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TAJIK MIGRANTS' DOLLARS
How does the somoni-dollar exchange rate depend on migrants' money and the ruble exchange rate?
By Bahmanyor Nadirov and Payrav Chorshanbiev
By Bahmanyor Nadirov and Payrav Chorshanbiev
The queues at currency exchange offices in Tajikistan do not surprise anymore. People line for days to buy $200 in the banks in the country. In addition, the somoni-dollar rate keeps declining over the last days.
On November 24, 2020, the official exchange rate for 1 dollar was 11.30 somoni; while in the beginning of November, it was 10.32 somoni. This is explained by the fact that on November 4, the National Bank of Tajikistan carried out a sharp correction of the official exchange rate of the national currency to 11.3 somoni per dollar.
This is not the first correction. On March 20, the regulator changed the official somoni-dollar exchange rate by 5% at once. Thus, considering the latest correction, the Tajik currency devaluated by 16.6% since the beginning of the year: from 9.69 somoni per dollar on January 1 to 11.3 somoni per dollar on November 4, 2020.
This is not the first correction. On March 20, the regulator changed the official somoni-dollar exchange rate by 5% at once. Thus, considering the latest correction, the Tajik currency devaluated by 16.6% since the beginning of the year: from 9.69 somoni per dollar on January 1 to 11.3 somoni per dollar on November 4, 2020.
The official exchange rate is the weighted average rate of purchase and sale of the US dollar in the interbank and intrabank markets.
Why Is This Happening?
The National Bank considers an increase in demand for American currency, a negative balance of foreign trade turnover and a decrease in the flow of remittances and foreign investments to the republic as the main reasons for the devaluation of somoni.
The demand for foreign currency is traditionally high. Primarily, because the annual export volume is 2.5-3 times less than the import volume, according to the Agency on Statistics of Tajikistan. In 2019, exports amounted to $1.175 billion and imports exceeded $3.3 billion.
The demand for foreign currency is traditionally high. Primarily, because the annual export volume is 2.5-3 times less than the import volume, according to the Agency on Statistics of Tajikistan. In 2019, exports amounted to $1.175 billion and imports exceeded $3.3 billion.
According to the National Bank, the daily foreign exchange deficit in Tajikistan is $8-25 million depending on the season.
We should note that, according to the National Bank and the Agency on Statistics, the trade turnover of Tajikistan over the years of independence of the republic remained negative, that is, the imports always prevail over exports.
During 10 years (2009-2019), the volume of exported products amounted to $12.1 billion, and imported – $36.4 billion.
The deficit of the American currency (for importing products, servicing external debt and other needs) is compensated by migrants' remittances, which annually account for 20%-50% of the country's GDP. According to various sources, about 70% of households in the republic make their living with labour migrants' money. Remittances also provide 75% of the currency for the import of goods and products.
During 10 years (2009-2019), the volume of exported products amounted to $12.1 billion, and imported – $36.4 billion.
The deficit of the American currency (for importing products, servicing external debt and other needs) is compensated by migrants' remittances, which annually account for 20%-50% of the country's GDP. According to various sources, about 70% of households in the republic make their living with labour migrants' money. Remittances also provide 75% of the currency for the import of goods and products.
What Do the Migrants Have to Do With It?
In fact, Tajikistan's economy is highly dependent on the remittances of labour migrants. According to the World Bank, the country is one of the three most dependent on migrants' remittances countries in the world.
The ratio of migrants' remittances to GDP fell below 30% only twice over 10 years: in 2015 and 2016. In 2013, their volume amounted to almost half of the GDP.
Despite the fact that the ratio of remittances to GDP slightly decreased over the past five years, they still account for more than a third of the republic's economy.
The ratio of migrants' remittances to GDP fell below 30% only twice over 10 years: in 2015 and 2016. In 2013, their volume amounted to almost half of the GDP.
Despite the fact that the ratio of remittances to GDP slightly decreased over the past five years, they still account for more than a third of the republic's economy.
It should also be noted that migrants provide more money for Tajikistan than exports and foreign direct investment.
Remittances during the past 10 years (2009-2019) exceeded the country's revenue from the export of goods more than 2.5 times. The total volume of remittances in 2009-2019 amounted to over $30 billion, while the total volume of exports was just over $12 billion. The total volume of attracted foreign direct investment during this period amounted to $3.5 billion.
Thus, Tajik migrants transfer about 8.5 times more money than the country receives from foreign direct investment.
