The economic mangers in Pakistan must have raised their eyebrows after the Saudi labour minister’s recent announcement to limit the flow of remittances from the oil-rich Kingdom.
Salary protection programme
On the 26th of last month, Saudi Labour Minister Adel Fakieh had, reportedly, declared that Riyadh was planning to launch “salary protection” programme primarily aimed at keeping the much needed capital in the Kingdom, ranked second by the World Bank in the list of world’s largest remittance sending countries after the United States. According to Fakieh, once implemented the proposed program would put a so far unclear ceiling on the amount of remittances the expatriates would be able to remit to their home countries. Mainly concentrated in the construction and retail sectors, the “guest” workers constitute around 87 per cent of the total Saudi private work force, according to various survey reports. “About nine out of 10 workers in the country are foreigners. This has led to millions of riyals being transferred back to their home countries, harming the local economy,” Fakieh was quoted as saying.
Vulnerable current account
The economic observers in the funds-starved Pakistan believe that, if materialised, the cap or ceiling on the flow of remittances from Saudi Arabia would disturb the country’s external accounts visibly. The impression carries enough weight as a country wise analysis of the data available on the State Bank website reveals that the oil-rich Middle Eastern country happens to be the third largest source of remittances for Pakistan after the United States and the United Kingdom. When totaled, the central bank figures show that during last 15 years the remittances sent back home by Pakistanis working in the Saudi Arabia amounted to over $14.002 billion. Depicting a sea-sawing trend, the remittances from the Kingdom have registered an astronomical increase of 538 per cent and have crossed the $2 billion mark in FY2010-11 over the last one and half decade.
Loss in billions
The Pakistanis expatriates in Saudi Arabia remitted over $418.44 million in FY97, $474.86 million in FY98, $318.49 million in FY199, $309.85 million in FY2000, $304.43 million in FY2001, $376.34 million in FY2002, $580.76 million in FY2003, $565.29 million in FY2004, $627.19 million in FY2005, $750.44 million in FY2006, over $1.023 billion in FY2007, $1.251 billion in FY2008, $1.559 billion in FY2009, $1.917 billion in FY2010 and $2.670 billion in FY2011.
Of the total record $11.2 billion and $8.905 billion remitted, respectively, during FY11 and FY10, 24 and 22 per cent came from the KSA (Kingdom of Saudi Arabia), the SBP data shows.
During the first quarter of current financial year, ranging from July to September, the remittances from KSA accumulated to $854.18 million, according to the State Bank. “There would be huge losses (to Pakistan) if they (Saudis) define this ceiling in terms of the volume of remittances sent back home by the (guest) workers,” said Asfar Bin Shahid.
Significant bearing
The economist, who wants to hear from Riyadh on a possible clarification of the labour minister’s statement, said the nature of Saudi restrictions would have significant bearing on Pakistan’s current account balance which, the SBP says, set in negative during the first quarter of FY12. During July-September FY12, the country’s current account deficit widened to $1.209 billion from $597 million of the same period in FY11. The analysts see receipts of the greenback on account of exports and remittances as major stimuli for the current account balance and warn that any disturbance in the two would be critical for the country’s comfortable external accounts.
Heavy reliance on dollar inflows
Given Pakistan’s heavy reliance on dollar inflows from overseas destinations, including Saudi Arabia, to keep its deficit-prone current account balance in check, the analysts say the concerned authorities from Pakistan should have promptly asked Riyadh for a clarification about the proposed ceiling. However, A.B Shahid said the possible damage to Pakistan could not been estimated “until and unless” the Saudi government elaborated on the restrictions.