn in 2022, according to the World Bank. Remittances as a percentage of GDP grew from 13% to 21%. Around 87% of that total came from Russia, Macro Advisory said.
Ruble’s fall creates currency risk
in Central Asia and the Caucasus
Chris Weafer CEO of Macro-Advisory
“The best way to destroy the capitalist system is to debauch the currency.” – Lenin.
The Russian ruble has fallen by 28.5% in value vs. the US dollar since the start of this year and is down 39% since the start of the devaluation phase in early December last year. The exchange rate passed the psychologically important RUB100 to the dollar mark on August 14.
The trigger for the devaluation was the start of the EU’s ban on imported crude from Russia, from December 5, and the ban on imported oil products, starting February 5 this year.
So far, there has been almost no impact on the currencies in Central Asia and the Caucasus, although the Uzbek som has started to slide over the past week.
In their recent communications, the Central Bank (CBR) and the Ministry of Finance (MinFin) stressed that the main reason for the ruble’s weakness is linked to a deterioration of Russia’s trade balance as exports have slumped due to lower dollar prices for Russian oil while imports have shown a fairly quick recovery.
The weaker external accounts did play a role in determining the FX trend along with a shift in foreign trade away from $ and
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