'Outflow of remittances from Saudi Arabia starting to look 'uncomfortably large!'

(Reuters)- Saudi Arabia’s suggestion last month that it will try to limit how much money expatriate workers send home showed concern about the cost of having foreigners make up nearly a third of the population.

An estimated 9 million foreign workers and their dependents remitted 26.8 billion riyals ($7.1 billion) out of the country in the second quarter of this year, central bank data shows. That amount was equivalent to 17 percent of Saudi Arabia’s current account surplus at a time of historically high oil revenues.

With the stability of the global financial system threatened by the euro zone debt crisis, and Saudi Arabia keen to use more of its monetary resources domestically under a $130 billion government spending plan announced this year, the outflow of funds may be starting to look uncomfortably large.

Saudi Arabia, which wants to develop its economy to reduce its reliance on oil revenue, also appears to be waking up to the opportunity cost of having so much economic output produced by foreigners, most of whose money is not spent or invested within the kingdom... ...

The value of their remittances has almost doubled in the past five years

from an officially recorded 15.3 billion riyals in the second quarter of 2006. Three economists told Reuters that the true figures for money outflows were probably much higher because they did not include informal transfers...

Most of the money is thought to be remitted by lower-paid workers, most from South and Southeast Asia, who frequently carry cash with them on trips home rather than making formal bank transfers...

An even bigger obstacle to controlling remittances is the fact that foreign workers are needed to keep the economy running. Weaning businesses off them is a difficult and long-term task...

“But foreign workers are producing more than they consume, making a net contribution to the economy. The only way to avoid this is to have Saudi workers instead of foreigners.”

Addressing unemployment among Saudi nationals, which officially stands at 10 percent, is a key goal for King Abdullah in a country where the population is growing more quickly than the government can provide public sector jobs.

Around half of Saudis in full-time employment work for the government, central bank data shows, and King Abdullah announced the creation of tens of thousands of new Interior Ministry jobs earlier this year....

Efforts to move local people into the workforce are contradicted, however, by a decision to provide a more generous social safety net in the wake of this year’s Arab Spring social unrest elsewhere in the region. In March, King Abdullah announced an unemployment benefit which will start to be paid when the new Islamic year begins at the end of this week.

Economists also point to a perception among private companies that a substantial proportion of Saudis are unwilling to work hard, lack the skills to replace foreign workers and are protected by a legal framework that makes them hard to sack.

For these reasons, cutting the flow of worker remittances out of the country substantially may be impossible for at least several years..."