“The Kyrgyz government is yet to provide a plan to effectively mitigate the impact of the global financial crisis,” notes analyst Konstantin Larionov in his article for CABAR.asia.
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What Kyrgyzstan could encounter in the near term?
The global economy, and then Kyrgyzstan, faced with the coronavirus epidemic and the impending global crisis, might be unprepared for dire consequences. There will be a clear economic recession in the country, which is highly dependent on remittances from labor migrants. The citizens’ income to decline as well, along with the increase in the number of unemployed (including the migrants returning home), and a decline in the country’s national welfare. Large projects will be frozen, including those related to the development of cross-border corridors, as well as logistics centers. The tourist industry expects a sharp decline. Meanwhile, the state might gain previously inaccessible opportunities for the country’s economic diversification. Now the close attention of competent decision-makers and the country’s political leadership shall be paid to look out for potential labor emigrants.
How does the country benefit from migrants?
The current depreciation of the ruble against som and the increase in prices in Kyrgyzstan could lead to the outflow of labor migrants from Russia. It is too early to predict the number of migrants returning to their homeland.
Labor migration today remains a natural phenomenon. It helps to balance the domestic labor market with a surplus of labor supply. For example, in the employment service in 2017, about 13 people were accounted for one job in the country[1]. The official unemployment rate in 2019 was about 102.9 thousand[2]. people. It is a socio-economic disadvantage that pushes citizens to seek work abroad.
And first, migrants seek to earn money in Russia (the Russian Federation is one of the four destination countries in the world for migration). With earnings abroad, workers support their families and relatives by sending large amounts of financial resources. This partly stimulates the development of the construction sector, as well as the growth and consumption of goods and services which in turn affects domestic employment.
At the beginning of 2019, there were 640 thousand (20% of the economically active population) to 800 thousand Kyrgyz citizens in Russia[3]. The vast majority of which are labor migrants [[4]]. Slightly more than 60% of them have complete secondary education and about 13% have higher education [[5]]. Citizens of Kyrgyzstan usually have low-skilled jobs. The proportion of women among labor migrants is about 40%. Young people aged 18 – 29 years constitute the main age category.
Even though Kyrgyz citizens in Russia have tangible advantages compared to citizens from Tajikistan and Uzbekistan (due to membership in the EEU), many of them nevertheless experience financial difficulties and are often in search of work. The main flow of labor migrants to Russia comes from the southern regions of Kyrgyzstan, where the number of the rural population is more than half of the male population and there is a high level of unemployment. These regions are most dependent on remittances that impede the population from slipping further into poverty.
According to Kloop, 20% of the population in the Batken region, about 18% in Osh and 10% in Jalal-Abad will become poorer without remittances. Issyk-Kul and Talas regions will suffer the least (1% each). The Naryn region will not be affected[6]. Not to mention other economic consequences in the event of a halt or a sharp decrease in remittances. A very interesting instance of these issues is the fact that the southern regions have three or more times less arable land per person compared to the northern regions. They have a high level of poverty, low wages and a lack of permanent jobs.
Migrants in Russia annually transfer more than 30% of GDP. Thus, labor migrants are somewhat of the largest investors in the country’s economy. So, for the 11 months of 2019, they transferred about 2 billion 192 million US dollars[7]. In January 2020, revenues decreased by about 15 million dollars, compared with the same indicators in 2019[8]. Funds are transferred both through banks (for example, through the “Golden Crown” system), and using electronic wallets (ELSOM), and money transfer systems (Western Union, Unistream) with a relatively low commission. The reduction in cash from Russia in 2019 compared to 2018 was due to several restrictions introduced by the Russian side on financial transactions. On average, each migrant transfers home over $ 200 per month (or about 3 thousand dollars in a year). This money is mostly spent on essential goods and services.
What to expect for labor migrants and Kyrgyzstan?
Experts from different countries expect the world recession to come soon, and the financial crisis with it. Initial indicators are that the world will change after the victory over the coronavirus and overcoming the consequences of the crisis. The question is what scenario is more likely for the world economy development? According to the head of the IMF, Kristalina Georgieva, the recession in 2020 will be worse than in 2008. Those countries that have developed production will suffer the least, unlike the ones who did.
As for the geopolitical issues, the United States and EU countries will continue to exert economic pressure on Russia, which will slow down the growth of macroeconomic indicators.
A promised growth of Russia’s GDP of 1% is not worth the wait. Inflation can range from 7-15%. This can lead to the gradual bankruptcy of certain companies, production cuts, and job losses. The ruble could devalue further. Given the risk scenario, some economists urge the state to implement its government obligations.
