How The War In Ukraine Is Impacting Remittances From Canada To Eastern Europe?

The war in Ukraine has had a devastating impact on the country and the wider region. The conflict has caused a humanitarian crisis, with millions of people displaced from their homes and thousands killed. 

The full-scale invasion of Ukraine by Russia began on February 24, 2022. As of today, December 6, 2023, the war has been ongoing for 1 year, 9 months, and 12 days.

The war has also had a significant impact on the economy, with GDP expected to contract by over 40% in 2022. This economic downturn is having a ripple effect on neighbouring countries in Eastern Europe, which are heavily reliant on trade with Ukraine.

There are several complex and interrelated reasons why the war in Ukraine started. Some of the key factors include:

• Russia's desire to prevent Ukraine from joining NATO: Russia has long seen NATO expansion eastward as a threat to its security. Ukraine's aspirations to join NATO were a major factor in Russia's decision to annex Crimea in 2014 and to support separatists in eastern Ukraine.
• Russia's historical ties to Ukraine: Russia and Ukraine have a long shared history, and Russia has traditionally seen Ukraine as part of its sphere of influence. Russian President Vladimir Putin has repeatedly expressed his belief that Ukraine is not a real country and that Ukrainians and Russians are "one people."
• Russia's domestic political situation: Putin has faced growing domestic criticism in recent years, and some analysts believe that he may have launched the war in Ukraine in an attempt to rally Russians around a common cause and divert attention from domestic problems.

The war in Ukraine has had a devastating impact on both countries' economies. The World Bank has estimated that Ukraine's GDP will contract by 45% in 2023, while Russia's GDP is expected to shrink by 11%. The war has also caused significant damage to infrastructure in both countries.

The total cost of the war in Ukraine is difficult to quantify, but it is likely to be in the hundreds of billions of dollars. The war has also caused a humanitarian crisis, with millions of people displaced from their homes.

The purpose of this article is to examine how the war in Ukraine is impacting remittances from Canada to Eastern Europe. The article will discuss the economic impact of the war, the challenges of sending remittances to Ukraine, and the factors influencing remittance flows. The article will also provide case studies of remittance senders and discuss the potential long-term impact of the war on remittances.

Let’s get right to it!

The Importance Of Remittances In Supporting Humanitarian Efforts In Ukraine

Remittances from Canada to Eastern Europe are an important source of income for many families in the region. In 2021, Canadians sent over $1.5 billion in remittances to Eastern Europe, accounting for over 10% of the region's total remittance inflows.

Remittances, the money transferred from migrants to their families back home, play a crucial role in supporting humanitarian efforts in Ukraine. These funds provide essential financial assistance to those affected by the war, helping them meet basic needs, rebuild livelihoods, and cope with the ongoing crisis.

1. Meeting Basic Needs: Remittances serve as a lifeline for millions of Ukrainians who have been displaced, lost their homes, or seen their incomes severely disrupted. The funds they receive are used to cover essential expenses such as food, shelter, clothing, healthcare, and education.
2. Rebuilding Livelihoods: Remittances enable families to restart their lives after the devastation of war. They provide capital for small businesses, support agricultural activities, and facilitate the purchase of tools and equipment necessary for income generation.
3. Empowering Resilience: Remittances empower Ukrainian families to navigate the challenges of war and displacement. They provide a sense of security and hope, allowing families to meet their immediate needs and plan for the future.
4. Supporting Humanitarian Efforts: Remittances complement the work of humanitarian organizations by providing direct and immediate assistance to those in need. They help bridge the gap between humanitarian aid and the long-term recovery efforts.
5. Boosting Local Economies: Remittances injected into the Ukrainian economy stimulate local businesses, create employment opportunities, and contribute to the overall economic recovery. They play a vital role in rebuilding communities and fostering resilience.

Remittances are not just a source of financial support for Ukrainian families; they are a lifeline, a means of rebuilding livelihoods, and a symbol of hope. Their importance in supporting humanitarian efforts cannot be overstated.

