Central Asia's Ruble Awakening


The ruble-to-dollar exchange rate has been on a catastrophic climb amid Russia’s growing international isolation and the broader global collapse in oil prices. The first major milestone came in October 2014 when the ruble inched over 40 against the dollar, bringing the exchange rate to its highest ever level since the collapse of the Soviet Union. At the time of this writing, the ruble sits at nearly 70 to the dollar. While the international media and economists have spent a considerable amount of time prognosticating about the future of the Russian economy, the ruble’s moribund fortunes could absolutely devastate Central Asia’s economies, many of which have little to no escape from their exposure to the Russian market.

The most fundamental way in which the ruble’s collapse will affect the economies of Central Asia is in terms of the effect it will have on the value of remittances — a crucial tool for transferring wealth from migrant workers in Russia back to their families in the former Soviet republics. One particularly shocking statistic in the case of Tajikistan is that up to 42.1 percent of the entire nation’s GDP comes from foreign remittances, the highest percentage of any country in the world. 60 percent of Tajik remittances come from migrant workers in Russia, where over a million Tajiks work. Kyrgyzstan’s story is similar: 32 percent of its GDP comes from remittances as well. The ruble’s collapse means that average consumer spending and wealth in the Central Asian states will drop precipitously. Even if Central Asian governments can tap into U.S. dollar reserves to keep their countries running, their citizens will immediately feel the effect of rising prices.

Of course, the most worrisome long-term risk of Central Asia’s current economic pain is widespread domestic political instability. The sharp increase in consumer prices could lead to widespread civil unrest and force governments to crack down violently. Kyrgyzstan, in particular, has already witnessed protests against electricity rate hikes during the winter. 2014 was a turbulent year for Kyrgyzstan with mass protests against the government of President Almazbek Atambayev, and though those protests were pacified as the year went on, rising inflation could reignite domestic tensions.

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Structurally, Central Asian economies, particularly Uzbekistan, Kyrgyzstan, and Tajikistan, are ill-equipped to resist economic contagion emanating from the ruble’s collapse. Historically, since the collapse of the Soviet Union, these countries have been vulnerable to moves by the Russian Central Bank. Additionally, given the generally low level of economic diversification in many of the post-Soviet republics, too much of their export revenue is reliant on high global energy prices. The collapse of the ruble has coincided with a precipitous drop in the price of oil worldwide, leaving Central Asian energy exports with a fraction of their original competitiveness on the global market. In the short-term, there is almost no silver lining for these Central Asian states; the only response can be to weather this crisis without losing out on longer-term GDP growth.

As Paolo Sorbello wrote on this blog back in December 2014, Central Asian governments are attempting to ride through the ruble’s bad times by clinging to the U.S. dollar. Given the Kremlin’s seeming impotence when it comes to reeling in the ruble, Central Asian states are effectively forced to hedge their bets on their relations with China and on the dollar. Each of these hedging strategies will lead to a decline in trade volume with Russia and a concomitant decrease in the value of remittances originating in Russia. There are no good choices from Central Asian governments right now, but waiting out the ruble’s collapse in value seems like the best option (and certainly the one that lessens the chance of domestic political instability).

Central Asia’s economic pain will likely reduce popular support for Russian-led economic and political initiatives such as the Eurasian Economic Union. If anything, the ruble’s collapse will be a wake-up call for a region that has done little to reduce its exposure to the Russian economy since the collapse of the Soviet Union. With China “marching west” and a United States eager to moderate Russian influence in the region, Central Asian governments would do well to diversify their economies and look away from Russia.

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