For the first time since March 2022, Russia has lost its leading position in money transfers to Georgia. In May, transfers from Russia decreased from USD 158 million to USD 48 million as compared to the same period last year, a 70% decline. Italy saw an 8% increase, surpassing Russia by a narrow margin of USD 15,000. Over a five-month period, Russia still holds the lead, but the gap with Italy and the United States is gradually narrowing.
For years, Russia held an undisputed first place in money transfers, although its share was steadily declining. After the attack on Ukraine, the dynamics changed radically. While Russia’s share in 2020-2021 was over 20%, it approached 50% in 2022.
Chart 1: Share of Russia in Money Transfers
Source: National Bank of Georgia
The increase in Russia’s share began in April 2022 and continued for five quarters. From the second half of 2023, the situation is approaching the pre-war state, although the effects of migration still remain, albeit to a lesser extent.
Before the invasion of Ukraine, the main reason for the decrease in Russia’s share was the monetary increase in transfers from other countries.
From 2015 to 2018, money transfers from Russia to Georgia increased slightly from USD 433 million to USD 457 million, but the share decreased significantly from 40% to 29%. In the following three years, although there was a monetary decrease from USD 457 million to USD 411 million, the share decrease was much greater, from 40% to 18%.
Recently, the volume of transfers from the United States has increased the most. In the first five months of this year, USD 219 million was transferred from the United States to Georgia, double the amount as compared to the same period in 2021. In the same period, remittances from Italy increased by 53%, from USD 150 million to USD 230 million.
Chart 2: Dynamics of Money Transfers January-May (USD Million)
Source: National Bank of Georgia
Among the countries with high money transfer volumes, only Russia did not experience growth in the pre-war period of 2015-2021. During the same period, remittances from other countries, including the United States and Italy, increased by 182% and 249%, respectively.
Russia invaded Ukraine on 24 February 2022. The increase in money transfers from Russia to Georgia began a month later, in April. The first wave of sanctions led to a sharp depreciation of RUB. To prevent a complete collapse, the Central Bank of Russia imposed strict regulations on money transfers and payments abroad. The first wave of migrants appeared in Georgia soon after, but not immediately, so the effect of the war on remittances was felt in April, not March.
Some Russian migrants have already left Georgia. Others purchased real estate in 2022-2023. The reduction in large expenses on their part has had an additional impact on the decrease in transfers.
In the third quarter of 2022, money transfers decreased, but peaked in the fourth quarter. This is related to mobilisation. In September 2022, Russia announced partial mobilisation and a new wave of migrants appeared in Georgia.
It is impossible to say definitively how the dynamics of money transfers from Russia will change in the near future. Everything depends on how long the war lasts, whether a new mobilisation will be announced in Russia and whether the borders will be closed in the event of mobilisation. Without major changes, the volume of remittances in monetary terms will likely remain the same as it is today, although its share will decrease against the backdrop of growth from other countries.
Money transfers do not directly contribute to GDP formation, but they have a significant impact on one of its components, consumption.
Excluding a few exceptions, dependence on money transfers has been steadily increasing over the past 20 years. In 2003, remittances accounted for 6.2% of the economy, reaching 10.7% in 2012 and 15.6% in 2022. Even before the war, remittances reached a record 14.2% in 2021.
From 2013 to 2023, the negative net migration of Georgian citizens exceeded 285,000. Recently, the migration process has accelerated. In 2022-2023 alone, 118,000 more Georgian citizens left the country than returned. High migration has accelerated the growth of money transfers, although it should be noted that remittances also increased in 2020, the exceptional year when a positive migration balance was recorded due to the pandemic.
The National Bank does not record money transfer recipients by citizenship and so how the funds are distributed between Russian and Georgian citizens cannot be determined.
Author: Giorgi Elizbarashvili
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