Experts say remittances from GCC unlikely to fall

Expatriate remittances from the GCC countries are unlikely to fall in the short-term, according to experts.

Addressing the question, ‘How the oil price decline might affect remittances from GCC?’, the authors of a report published in the IMF website, point out that historically such flows have been much less volatile than oil price and only declined modestly, around three per cent, when the oil price suffered 30 per cent declines in 1986, 1991, 1998, 2001 and 2009. Also, the remittances continued its upward trend once oil price bounced back in all those instances, according to the report.

“This is mainly because the GCC countries had accumulated large buffers, which allowed them to maintain their fiscal spending and support the non-oil economy activity. In the GCC, non-oil GDP is a key determinant of remittance outflows, while oil-GDP is a significant driver of non-oil GDP. Based on historical trends, a 1pc decline in real non-oil GDP in the GCC is estimated to reduce remittance outflows by ½–¾ pc annually,” the report says.

Countries like Egypt, Jordan, Lebanon, Pakistan, and Yemen received a third of the US$100 billion remittance from the GCC in 2014, according to the IMF data. Remittances contribute four to seven per cent of GDP of these countries, making them vulnerable to remittance flows.

The report also cautions that the impact of the oil price decline will depend on the pace of fiscal adjustments in the GCC. Unlike earlier oil-price drops, when large fiscal-surplus cushions were available and allowed the governments to continue their spending, now, aggressive pace of subsidy cuts and other cost-savings have been adopted in the region including in Bahrain.

“Government services and construction are the components of non-oil GDP most strongly associated with remittance outflows. A sharp decline in the growth of spending in these categories, or the introduction of a special tax on remittances — as has been proposed in the GCC — could have a significant impact on remittance flows to the oil importing countries in the region.”

The World Bank, in a report in December, had said that International migration was at an all-time high and surpassed 250 million this year. The GCC has more than 29 million expat population, according to estimates.

“In a demonstration of their economic footprint, international migrants will send US$601 billion to their families in their home countries this year, with developing countries receiving US$441 billion,” World Bank says.

The size of remittance and its impact on developing countries’ economies can be gauged by the fact that the amount involved is three times international official aid flows. 

The remittance also constitutes more than 10pc of the GDP in 25 developing countries, according to the World Bank.