The World Bank has released yet another dire economic forecast for Tajikistan, predicting that the downturn in Russia and devalued ruble will push down labor migrants’ remittance transfers by 40 percent this year (in dollar terms). Unemployed young men are expected to return home in droves.
Job-poor Tajikistan is the world’s most remittance-dependent state; the migrants’ transfers account for the equivalent of 49 percent of GDP. This year and next are going to be especially hard for the millions of Tajikistanis who have been lifted out of poverty in recent years by their relatives’ transfers from Russia.
Up to half of working-age men, most of them under 30, have sought work abroad, mostly in Russia. Twenty-five percent are expected to return home this year, putting enormous social pressures on one of Central Asia’s most fragile states.
Some key takeaways from the May 25 report:
Declining remittances would significantly reduce disposable incomes in Tajikistan, forcing the poorest and the lower middle class to cut non-priority expenditures, including those on social services, such as education and health. Reintegration of returned migrants will be difficult given the limited jobs available, mismatched skills, and competition from youth entering the labor market. Returnees are likely to lack awareness of employment and business opportunities, and related legislation—employment information and services are both inadequate.
The downturn in Russia has been compounded by new federal legislation that is making life for migrants harder, too. Some of these regulations target Tajikistani migrants because Tajikistan has not (yet) joined the Moscow-led Eurasian Economic Union.
Russian legislation in 2014 put 270,000 Tajikistani workers on the re-entry ban list as of November 2014, reducing paid work opportunities. The number of blacklisted migrants reportedly increased in the beginning of 2015. If those labor migrants return home, they are likely to stay home for up to five years. Furthermore, since January 1, 2015, biometric passports are required for all migrants entering Russia. Also, on January 10, 2015, a new law came into force that bans those found to be staying illegally in Russian Federation territory from reentering for 10 years. These regulations exacerbate the already dire conditions of labor migrants.
It seems only a matter of time until Tajikistan bows to the inevitable and, like Kyrgyzstan, joins the EEU – at the very least to rid itself of all these unemployed young men. The EEU is off to a bumpy start, and it may simply become another toothless regional club, but Russia has sought to turn it into something more like a political, rather than just an economic, bloc.
The Work Bank gently chides Tajikistan for doing too little, for too long, to stem this dependence on Russia, for not creating jobs or investing in human capital. Now reform is harder, as revenues slow.
As the decline in remittances is likely to be long term, it is even more imperative that Tajikistan execute the structural reforms that are necessary to create the foundation for more internally generated inclusive growth. With a highly uncertain external environment and growing domestic pressures, Tajikistan must put in place a comprehensive structural reform program to bolster growth, job creation, and poverty reduction. The current difficult situation should be seen as an opportunity to direct the economy to a private-sector-led growth model to generate more and better-paying jobs.
Officials from international finance institutions are much more frank when speaking on background, lamenting that Tajik officials spend too much of their time stealing from the budget (and then asking the international community for budget support) and from state-owned enterprises rather than investing in job-creating projects or sustainable growth. The banking sector is opaque and poorly regulated, with non-performing loans on the rise, meaning lenders has less money to loan to would-be private-sector investors who might create jobs.
For years Tajikistan’s service sector has benefited from the remittances; it is likely to take a hit this year. Growth overall, the Bank says, should fall from 7.4 percent in 2013 to 3.2 percent this year and is not expected to return to historical averages any time soon.