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Economy

How Fleeing Russians (And Their Rubles) Are Shaking Up Neighboring Economies

Russians fled the war to neighboring countries, bringing with them billions of dollars worth of wealth. The influx of money is both a windfall and a problem.

How Fleeing Russians (And Their Rubles) Are Shaking Up Neighboring Economies

January 2023, Saint Petersburg, Russia. Sberbank logo seen on a residential building during the sanctions against Russian banks

Maksim Konstantinov / SOPA Images via ZUMA Press Wire
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Posting a comment on a Kazakhstani real estate listing and sales website this past fall, one user couldn't contain his enthusiasm: "It's unbelievable, hasn't happened since 2013 — the market has exploded! ... Yippee! I don't know who to kiss!"

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The boom of demand — and dollars — in Kazakhstan, and other countries in the region, is traced directly to the incoming Russians and their wealth who have arrived since the war in Ukraine began.

The ongoing wave of fleeing Russians is likely the largest emigration from the country in 100 years. There are no accurate estimates of how many Russians have left the country, much less where they will settle or how many of them will eventually return home. But between March and October, up to 1.5 million people left Russia. A conservative estimate suggests half a million haven't returned.

The main flow passed through Georgia, Armenia, Kyrgyzstan, Uzbekistan and Kazakhstan (which has the longest land border with Russia). In these countries, the Russian language is widespread and visas are unnecessary. Russians can even enter Kazakhstan and Armenia without a passport.


For some, these countries were just a stopover, but many others have stayed.

​Money in the air

Most did not leave Russia empty-handed — they brought money with them. At first, they brought cash and money transfers, and then, when they opened local bank accounts, the emigrants began moving money out of Russia and filling their local accounts. Russian money in foreign banks almost doubled this year, increasing to $67 billion — exceeding currency deposits inside Russia for the first time ever.

The flow isn't stopping. Every month, Russians send several billion dollars to foreign banks (as much as $5 billion just in October 2022). Those who leave are converting their rubles to foreign currency; some sell their property in Russia, including apartments, and take money out as well. And many of those who remain in Russia have opened foreign accounts and moved some of their savings to them.

Georgia, for example, received $1.3 billion more from Russia during the first 11 months of 2022 than in 2021, and Armenia received $2.3 billion more.

​Great expectations

Those billions are a colossal sum for the small economies of Armenia and Georgia. Armenia's GDP in 2021 was $14 billion, and Georgia's was $19 billion. The additional inflow of money from Russia was 17% and 7% of their GDP, respectively.

At the start of the war, experts predicted that the economies of the former Soviet republics would be in trouble. But it quickly became apparent that some countries, on the contrary, will see growth. The National Bank of Armenia had lowered its economic growth forecast from 5% to 1.6% when the war broke out, but then raised it to as much as 13% in October. The IMF expects only 7% — still an extraordinary figure. Georgia is now expecting 10% growth.

​Bigger problems

As the saying goes, however, it's too much of a good thing. The most obvious immediate problem is inflation. It was rampant long before the war, with price increases worldwide accelerating in late 2020. Now, the invasion of Russian money has made it difficult for neighboring countries to fight rising prices. In Georgia, consumer price growth peaked in March; in Armenia, it peaked in June, while in Kazakhstan, inflation exceeded 20%.

The poor will make do without.

The war has also increased the risk of poverty in the Caucasus and Central Asia, the IMF says. Inflation hits the poor harder: while a person of average income can choose a cheaper brand, the poor will make do without.

The flow of Russian money has also strengthened the currencies of neighboring countries. People left Russia with rubles, dollars or euros, not with tenge, drams or lari. You need local currency to live in the country — now, demand is growing, and so is the exchange rate.

The Armenian dram (up 22% against the U.S. dollar) and the Georgian lari (up 16%) are among the three fastest-rising currencies this year. The Tajik Somoni (up 10%) is also among the leaders. But a too-strong currency can hurt the economy and reduce the country's competitiveness in the world market as its goods become too expensive relative to those produced in other countries. Exporters lose markets, and local manufacturers lose business to their imported counterparts.

What's next

People arrived, the money came, bringing with it successes and problems. But the main risk now is that people and capital will leave as suddenly as they arrived.

Many "newcomers" initially did not see the Caucasus and Central Asia as a permanent home. For them, it was a staging ground where they could sit tight and prepare to move to their final destination. Many arrived without a plan and are now looking to move on.

The typical crisis scenario: money comes in, things grow — and then the money goes out, leaving behind a recession, losses and memories of the good life.

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Photo of ​Asimwe Novia selecting mushrooms at the Mushroom Training and Resource Centre in Kyanamira, Kabale district, Uganda.

Selecting mushrooms at the Mushroom Training and Resource Centre in Kyanamira, Uganda.

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