re: Latest Updates: Russia-Ukraine Conflict

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How does a weak ruble lead to an outflow of migrants from Russia?
The recent drop in the Russian ruble’s value directly impacts migrants’ desire to travel to the country for work. This is because it wasn’t only the ruble’s exchange rates against the U.S. dollar and the euro that fell but also its exchange rates against the currencies of other CIS countries.

Since the start of 2023, the ruble’s exchange rate against the Kyrgyzstani som has fallen by 22 percent; its exchange rate against the Uzbekistani som has fallen by 18 percent; and its exchange rates against the Armenian dram and the Kazakhstani tenge have each fallen by 25 percent.

This has caused the income of migrants who get paid in rubles to drop, making work in Russia a less attractive option for them.

According to Bakhrom Ismailov, the head of Moscow’s Uzbekistani diaspora, the ruble’s plummeting exchange rate could cause Russia to lose up to a third of its migrant workers. In a recent interview, Anton Glushkov, the head of Russia’s National Builders’ Association, said that the currency’s collapse will especially make Russia a less attractive market for migrant construction workers. He said most workers are sticking around for now, but this could change in 2–3 months.

In 2021, the average monthly salary for migrant workers in Russia was 47,100 rubles (about $640), according to data from Moscow State University and the organization Federation of Migrants of Russia. The most lucrative industry for migrant workers that year was construction and repair, with an average monthly salary of 54,000 rubles ($734).

In 2022, the number of labor migrants in Russia rose 33 percent (approximately 847,000 people) from the previous year.

There are two main factors behind this large increase:

First, by the end of the pandemic, the number of migrants in Russia had fallen almost fourfold, and it didn’t start to recover until 2021.
Second, the ruble was strong. In 2022, the ruble appreciated due to Russia’s high number of exports and reduced imports. That summer, the dollar’s value on the Moscow stock exchange fell to 50 rubles, and only at the end of the year did it again approach 70 rubles.
An economist from one of Russia’s banks told Meduza that migrants working in Russia might indeed leave in response to the ruble’s falling exchange rate. According to him, the currency’s decline will exacerbate the already-dire shortage of workers in Russia.

But the ruble’s depreciation isn’t the only factor stopping potential migrant workers from coming to Russia, nor is it the most important one. Because of Russia’s full-scale war against Ukraine, many migrants are justifiably concerned that they could be mobilized and sent to the front, according to an economist at a large financial firm. While mobilizing a citizen of a foreign country is difficult, the risk is real — and migrants are taking it into account.

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Russia’s ruble has fallen a long way in recent months, and the country’s central bank has stepped in to try to halt the slide.

Until now, the government stood aside as the declining ruble helped its budget. But a weaker currency also poses the threat of higher prices for everyday people in Russia — and the government has finally moved to halt the drop.

WHY DID THE CENTRAL BANK RAISE INTEREST RATES?

To fight inflation, first of all.

A weaker ruble worsens inflation by making imports more expensive in Russian currency. And the ruble’s weakness is increasingly being passed through to prices people pay. Inflation hit 7.6 percent over the past three months.

Higher interest rates will make it more expensive to get credit, and that should limit domestic demand for goods — including imports. So the central bank is trying to cool off the domestic economy to lower inflation.

It raised its key interest rate from 8.5 percent to 12 percent at an emergency meeting Tuesday after the ruble’s fall was criticized by a Kremlin economic adviser.

IS RUSSIA HAVING AN ECONOMIC CRISIS?

No, says the chief executive of Macro-Advisory Ltd., Chris Weafer. “The lower ruble is partly a reflection of the effect of sanctions, but it doesn’t indicate an underlying economic crisis.”

The falling ruble actually has helped the government with its budget. It means more rubles for every dollar of earnings from oil and other products Russia sells. That bolsters spending on the military and on social programs aimed at blunting the impact of sanctions on the Russian people.

“They’ve tried to compensate for the drop in the dollar value of oil receipts with the weaker ruble, so that therefore the deficit in terms of spending could be contained and more manageable,” Mr. Weafer said.

Amid sanctions and restrictions on moving money out of the country, the ruble exchange rate is largely in the hands of the central bank, Weafer said. It can tell major exporters when to exchange their dollar earnings into Russian currency.

“The weakness was planned, but it’s overdone and they want to pull it back,” Mr. Weafer said.

A Russian economy analyst at the German Institute for International and Security Affairs, Janis Kluge, said the ruble decline is “not very welcome” to the Kremlin.

While not a full-blown crisis, “this is the closest we came to a real economic problem since the start of the war,” Mr. Kluge said.

The chaos at the start of sanctions was far worse, but since then, the ruble decline “is the first time that something seems to be not so much under control,” he said.

Any boost to the budget from a lower ruble, he said, is offset by higher spending on government wages and pensions, which are indexed to the inflation caused by the lower ruble.

“Whatever gives the impression of a weak or unstable economy is not welcomed by the Russian government,” he said. “In Russia, the exchange rate is always seen as the most important indicator of the health of the economy.”

WHAT DOES THIS MEAN FOR RUSSIANS?

Inflation caused by ruble devaluation hits low-income people hard because they spend more on necessities like food.

While higher interest rates will dampen economic growth, relieving some pressure on prices, the government is unlikely to back off on military spending.

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