Saudi Arabia’s Recalcitrant Remittance Reliance
As Saudi Arabia, the region’s largest stock market, prepared the ground for further non-GCC access after lukewarm embrace of the five-year old indirect swap scheme, new Labor Ministry policy to curb migrant worker remittance outflows offset enthusiasm with its downbeat implications at home and abroad. The past year has witnessed a renewed “Saudization” push, especially for high-skilled and management jobs in response to Arab Spring-emphasized youth unemployment as the public sector minimum wage was boosted and additional training benefits granted. Asian and MENA expatriates are 7.5 million according to the World Bank, and in 2010 sent $25 billion back to source countries. The unspecified ceiling is designed not as much to protect the balance of payments, which generates a 15 percent of GDP surplus on oil proceeds, as to deter executive influx to free positions for locals. Economists also cite the forced transfer to domestic consumption which can ease the burden on infrastructure spending which at the programmed pace will produce budget deficits by mid-decade. The government is also trying to lure poorer citizens who reportedly could be recruited by terror groups into lower-salary construction slots needed to fulfill the 2011 pledge for 500,0000 more houses. Lack of inventory has been a major inflation cause and real estate transactions will be further aided by the passage of a long-debated mortgage law. The transfer crackdown coincides with the senior royal transition to the next King and increased friction with OPEC and strategic adversary Iran which has again threatened to shut the Strait of Hormuz in response to international trade and financial sanctions. Tehran had previously been accused of attempting to assassinate the Saudi Ambassador to the US, and the combination of diplomatic and commercial tensions dragged the non-oil PMI to the mid-50s level.
Egypt, which has resumed negotiations on IMF help with the loss of half its international reserves to $18 billion since President Mubarak’s ouster, accounts for the largest remittance contingent at over $5 billion which has been vital to countering the chronic trade deficit and facilitating domestic demand. The infusion has also supported the pound around the 6 to the dollar mark as the interim political structure strives to maintain the peg amid debt and inflation woes and election results pointing to Muslim Brotherhood victory. Tourism at one-tenth of GDP has disappeared and strikes and ambiguity over property rights continue to stifle FDI. Jordan too, where 2011’s stock market drop was not as severe, provides a huge workforce and without remittances the current account gap would be close to 20 percent of GDP. Saudi Arabia is also a leading aid contributor to cover the worsening budget deficit as King Abdullah’s reshuffled arrangements remit subsidy responsibilities to parliament.
