Jun 14 2012
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Foreign remittances likely to hit SR 110 bn
"Based on my forecasts for foreign remittances this year, I expect to see an increase of at least 5 percent from SR 104 billion last year to about SR 110 billion by the end of 2012," said Paul Gamble, chief economist and head of research at Jadwa Investments.
He added that the amount could actually be more since the published value of annual remittances is usually understated by about 30 percent. This is because the figure does not account for funds taken out of the Kingdom when traveling and other means, except bank transfers.
When asked why remittances are continuing to increase, despite stricter governmental employment regulations on expat workers, Gamble said:" I think some expats will leave the country due to tighter labor regulations. There are still a lot of construction projects under way, predominately done by foreign workers. Saudis are now occupying a majority of company-related jobs but if you go to the airports you will still see long lines of expats coming into the Kingdom," he said. In further efforts at controlling the effects of foreign remittances on the Kingdom's economy, the government said in October that it is contemplating setting a limit on the amount of remittances foreign workers can send home.
"I understand that foreign remittances do have a detrimental effect on the Kingdom economically, but a ban on the amount sent abroad will be difficult to enforce. Foreigners will find other ways of taking the money home," Gamble said, adding that such restrictions will cause further negative effects as many expats might decide not to work in Saudi Arabia at a time when the country still needs them.
Said Al-Shaikh, chief economist at National Commercial Bank (NCB) agreed that huge amounts of remittances could have damaging effects on the local economy. He said that is due to what is economically referred to as the Multiplier Effect.
"This means that for every one riyal spent inside the Kingdom two riyals could have been created in the country's economic cycle," Al-Shaikh explained.
He added that there have been many proposals to cut down on foreign remittances and yet allow foreigners to continue completing the Kingdom's infrastructure development projects. Overall, solving both issues gradually is best, he said.
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