Gulf state waking up to cost of foreigners failing to spend cash within the kingdom
Saudi Arabia's suggestion last month that it will try to limit how much money expatriate workers send home showed concern about the cost of having foreigners make up nearly a third of the population.
An estimated nine million foreign workers and their dependents remitted SR26.8bn ($7.1bn) out of the country in the second quarter of this year, central bank data shows. That amount was equivalent to 17 percent of Saudi Arabia's current account surplus at a time of historically high oil revenues.
With the stability of the global financial system threatened by the euro zone debt crisis, and Saudi Arabia keen to use more of its monetary resources domestically under a $130bn government spending plan announced this year, the outflow of funds may be starting to look uncomfortably large.
Saudi Arabia, which wants to develop its economy to reduce its reliance on oil revenue, also appears to be waking up to the opportunity cost of having so much economic output produced by foreigners, most of whose money is not spent or invested within the kingdom.
"The balance of payment considerations are obviously a risk, and they are a structural risk in that if oil prices come down, they would become a challenge," said Jarmo Kotilaine, chief economist of National Commercial Bank in Jeddah.
"But the Saudi economy has gone through a number of rough patches over the decades without compromising the basic stability of the monetary situation."
He added, "It's not an unmanageable problem, but the issue is the opportunity cost of the remittances. Many residents live here for the pure purpose of making as much money as they can and sending as much of it back home to their families as they can. That money isn't being used to stimulate domestic economic activity."
Expatriates account for nine out of 10 private-sector jobs in Saudi Arabia, the world's top oil exporter. They fill roles that range from domestic service and factory work to management positions in large finance companies.
The value of their remittances has almost doubled in the past five years from an officially recorded SR15.3bn in the second quarter of 2006. Three economists said the true figures for money outflows were probably much higher because they did not include informal transfers.
"In practice, when oil prices are high remittances go up, and when oil prices fall, remittances go down automatically because employment falls and new recruitment falls," said Khan Zahid, chief economist of Riyad Capital.
Labour Minister Adel al-Fakieh said in an Oct 22 television interview that the Labour Ministry was "preparing a monitoring programme aimed at reducing the huge quantity of transfers of foreign workers".
He did not elaborate, and economists said it would be difficult to develop practical measures to limit remittances, partly because money can be taken out of the kingdom in many different ways.
Most of the money is thought to be remitted by lower-paid workers, most from South and Southeast Asia, who frequently carry cash with them on trips home rather than making formal bank transfers.
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