By Mark Dovich
Armenia’s reliance on remittances from Russia, traditionally the top destination for the country’s labor migrants, is dropping sharply, as the war in Ukraine continues to upend traditional economic ties across the region.
Personal remittances to Armenia last year amounted to roughly $1.7 billion, according to Central Bank data, representing about 7% of the country’s gross domestic product. That is a far cry from the mid-to-late 2000s and early 2010s, when the ratio of remittances to GDP regularly approached 20%. The vast majority of those transfers came from Russia.
“For our compatriots, the attractiveness of working in Russia has significantly decreased,” Central Bank head Martin Galstyan told reporters Monday.
He pointed to declining business activity in Russia as the Kremlin shifts the country’s economy to a full-fledged war footing, as well as to changes in international currency markets that mean salaries in Armenia are now much closer to those in Russia than they once were. Russia’s ruble has fallen in value since its full-scale invasion of Ukraine in February 2022, while Armenia’s dram has appreciated.
“For a construction worker, the difference (in pay) between working in Russia and in Armenia has decreased considerably,” Galstyan asserted.
International restrictions on money transfers to and from Russia, the world’s most sanctioned country, also play a role. In March, almost all of Armenia’s banks halted transactions made via Russia’s Mir payment cards, just weeks after the United States blacklisted the payment system’s state-run operator.
Read more: Armenian banks stop accepting Russia’s Mir cards as US sanctions start to bite
Before the war in Ukraine, tens of thousands of Armenians, almost all men, traveled to Russia every summer as seasonal labor migrants. Exact numbers are difficult to come by, and estimates vary widely. Yerevan is part of the Moscow-led Eurasian Economic Union, a regional trade bloc that allows Armenian citizens to work in Russia without permits.
In February, the government indefinitely shelved a proposal to levy taxes on income earned abroad after protests erupted in Armenia’s impoverished eastern Gegharkunik region, which has one of the highest rates of labor migration in the country.
What’s the context?
Despite remittances’ increasingly marginal role, Armenia’s economy remains highly dependent on Russia, which continues to hold monopolies in or otherwise dominate key sectors, including energy, mining, and transport.
Over the past two years, massive inflows of capital and labor from Russia and soaring trade, including a vibrant re-export business, have made Armenia the fastest growing economy in the region. Trade between Yerevan and Moscow topped $7 billion last year, smashing records and cementing Russia’s place as Armenia’s main business partner.
Armenia’s economy expanded by 8.7% last year, after growing by 12.6% the year prior. That shows no signs of stopping, with the economy increasing by 9.2% in the first quarter of this year.
Read more: Armenia’s economy grows by 9.2% in first quarter
With all the turmoil going on in Armenia right now, opposition to Pashinyan’s concessions to Azerbaijan, the Artsakh refugee crisis, threat to Armenia’s sovereignty, etc., it’s good to at least hear some positive news about the economy. Perhaps this is a note of hope for Armenia’s survival, along with the potential growth of its technical sector. Getseh, Hayastan!