Remittances from Armenia to Russia Expected to Decline
Wed, April 21, 2021

Remittances from Armenia to Russia Expected to Decline

 

Remittances from Armenia to Russia are expected to decline, reports information-analytical agency Armenia News. / Photo by Elnur Amikishiyev via 123rf

 

Remittances from Armenia to Russia are expected to decline, reports information-analytical agency Armenia News. While the situation is not a catastrophe, it is also not encouraging as the Armenian economy is largely supported by migrants’ remittances.

The funds transferred from migrants to their home country are private savings of families and workers that are spent in the home country for food, clothing, and other expenditure. Thus, it helps drive the home economy.

In 2019, a total of $1.959 billion was sent to Armenia by people overseas through bank transfers, a $174 million (9.7%) increase compared to the funds transferred in 2018. The huge volume of overseas bank transfers in the last ten years was in 2013, which exceeded $2 billion. In 2019, 45% of the money transfers to Armenia were from Russia and 14% from the United States. The majority of the remittances sent to Armenia from Russia comprise the main source of income for their families.

 

Remittances in Armenia

According to Trading Economics, an online platform that provides economic forecasts and historical data, remittances in Armenia reached US$442.04 million in January 2017 and declined to $335.75 million in July 2017. The inflows of migrants’ and short-term employee income transfers in the following months were also recorded: July 2018 ($336.44), January 2019 ($434.98 million), and July 2019 ($343.7 million). The total multimillion-dollar remittances from Armenia working abroad grew strongly in 2017 and it helped contribute to the faster economic growth of the home country.

The Central Bank of Armenia (CBA) also provided data, which shows that the total incoming cash transfers from people processed by the commercial banks in the country from January to November 2017 amounted to $1.56 billion, an 18% increase compared to the same period a year prior. Such a figure equals roughly 15% of Armenia’s Gross Domestic Product.

 

Remittances in Armenia reached US$442.04 million in January 2017 and declined to $335.75 million in July 2017 / Photo by Vrezh Gyozalyan via 123rf

 

Armenia News states that the forecast decline in remittances from Russia may repeat the situation in the past when the value of ruble (Russian currency) collapsed against the dollar. On March 19, the official exchange rate of the US dollar was 77.21 rubles.

Oil provides a good inflow of currency to the economy of Russia but it has also dropped considerably. This is why remittances from Armenia to Russia are expected to decline. Consequently, it will likely lead to a negative economic impact on farms as many labor migrants in Russia are farmers. Reduction in the income of farmers could stimulate the sales of livestock.

 

Armenia: personal remittances as a share of GDP

Personal remittances comprise of compensation of employees and personal transfers, which also comprise all current transfers in cash or in-kind received by the resident households to or from nonresident households. Our World in Data, a scientific online publication that focuses on large global problems, shared the personal remittance history of Armenia in the following years: 2000 (9.53%), 2002 (11.10%), 2004 (22.02%), 2006 (18.31%), 2008 (16.33%), 2010 (18.03%), 2012 (18.03%), 2017 (17.90%), 2016 (13.11%), and 2017 (13.34%).

 

 

Pros and cons of remittance flow in the economy

In a study titled “The impact of remittances on economic growth: An econometric model,” authors Dietmar Meyera and Adela Sherab from the Budapest University of Technology and Economics and the University of Tirana, respectively, explained that remittances represent one of the major international financial resources and they even sometimes exceed the foreign direct investment. Put simply, remittances help improve the economics of the receiving countries.

However, another study published on open-access resource IZA Institute of Labor Economics highlights the cons of remittance flows in developing countries. It said that remittances can create a culture of dependency that hinders economic growth in the receiving country because it reduces labor supply. Remittances can likewise increase the consumption of non-tradable goods. Thus, increasing the prices of these goods, decreasing exports, and appreciating the real exchange rate. The remittance flows damage the competitiveness of the receiving country to the world market. Some countries curtail remittances too as well as international migration by implementing tougher enforcement in the host countries.

The Ministry of Foreign Affairs of Armenia shared that there are about 60% of an estimated 8 million Armenians who live outside their country borders. The majority of these Armenians are in Russia and the United States and a smaller cluster live across Latin America, Europe, and former Soviet Union countries. As of September 2019, the unemployment rate in Armenia was 18.00%. A World Bank study has also noted that although there were economic reforms in the Republic of Armenia since it received its independence from the Soviet Union in 1991, Armenia’s economic growth has been jobless.

Aside from the lack of jobs in the country, Armenia also experienced high poverty levels. This is why the country relied on its borders for land access to the rest of the countries. Permanent and temporary labor migration continued to be a means of coping with limited job prospects and poverty in Armenia.

 

The flow of Armenian migrants to Russia

There are various reasons why Russia is an attractive destination for Armenians. First, they can travel to Russia without a visa and vice versa, according to the Migration Policy Institute. The second reason is that the geographical proximity of Russia enables Armenians to travel back and forth easily once they started working in Russia. Also, the majority of Armenians know how to speak Russian fluently and they share a common educational and cultural background with Russians. Another reason is that the Armenian migration in highly integrated within the society of Russia. Generations ago, Armenians descended to Russia. There are also established economic and financial channels in Russia, making it easy for Armenians to transfer their earnings easily to their home country.

The flow of Armenian migrations to Russia is indicated in the following years: 1997 (19,123), 2000 (15,951), 2001 (5,814), 2002 (6,802), 2003 (5,124), 2004 (3,057), 2005 (7,581), 2006 (12,949), 2007 (30,743). Armenia's Central Bank (CBA) and the World Bank have also shown that the amount of money remitted from Russia to Armenia started to increase in 2002 onwards.

The decline in the remittances from Russia to Armenia this year may not be a good sign to the economy of the receiving country. Another concern is that it may result in a change of consumption patterns among the receiving family members.