How Has The Economic Downturn From The War Affected Remittance Ability?

The economic downturn has also affected the remittance-receiving countries in Eastern Europe. As their economies weaken, the demand for remittances from abroad increases, putting further strain on the remittance senders. The devaluation of local currencies against major currencies, such as the US dollar and the euro, has further reduced the value of remittances in terms of local purchasing power.

How Has The War Affected Remittances From Ukraine?

The economic downturn caused by the war in Ukraine has had a significant impact on the ability of Ukrainians and others to send remittances. The following factors contribute to this:

1. Job Losses and Income Reductions: The war has led to widespread job losses and income reductions across Ukraine and neighbouring countries. This has directly affected the financial capacity of individuals to send remittances.
2. Rising Living Costs: The war has caused a surge in inflation, making it more expensive to cover basic necessities like food, shelter, and utilities. This has left individuals with less disposable income to send remittances.
3. Currency Devaluation: The Ukrainian hryvnia has depreciated significantly against major currencies like the US dollar and the euro. This means that remittances sent in foreign currencies have less purchasing power in Ukraine.

How Has The War Hindered Remittance Services?

The war has caused significant disruptions to financial services in Ukraine and surrounding regions. Sanctions imposed on Russia have restricted access to international payment systems, making it difficult to send remittances through traditional channels. The closure of banks and money transfer operators has further hampered remittance flows, particularly in war-affected areas.

What Are The Challenges Of Sending Remittances To Ukraine?

The displacement of millions of Ukrainians and the disruption of transportation networks have made it difficult for families to receive remittances in person or through traditional delivery methods.

The following are the Challenges of Sending Remittances to Ukraine:

Disruptions in financial services have created additional challenges for sending remittances to Ukraine. These challenges include:

• Sanctions on Russian Payment Systems: Sanctions imposed on Russia have restricted access to international payment systems like SWIFT. This has made it difficult to send remittances through traditional bank transfers.
• Closure of Banks and Money Transfer Operators: The war has led to the closure of banks and money transfer operators in many parts of Ukraine. This has limited the options for sending remittances in person or through traditional channels.
• Logistical Hurdles: The displacement of millions of Ukrainians and the disruption of transportation networks have made it difficult for families to receive remittances in person or through traditional delivery methods.

How Have Ukrainians Been Able To Get Remittances From Outside?

Despite these challenges, there have been efforts to adapt and maintain remittance flows during the war. Alternative remittance channels, such as mobile money and cryptocurrency, have emerged as viable options for sending funds. Additionally, international organizations and non-profit groups have stepped up to provide financial assistance and support remittance services in affected areas.

Recommendations For Policymakers and Remittance Service Providers

What we recommend for policymakers and remittance service providers to do in this moment of crisis is the following: 

Policymakers will have to:

• Implement policies that facilitate the flow of remittances, such as simplifying regulations and reducing transaction costs.
• Provide support to financial institutions and remittance service providers operating in affected areas.
• Encourage the development of innovative remittance channels, such as mobile money and digital platforms.

Remittance Service Providers will have to:

• Adapt and expand their services to cater to the needs of displaced Ukrainians and others affected by the war.
• Partner with international organizations and non-profit groups to provide financial assistance and support to remittance recipients.
• Invest in technology and infrastructure to improve the efficiency and security of remittance transactions.

Conclusion

The war in Ukraine has had a profound impact on remittances to Eastern Europe, disrupting the flow of funds and straining the livelihoods of those who rely on them. The economic downturn, job losses, and income reductions have significantly affected the ability of Ukrainians and others to send remittances. Additionally, disruptions in financial services, sanctions, and the closure of banks and money transfer operators have created further challenges in sending remittances to Ukraine.

The long-term impact of the war on remittances remains uncertain. The economic recovery in Eastern Europe will be gradual, and the disruptions to financial services may persist for some time. However, the resilience of remittance senders and the ongoing efforts to support remittance services offer hope for a gradual recovery of remittance flows in the region.