Will recent events in the Middle East Affect Remittance Flows to South Asia?

For countries with substantial numbers of workers in the Middle East, recent events have not only raised concerns for the repatriation and welfare of their citizens, but have also raised fears of a possible slowdown in remittances. Will remittance flows noticeably decrease due to recent events in Egypt, Libya, and Tunisia?

For South Asian countries, remittances are among the largest and most stable sources of foreign exchange and their developmental impact have been remarkable. For example, in Nepal national poverty level has come down from 42% to 31% during 1996 to 2004, and to 21% today, largely on the account of remittances which finance household consumption as well as education and health expenditures. Nepal, Bangladesh, and Sri Lanka, were among the top 15 remittance recipients in 2009—with inflows being equivalent to 24% of the GDP in Nepal, 12% in Bangladesh, 8% in Sri Lanka, 5% in Pakistan and 4% in India.

Gulf States employ more than 11 million expatriate workers, an estimated 8 million or more from South and East Asian countries. Saudi Arabia, the U.A.E, and Qatar are top destination for South Asian migrants and are main sources of remittance inflows. The table as well as the country profiles below demonstrates the sheer magnitude of migrant workers in the Arab Gulf countries and their contributions to the labor force; sometimes greater in overall numbers and proportion than the respective labor force in the countries.

As a comparison, Libya—with more foreign workers than both Egypt and Tunisia— had approximately 111,000 South Asians (70,000 Bangladeshis; 18,000 Pakistanis; 18,000 Indians; 2,000 Nepalese; and 1,200 Sri Lankans) before the current crisis. The South Asian workers constituted a relatively small fraction of the foreign labor in Libya (estimates of the number of foreign labor in Libya range from  700,000- 2.5 million). Therefore for Bangladesh for example, which accounts for the majority South Asian workers in Libya, remittances were US$ 1.5 million in FY10, a negligible share of total remittances to the country.

So, will recent events in the Middle East Affect Remittance Flows to South Asia? Probably not.

The small share of South Asian workers and limited remittance flows from Libya, Egypt, and Tunisia mean that direct and immediate impacts on remittance flows to South Asian countries overall will be limited. However, authorities in Gulf Countries have, in response, begun to discuss policies that may affect labor laws including possible nationalization of labor forces; and, these may lead to various forms of migrant taxes and policy impediments that could be harmful to the job prospects of the South Asian workers. I will explore this in greater detail next week.

What do you think?

Country Profiles

In order to analyze current dynamics and potential future trends, it may be useful to get a sense of the profile of migrant labor in each of these countries. (Listed by remittances as a percentage of GDP).

Nepal has an estimated 1 million to 1.5 million workers abroad with more than 80% of them going to Qatar, Saudi Arabia, and U.A.E, most of them employed in low-skilled service jobs including as security guards.

Bangladesh has an estimated 6 million workers aboard, close to 4 percent of the population. More than 65% of Bangladesh’s remittances are from Gulf Countries and over 50% of the departures in 2009 and 2010 were to the U.A.E. Saudi Arabia is the key source of remittance inflows to Bangladesh; but in the last two years, only 2-3 percent of the total departures were to Saudi Arabia due to country’s  "unofficial" freeze on large-scale recruitment of unskilled Bangladeshi workers.  Overall, majority of Bangladeshis in the Gulf are employed as unskilled workers, particularly in the construction sector.

Sri Lanka: 86% of total departures in 2009 were to Gulf Countries with Saudi Arabia being the greatest recipient. Sri Lanka’s migrant profiles stand out from the rest of South Asia, as the majority of overseas workers are women at 52% in 2009; 46% of total workers went abroad as housemaids.

Pakistan: Half of Pakistan’s remittances come from Saudi Arabia and the U.A.E with 64% of remittances coming from Gulf Countries overall. Pakistani workers are predominantly employed in low skilled construction jobs.

India is one of the largest recipients of remittances with $53.9 billion received in 2009-2010. The country’s remittance sources and migrant skill levels tend more quite diverse. Estimates of inflows from Gulf Countries range between 27% (RBI) to 40% (MOIA) of total remittances.