Economist Warns of Destabilising Effect of Migrant Money

The money sent home by labour migrants abroad has generally been seen as a bonus for the Kyrgyz economy, but some economists are now warning that the flow is now so large that it could have adverse effects, for instance by pushing up inflation.



In recent years, around 500,000 Kyrgyzstan nationals have headed abroad to earn money, mainly in Russia and Kazakstan, according to conservative official estimates.



The funds they send back to relatives in Kyrgyzstan mount up to an impressive figure. Some unofficial estimates put the total annual influx at between 500 and 700 million US dollars, including both bank transfers and money brought home in cash. Since Kyrgyzstan’s gross domestic product stands at around two billion dollars, such remittances clearly have a huge impact on the economy.



Now Saparbek Orozbakov, director of the Bishkek Centre for Economic Analysis, has come out with a warning that the Kyrgyz economy is suffering from a particular form of “Dutch disease”. He put his case in an article published in the AKIpress journal on November 16.



“Dutch disease” is a phenomenon that occurs when a particular sector – classically the oil and gas industry – undergoes a boom, leaving other areas of the economy behind. The influx of foreign currency contributes to inflation and real-terms appreciation of the local currency. The inflated exchange rate makes local exports more expensive on foreign markets, while imported goods get cheaper. As a result, locally-made products become uncompetitive on both domestic and foreign markets.



What is unusual about the Kyrgyz version of “Dutch disease”, as Orozbakov explained to NBCentralAsia, is that it is being caused by foreign labour remittances rather than a domestic sectoral boom.



“The increasing flow of foreign currency into Kyrgyzstan contributes to inflation and appreciation of the som [currency]. These phenomena in turn have a negative impact on the economy,” he said.



Other commentators interviewed by NBCentralAsia agree that substantial financial flows from abroad could have inflationary effects, but they believe the positive outcomes outweigh any concerns about negative effects.



Umar Shavurov, director of the country’s International Business Council, listed a number of benefits the rise in remittances brought for the economy and the population. “Thanks to these transfers, new houses are being built in rural areas, the headcount of livestock is increasing, more families are acquiring cars and some capital that they can use to start small businesses,” he said. “The money improves recipients’ standard of living.”



Shavurov believes inflation and currency appreciation are partly attributable to global trends such as the weakening of the US currency.



NBCentralAsia economic analyst Jyldyz Sarybaeva reeled off a list of ways in which the money boosted the economy: “a rise in total demand for consumption and investment goods including cars, homes and other major purchases…. growth in the construction industry and in construction materials manufacturing”.



Kubatbek Baibolov, a member of parliament and a businessman, says the government must keep a grip on monetary policy and bank lending so as to minimise the effects of the remittances.



He also pointed out that the inflationary effects of the migrant are partially cancelled out by out-flows of money, both in the form of cash and when businesses are transferred abroad.



(News Briefing Central Asia draws comment and analysis from a broad range of political observers across the region.)