Remittances during the past 10 years (2009-2019) exceeded the country's revenue from the export of goods more than 2.5 times. The total volume of remittances in 2009-2019 amounted to over $30 billion, while the total volume of exports was just over $12 billion. The total volume of attracted foreign direct investment during this period amounted to $3.5 billion.
Thus, Tajik migrants transfer about 8.5 times more money than the country receives from foreign direct investment.
According to unofficial data, every ninth Tajik citizen lives and works in Russia.
This publication contains data only on transfers of individuals via banking systems of the Russian Federation. This is the most popular destination of labour migration for Tajiks.
We should note that additional millions of dollars enter the country outside the banking systems, via individual mutual agreements. In addition, money is transferred from other destinations of Tajik migrant workers.
We should note that additional millions of dollars enter the country outside the banking systems, via individual mutual agreements. In addition, money is transferred from other destinations of Tajik migrant workers.
Where Do the Dollars Come From?
The National Bank of Tajikistan (NBT) collects rubles sent by labour migrants from Russia, as well as currencies entering the country from exports and foreign direct investment, and then buys dollars in Russia with them.
According to the National Bank of Tajikistan, commercial banks must sell 50% of the received ruble remittances to the NBT. It, in turn, according to unofficial data, exchanges this money in Russian banks for dollars. The National Bank neither confirms, nor denies this information.
Since the country receives most of its currency from the export of labour resources, the exchange rate of the national currency, the somoni, is highly dependent on the migrants' money.
According to the National Bank of Tajikistan, commercial banks must sell 50% of the received ruble remittances to the NBT. It, in turn, according to unofficial data, exchanges this money in Russian banks for dollars. The National Bank neither confirms, nor denies this information.
Since the country receives most of its currency from the export of labour resources, the exchange rate of the national currency, the somoni, is highly dependent on the migrants' money.
Until 2016, migrants' money entered the country in Russian rubles and were exchanged at banks and non-bank exchange offices, but since 2016, the National Bank of Tajikistan instructed commercial banks to issue ruble transfers in somoni only.
Falling Together With the Ruble
Since the National Bank exchanges the remittances in Russian banks for dollars, the exchange rate of the national currency strongly depends on the ruble-dollar exchange rate.
The analysis of the average annual somoni-dollar and ruble-dollar exchange rates shows that they devaluate at almost the same pace.
The analysis of the average annual somoni-dollar and ruble-dollar exchange rates shows that they devaluate at almost the same pace.
The pegging of one currency's exchange rate to another is determined by the dependence of the economy of one country on another. That is, it is not done deliberately, but determined by the economy. The main source of currency and the main supplier of goods for Tajikistan is Russia and, accordingly, everything that happens to the ruble reflects on the somoni after a while.
The ruble exchange rate, in turn, directly depends on the prices for energy resources, which Russia exports in large volumes. If the oil price decreases, the ruble drops against the US dollar, and vice versa: if the oil price increases, the Russian currency also strengthens.
Other factors that affect the Russian ruble are the foreign trade balance and foreign policy factors. For example, the US and EU sanctions against the Russian financial sector will greatly affect the ruble's value in relation to major global currencies.
The ruble exchange rate, in turn, directly depends on the prices for energy resources, which Russia exports in large volumes. If the oil price decreases, the ruble drops against the US dollar, and vice versa: if the oil price increases, the Russian currency also strengthens.
Other factors that affect the Russian ruble are the foreign trade balance and foreign policy factors. For example, the US and EU sanctions against the Russian financial sector will greatly affect the ruble's value in relation to major global currencies.
Somoni Continues to Devaluate
The coronavirus pandemic in 2020 led to remittances' reduction: borders are closed, air traffic with Russia was suspended. Some migrants are stuck in Russia, and, due to COVID-19 restrictions, are left without work and income. Others was left without work in Tajikistan.
The COVID-19 pandemic continues, and Russia, due to the increase in the number of infected, began to reintroduce restrictive measures after a short relaxation.
The World Bank predicts a global decline in remittances. Amid the ongoing coronavirus pandemic and the economic crisis, remittances from labour migrants, compared to 2019, will decline by 14% by 2021, according to the World Bank's Migration and Development Brief.
Title photo: Vladimir Burnov / TASS
The World Bank predicts a global decline in remittances. Amid the ongoing coronavirus pandemic and the economic crisis, remittances from labour migrants, compared to 2019, will decline by 14% by 2021, according to the World Bank's Migration and Development Brief.
Title photo: Vladimir Burnov / TASS
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