There is already a decline in demand for foreign labor today. This is not the first time migrants experiencing such upheavals in Russia, however. This happened after 2008 (if in 2008 transfers amounted to 1,113 million, then in 2009 it was already 862 million dollars) and after 2014 (in 2015, transfers fell by 545 million dollars compared to 2014). We can’t be certain yet to calculate the decrease in remittances and the outflow of labor migrants to Kyrgyzstan. But at the same time, according to expert estimates, reductions can amount to up to 50% of last year’s transfers[9]. This is not only due to a decrease in funds sent to Kyrgyzstan, but also a sharp rise of the dollar against the ruble in March-April. The demand for low-skilled labor of migrants is also expected to fall gradually.
In the first days of self-isolation, the trade industry, transport services (buses, taxis), hotel business, cleaning, and other services will suffer the most. With the simultaneous increase in demand for couriers (suppliers of food and non-food products). In the long run, the construction sector might as well suffer from the cut in Russian citizens’ income.
In relation to 2009, some of the dismissed migrants, as well as those who were detained or not paid wages, found themselves in a difficult life situation.
They did not have the money to go home. They had to collect alms, borrow money or ask relatives to send the amount necessary for a return ticket. The state representatives in Russian cities were not ready to promptly convey the required information to labor migrants and did not keep in touch with them.
In total, about four thousand migrants want to leave Russia today. However, the lack of flights complicates the situation. Some of them have difficulty living due to lack of food, payment for accommodation services, and so on.
After overcoming the global financial crisis, the job structure for migrants in Russia might change. Low-skilled labor will gradually become less in demand. A large business, followed by a medium-sized one in certain areas, might start to massively cut human use and begin to use robots (for example, while choosing and paying for services, in hotels, when providing cleaning services, and so on). Such a substitution is already observed today in several fast-food chains. And it happens gradually.
With the deteriorating economic situation inside Kyrgyzstan, the domestic demand for labor resources will also fall as a result, whereas the unemployment rate will rise. A decline in GDP, reduced consumption of goods and services (probably in March-April), raising inflation will entail an increase in prices for everything. Flows from tax and customs duties will be curtailed (especially in March-April, after the announcement of an emergency and state of exception). The state will be forced to reduce social support due to the growing budget deficit.
With an announcement of the emergency and state of exception, small businesses will receive less revenue. An additional surplus of labor is formed with the return of migrants to the domestic labor market. A decrease in money transfers from Russia can indirectly imply fewer jobs in Kyrgyzstan (in particular the service sector). A larger number of the economically unemployed active population might suggest an increase in criminal activity in the country.
In the case of an optimistic scenario, in 2020-21 incomes will slightly decrease and the number of unemployed in Kyrgyzstan will slightly increase. The negative scenario, however, suggests which an economic collapse with a massive uncontrolled return of labor migrants to Kyrgyzstan in the next year or two.
World crisis as a forerunner of difficulties for labor migrants in Russia
The global financial crisis has been predicted since 2012, regardless of epidemics. The financial sector was inflated disproportionately to the development of production and the ability of people to consume manufactured goods and services. Against the background of events, the International Labor Organization (ILO) predicts an increase in the number of unemployed this year by approximately 25 million people.
The events unfolded in the world could not help but blowback on the Russian economy and further on Central Asian countries. The beginning of 2020 turned out to be a shock for Russia, which in one way or another will affect its short-term socio-economic situation. The contradictions that arose between Russia and the Arab oil countries led to the withdrawal of the Russian Federation from the OPEC + agreement in March. The subsequent collapse in oil prices sharply reduced the number of state revenues. The ruble began to fall against the dollar, which ultimately depreciated the remittances sent by migrants.[10]
Besides, Russia has cut down the transport links with other countries and in particular with Kyrgyzstan, which has contributed to a sharp rise in airfare prices by speculators in the last days of the permitted departure.
Thus, the situation will certainly affect socio-economic indicators. According to the International Labor Organization, the dynamics of income today is projected at a zero level or may fall to 15%. Inflation might reach 5-7%. The registered unemployment rate is approaching one million people[11] (the figures are even higher by unofficial estimates).
The Deputy Head of the Russian Academy and Public Administration ‘s Department of Labor and Social Policy, Alexander Shcherbakov argues that only completely unstable enterprises, where the employer seeks to get fast money, will get rid of the employees. There are many enterprises like that, but they are not essential to the economy. Most companies will try to keep their employees. However, they will seek to reduce their workload and, accordingly, their salaries. It is too early to talk about mass layoffs in all sectors. However, it will become much more difficult to find a new job in 2020, especially for low-skilled workers[12]. The state will certainly focus on employment for its citizens, so it might as well condense the labor market for migrants in certain areas or locations.
