Russia’s invasion of Ukraine has spurred a rush of remittances from citizens from both countries living abroad to help their families withstand war disruptions.
Transfers to Ukraine through MoneyGram, the US-based remittances company, spiked by 120% on Feb. 24th, the day Russia attacked Ukraine, while remittances to Russia rose by more than 50% the week of the invasion, said CEO Alex Holmes.
The jump is not unlike what the company has seen after natural disasters, like a tsunami or a hurricane. Russia’s military attacks have crippled big sectors of the Ukrainian economy and destroyed large parts of the country’s infrastructure. Russians, meanwhile, are feeling the effects of unprecedented financial sanctions that have collapsed the ruble.
The conflict is reverberating beyond the two countries. Russia is home to many migrant workers from central Asian countries that depend on remittances.
How do remittances affect the global economy?
Last year, Ukraine received more than $16 billion in remittances, while Russia got $10 billion. Most of the money comes from the EU or the US. Prior to the war, remittances made up 9% of Ukraine’s gross domestic product (GDP) and 0.6% of Russia’s GDP.
Ukraine’s remittance inflows are dominated by its neighbor Poland. As Ukrainians disperse, the flow of funds will likely get redirected to Poland, Hungary, Romania, Moldova, and other parts of Europe.
Several central Asian countries will be hit as well as the conflict makes it harder for migrant workers in Russia to send money back home. These countries depend even more on remittances, which make up nearly 30% of some of their GDPs. Not getting them could trigger economic and political turmoil.
Sending money out of Ukraine, meanwhile, is already harder. In an effort to avoid a collapse of its banking system, the central bank has restricted remittance flows abroad, and limited withdrawals to the equivalent of $1,000 a day.
How do sanctions affect remittances?
The sanctions, including expelling Russia out of the SWIFT banking communications system, are expected to disrupt remittances flowing out of that country. Several money-transfer companies, including Wise and Remitly, already ended services to Russia due to the sanctions.
MoneyGram is still able to send money to both those countries because the banks sanctioned by the US and EU—like Sberbank and VTB—aren’t directly involved in MoneyGram’s funds flow to the country. Though the comppany initially had trouble sending money from Russia to Kazakhstan and Georgia, which relied on VTB and Sberbank as correspondent banks to move funds, MoneyGram said it has since found alternatives.
Correction: An earlier version of this article stated that Wise and Remitly had ended services to Ukraine. Both companies only ended services to Russia.