Ukraine fell short of earnings from its migrant workers due to the political tensions with Russia

Photo: Alexei Solodunov

Remittances to Ukraine have decreased in January – March 2014 compared to the same quarter last year for the first time since the beginning of 2010. Over the first three months in 2014 the country received US $1.6 bn from individuals, mainly from Ukrainian guest workers abroad, which is by 7.7% less than during the same period in 2013, reported the National Bank of Ukraine. Deterioration of relations with Russia is the reason for the drop in money transfers from Ukrainian workers, which have been replacing direct foreign investments for the Ukrainian economy in the last five years.

The cutback of transfers to Ukraine from Russia accounted for almost half the amount of the decrease in money transfers (43%), although it still remains the largest source of transfers for the national economy and the main direction for Ukrainian labor migrants. In the first quarter of 2014 Ukrainians received US $468 mn in transfers via official channels – correspondent accounts in banks and international payment systems (IPS) – from Russia. That is by 9.7% less than during the same period last year.

Director of the Center of World Economy and International Relations at the National Academy of Sciences of Ukraine Oleh Ustenko says the reason for the decline in transfers from Ukrainian migrant workers in Russia is not that many of them stopped going to work there, but that they have lost confidence in the official wire transfer channels. In Ukraine such a situation was created by instability in the banking sector, as well as the annexation of Crimea and the military conflict in the eastern oblasts. While for the majority of Ukrainians the latter simply became a reason for concerns, for the natives of the peninsula and the Donbas, it became a physical obstacle for remittances. After Ukrainian banks left Crimea, the ATM networks servicing Visa and MasterCard systems were forced to shut down. Residents of eastern Ukraine did not encounter similar problems in the first quarter of the year, but the Crimean precedent gave them an excuse for similar concerns which were justified in the second quarter, when the NBU cut off payment systems in those regions and banks closed their local branch offices or reduced the amounts of cash in reserves.

In addition, legislative changes also could affect the amount of transfers through official channels from Ukrainian migrant workers in Russia. On January 1, Russia introduced amendments to the laws which impose restrictions on the duration of migrants’ stay on the territory of the federation. The old rules allowed foreigners, who entered the territory of Russia from countries with a visa-free regime with it, Ukraine being one of them, to stay in Russia without registration for 90 days and then they could go back home and immediately return to Russia if necessary. Now, the duration of their stay is limited to 90 days for every 180 days. In other words, citizens of countries, which have a visa-free regime with Russia, have the right to stay on its territory for three months and then they have to return to their home countries for the next three months before they are allowed to come back to Russia for another three months.

Violators may be banned from entering Russia for a period of three years for a first-time offense and in case of repeated violations – up to 10 years. Such innovations have affected job conditions for 4 out of 10 Ukrainian guest workers in Russia. 62% of Ukrainian labor migrants stayed in Russia no longer than three consecutive months in 2010 - 2012, so the new migration requirements have not changed much for them, according to the International Labor Organization. However, another 20% of our compatriots in Russia preferred to work within three to six months and the rest – for more than six months. While in the past it was easier for them to send money to relatives back home from banks or IPS, now they simply have to wait until their next regular return to Ukraine and bring savings in cash.

Ustenko believes all this led to the situation when individuals sent money from Russia to Ukraine via informal channels – in cash across the border, or put it aside until the situation in Ukraine stabilizes. “When the conflict in the east of Ukraine will be resolved, the amount of cash transfers will be restored to its former level. Moreover, the country will receive the money that migrant workers saved and accumulated during the months of instability,” believes the expert. We may expect this no sooner than by the third or the fourth quarter of this year. Ustenko says that due to the fact that the flow of funds in the second half of the year will compensate for the shortage in the first 6 months, their volume at year-end will reach the level of last year of at least US $7 bn. Still, this will only be possible on condition that relations between Russia and Ukraine stabilize.