Conclusion
The socio-economic situation in the country depends on external economic factors. The Kyrgyz government is yet to provide options to effectively mitigate the impact of the global financial crisis.
Therefore, the government should pay attention to the complex problem the state is challenged. The authorities must calculate the risks and form an anti-crisis decision package based on it. Acquired funds from international organizations and donor countries should be transparently and rationally distributed to the significant areas. An effective system of accumulation of the state material reserve should be formed enabling the mitigation of the emerging risks.
According to the Asian Development Bank experts, the Government should implement financial sector reforms to direct the remittances of labor migrants to develop socially and economically profitable investments[13]. The government needs to carry out systematic work with the population, especially with potential migrants and their families, to increase financial literacy for better investment of their income.
Under the impending global crisis, the state, together with other stakeholders, needs to form an effective model of Kyrgyz economic policy and later a model of migration policy based on it. The economic policy should aim to reduce dependence on remittances from outside, create long-term jobs in Kyrgyzstan (especially in the most vulnerable areas), attract foreign investment and advance the skills of Kyrgyz citizens.
Migration policy should become a managed area of the state’s political responsibility to its citizens. The state should forecast and be ready to come to the assistance of its citizens, particularly labor migrants who find themselves in a difficult life situation.
The State Migration Service needs to work closely with communities and other parties located in Russia, as well as non-governmental organizations in Kyrgyzstan, to identify and assist migrants in a difficult situation. Migration policy should also have intersectoral interaction with educational policy, with a particular emphasis on stimulating the formation of new employment in Kyrgyzstan and not on generating an outflow of qualified personnel abroad.
This material has been prepared as part of the Giving Voice, Driving Change – from the Borderland to the Steppes Project. The opinions expressed in the article do not reflect the position of the editorial board or donor.
[1] The current state of the labor market and labor productivity in Kyrgyzstan. Analysis. May 12, 2019, https://economist.kg/2019/05/12/sovremennoe-sostoyanie-rynka-truda-i-proizvoditelnosti-truda-v-kyrgyzstane-analiz/
[2] The number of unemployed is growing in Kyrgyzstan. Which region has the highest number, December 14, 2019, Sputnik-Kyrgyzstan Information Agency, https://ru.sputnik.kg/Kyrgyzstan/20191214/1046514300/kyrgyzstan-uvelichenie-kolichestvo-bezrabotnye-region.html
Illegals earn less, Rossiyskaya Gazeta, January 10, 2019, https://rg.ru/2019/01/10/tret-trudovyh-migrantov-iz-kirgizii-hotela-by-ostatsia-zhit-v-rossii.html Data from the Ministry of Labor and Social Development of the Kyrgyz Republic Data from the National Statistical Committee Dependent country. Kyrgyzstan survives on the money of migrants, but does not know how to spend it, Kloop information resource, August 23, 2018, https://kloop.kg/blog/2018/08/23/strana-na-izhdivenii-kyrgyzstan-vyzhivaet-na-dengi -migrantov-no-ne-umeet-ih-tratit / Migrant remittances for 11 months of 2019 reached almost $ 2.2 billion, Akchabar, January 10, 2020, https://www.akchabar.kg/en/news/denezhnye-perevody-migrantov-za-11-mesyacev-2019-o- dostigli-pochti-22-mlrd /[8] In January, money transfers decreased by $ 16.7 million, Akchabar, March 13, 2020 https://www.akchabar.kg/ru/news/v-yanvare-denezhnyj-perevody-snizilis-na-167-mln/
[9] Migrant transfers to Kyrgyzstan will be reduced by 50 percent. Expert calculations, Sputnik-Kyrgyzstan news agency, April 7, 2020, https://ru.sputnik.kg/columnists/20200407/1047743157/sokrashchenie-perevod-migrant-centralnaya-aziya.html
[10] At the average annual exchange rate of the NBKR. NBKR data.
International Labor Organization predicts rising unemployment in the world, Argumenty i Fakty newspaper, January 21, 2020, https://aif.ru/society/mezhdunarodnaya_organizaciya_truda_prognoziruet_rost_bezraboticy_v_mire[12] Slabada O., Coronavirus-2020: Crisis will put Russians on scanty salaries, Information resource “Free Press”, March 23, 2020, https://svpressa.ru/politic/article/260542/
[13] Migrant workers can become the largest investor in Kyrgyzstan, the Akchabar financial portal, September 27, 2019, https://www.akchabar.kg/ru/news/trudovye-migranty-mogut-stat-krupnejshimi-investorami-kyrgyzstan/