Saudi Arabia is the source of more foreign remittances than nearly any other country. Approximately 13.5 million migrant workers in the Kingdom sent $38.4 billion in earnings back to their home countries, trailing only the United States and Germany in 2023, according to the World Bank1. This represents 3.6% of Saudi Arabia’s GDP, compared to only 0.3% of US GDP sent abroad by workers in the country.
A recent KAPSARC study that examines almost 50 years of remittances leaving the Kingdom sheds light on the outflows2, providing insight on policies to help retain earnings of expat workers in the country, and boost economic growth.
KAPSARC economists, Muhammad Javid and Fakhri Hasanov, examined the outflow of remittances from 1970 to 2019, covering periods of rapid economic growth and recession. They found that growth in Saudi Arabia’s GDP and the number of migrant workers tend to increase remittance outflows. Conversely, an increase in living costs in Saudi Arabia reduces the amount of outflows, as migrant workers have less to send.
“A better policy would be to allow foreign workers to invest in the country or own property. That would encourage foreign workers to spend and invest their earnings in the kingdom, increasing domestic consumption and investment. That would boost short- and long-term economic growth.” Muhammad Javid and Fakhri Hasanov
Controlling cash outflows
In a bid to encourage companies to hire Saudi workers, Saudi Arabia has since 2017 imposed expat levies, or a monthly fee for non-Saudi workers and their dependents. The researchers found that an increase in these levies can lead to a decrease in remittance outflows.
However, increasing expat levies can also drive foreign workers to relocate to other Gulf Cooperation Council countries with lower charges. And while levies increase government revenues, they also reduce the disposable income available to foreign workers, which can negatively impact their consumption, and dampen economic activity. Higher taxes can also reduce company profits, potentially discouraging investment in the Kingdom.
“A better policy would be to allow foreign workers to invest in the country or own property. That would encourage foreign workers to spend and invest their earnings in the Kingdom, increasing domestic consumption and investment. That would boost short- and long-term economic growth,” Javid and Hasanov advise.
As part of its Vision 2030, Saudi Arabia has been relaxing restrictions on foreign ownership and investment, leading to a more favourable environment for foreigners to invest and own properties.
Reference
- Javid, M.; Hasanov, F.; Determinants of Remittance Outflows: The Case of Saudi Arabia; OPEC Energy Review Vol 47, Issue 4, 320-335, 2023. | Article
