The Gulf population fell by four per cent in 2020, owing to the impact of the Covid-19 pandemic and lower oil prices, according to S&P Global Ratings.
In a report on Monday, S&P said it expects the decline in population across the Gulf region to continue until 2023, relative to each country's population, "because of subdued non-oil sector growth and workforce nationalisation policies".
States including Kuwait and Oman have already set out targets to reduce their foreign workforce and provide more jobs for their citizens.
Meanwhile, the UAE is trying to boost population growth and attract skilled professionals, in a major drive to develop the knowledge economy.
“GCC countries’ productivity, income levels and economic diversification may stagnate in the long term without significant investment in the human capital of the national population and improvements in labour market flexibility,” S&P said.
However, S&P added that the decline in population "will have limited impact on the region's economic growth and our ratings on GCC sovereigns in the near term", owing to increased hydrocarbon production from 2022 and higher oil prices.
The agency expects oil prices to remain at $50 per barrel this and next year, and to rise to $55 from 2023.
"As these levels are below the fiscal break-even oil price for all GCC sovereigns, except Qatar, we expect governments will moderate public investment spending, which is the main impetus of non-oil growth in the region," it said.
In the UAE, S&P said in 2020 the population declined by 6.5 per cent overall, and by 8.4 per cent in Dubai.
Both are predicted to return to pre-pandemic levels by 2023 at the latest, with expected growth levels of 2.3 per cent and 2.7 per cent respectively.
A senior Indian minister said last month that more than 1.15 million Indians had returned to the UAE in the past seven months.
V Muraleedharan, Minister of State for External Affairs, said 1.3 million Indians left the Emirates after air links resumed last May.
He added that about 150,000 Indians have not yet returned to the UAE. His figures are based on flight data.
Saudi Arabia's foreign population shrunk by 2.8 per cent last year, although S&P estimates a growth of 0.8 per cent by 2023.
Oman's foreign population declined by about 12 per cent last year – which is lower than the 17 per cent decline cited last year by data from the state-run National Centre for Statistics and Information. Growth of 1 per cent expected by 2023.
Kuwait experienced a decline of 4 per cent in 2020, while Bahrain witnessed a drop of 2.5 per cent.