Saudi cap on remittances 'a deterrent' for expats

Controversial plans to limit salary remittances from Saudi Arabia would deter foreign workers from moving there, say economists.

8/23/2010 saudi arabia, Riyadh-  Saudi currency & currency exchange in riyadh  August 23-2010. Waseem Obaidi for The National
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Saudi Arabia's controversial plan to cap the amount of money expatriates can send home is likely to deter foreign workers from moving there, an economist warns.


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Expatriates would have to keep the bulk of their salaries within the Gulf state under a proposal to limit remittances made from the country.

And this could act as a deterrent to foreigners seeking employment in the kingdom.

"You clearly have lots of people who come to Saudi Arabia for the specific purpose of meeting certain financial objectives," said Jarmo Kotilaine, the chief economist of National Commercial Bank in Saudi Arabia.

"And if those financial objectives become more difficult to meet, then people are going to look elsewhere."

Adel Fakih, the Saudi Arabian labour minister, said last month the proposed "salary protection" rules were designed to boost the local economy.

"About nine out of 10 workers in the country are foreigners," Mr Fakih told the Dubai news channel Al Arabiya.

"This has led to millions of riyals being transferred back to their home countries, harming the local economy."

The move has been linked to an ambitious plan to reduce the number of long-term expat workers in Saudi Arabia to 20 per cent.

"One of the issues that has concerned the authorities is the fact that you have this heavy reliance of the private sector on expatriate labourers," Mr Kotilaine said.

"And secondly, you have a huge remittance outflows as a result of this situation."

The impact of the proposed legislation on Saudi Arabia's economy would depend on the level at which the remittance cap was set, which is yet to be clarified, Mr Kotilaine said.

"Most of the expatriates who live in Saudi Arabia are low-wage labourers," he said.

"And if there is an absolute minimum limit, then I suspect that would be set at a level where it wouldn't have much of an impact on most of them," he said.

"If it is as a proportion of income, that would obviously be a slightly different issue."

Saudi Arabia ranks second among the world's largest sources of remittances, after the US. In 2009, US$25.97 billion (Dh95.39bn) worth were made from the country, according to the World Bank.

The proposed move has prompted concern in countries such as Pakistan and the Philippines, two key recipients.

Officials have warned the proposed legislation would hurt the economies in those countries.