Worker remittances from the Kingdom of Saudi Arabia (KSA) have been on a decline. It fell eight and a half percent in the first eight months of current fiscal year, lopping 42 percent of the gains seen in the inflow from all other countries. If the labour market trends are any guide, the worse is still to come.
Pakistan’s labour exports to the world dropped 40 percent in CY17. That fall is a result of 69 percent year-on-year decrease in the country’s labour export to Saudi Arabia. According to Pakistan’s Bureau of Emigration & Overseas Employment (BEOE) data, Pakistan sent 0.49 million workers abroad in CY17 compared to 0.84 million in CY16. About 93 percent of that fall can be attributed to lower labour exports to the KSA, whereas about 6 percent to is due to drop in the UAE sector.
A host of reasons are responsible for the fall in migrant workers to Saudi Arabia. First, is the much-talked about oil price slowdown that hit the kingdom’s economy? Second, the 2008 ban on Bangladeshi workers in KSA was removed in June 2016, following which Saudi investors made agreements with Bangladesh’s bureaus of manpower, employment and training in various cities. About 500,000 Bangladeshi domestic workers are expected to go the KSA. (See also BR Research, Labour export losing steam, Sep 11, 2017) Third, is KSA’s tax on all migrant dependents, which in the opinion of Pakistan’s central bank governor Tariq Bajwa will help increase remittance from the kingdom. “Due to this cost, anecdotal evidence suggests that thousands of Pakistanis are sending their family members back. This may increase remittances in the coming months,” he said in an interview published earlier this month.
Vox populi suggests that some Pakistani workers in the KSA are sending back their family members to Pakistan to avoid KSA’s family tax. As Bajwa also noted, unfortunately, “we don’t have the numbers” of returning workers, nor do we know the number of family members coming back home. But consider this.
Since bi-variate data is not publicly available, there is no way to confirm the type of workers sent to the KSA. But BEOE data show that out of Pakistan’s total labour exports 43 percent are in unskilled category, 9 percent in semi-skilled, 43 percent skilled whereas highly skilled and highly qualified are only 6 percent.
Based on anecdotal evidence Pakistani workers in the KSA are mostly towards the low-end segment, who doesn’t take their families along to the KSA, whereas those who are in the highly skilled/qualified segment are more likely to afford the taxation. Vox populi also suggests that highly skilled/qualified workers prefer to squeeze their wallet and keep their family in the KSA, so they can enjoy better health, education and standards of living.
This implies that any increase in remittance from the KSA due to the family tax factor may either be short-lived or otherwise unable to offset the decrease in remittance due to falling labour exports to the kingdom. If the fall in labour exports to Saudi Arabia was marginal, one could have agreed with central bank’s theory because of the pay differentials between unskilled and highly-skilled labour. But it isn’t. Recall that Pakistan’s labour exports to the KSA has more than halved in CY17! 69 percent to be precise!
It is, however, heartening to note, that the central bank has sent a high-level team to meet the Saudi Arabia Monetary Authority, where one of the agenda items was the facilitation of smooth flow of remittances to Pakistan. What is also needed is not just a high-level business and government delegation to the KSA, the UAE, and the GCC - as has been done by Indian and Bangladeshi counterparts to boost labour exports and to attract bilateral investment deals – but a major multi-pronged policy rethinking is also warranted.
Together, these three corridors have attracted 96 percent of Pakistan’s total labour export to the world to-date (according to BEOE data), and 63 percent of total remittances in FY17. In fact, there is much more to migrant workers than remittances; the social, technical and managerial spill over to say the least. With long term outlook of oil prices rather flat amid growing economic maturity in the region with emphasis on the service sector, Pakistan needs a serious rethink.
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