One of the impacts of a possible Russia-Ukraine agreement on Azerbaijan and the countries of the region (Central Asia and the South Caucasus) will be a decrease in remittances from Russia, said the international rating agency "S&P Global Ratings," APA-Economics reports.
It was noted that sharp rise in remittance inflows and money transfers in 2022 helped to improve the current account balance by an average of 6.5 percentage points for Uzbekistan, Georgia, Armenia, Azerbaijan, Kazakhstan, and Tajikistan. For Azerbaijan and Kazakhstan, the improvement also reflected higher oil prices. This impact was mostly reversed in 2023 due to banks' stricter compliance processes and the movement of Russian money to other jurisdictions.
The rating agency believes that the change in trade flows will depend on the timing and extent of the easing of sanctions against Russia: "Since the Russia-Ukraine war started, a significant portion of European export flows to Russia have diverted to Central Asia and the Caucasus. The impact on these countries' current accounts has been broadly neutral because the higher-valued-added imports were re-exported to Russia. However, these trade flows declined markedly in 2024, particularly for Kazakhstan, due to more stringent sanctions and domestic compliance requirements. Overall, increased investment in transport and logistics, trade services, and local production should continue to provide longer-term economic gains for Central Asia and the Caucasus even if trade flows to Russia decline."
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