S&P: Central Asian And Caucasus Currencies Are Unexpected EM Outperfomers

LONDON (Capital Markets in Africa): Running against the tide, the currencies of Armenia, Georgia, and Tajikistan have been steadily appreciating over the course of 2022.

Exchange rates of these currencies are now significantly above their levels prior to the Russia-Ukraine conflict and among the strongest performers across emerging markets so far this year, S&P Global Ratings said in a report (see attached).

Central Asian And Caucasus economies have experienced a massive influx of people from Russia, who fled the country after the start of Russia-Ukraine conflict. Exact data is not available, but estimates point to about 150,000-300,000 who fled Russia from February to mid-April, with most now residing in Central Asia and the Caucasus, Turkey, and the EU.

“Money transfers from Russia to these countries have therefore skyrocketed,” explained S&P Global Ratings Economist Valerijs Rezvijs.

After dropping in early March, the Armenian dram and Georgian lari have rallied about 30% and 20% against the U.S. dollar, respectively.

The massive influx of people from Russia has also boosted domestic demand, pushing up GDP in Armenia and Georgia by 13.1% and 10.3%, respectively, in the first half of the year–far above early-2022 market expectations.

After Russia announced a mobilization, more people left the country than in February-April, according to officials in receiving countries.

“We therefore believe the upward pressure may continue on the exchange rates of Central Asian and Caucasus economies–with some provisos,” Mr. Rezvijs said. “However, some factors supporting these exchange rates earlier in 2022 are not in play anymore.”