The Hindu Business Line : Slowdown may take its toll on Gulf remittances

Mumbai, Feb 10 This is a warning that the Government and banks can ill-afford to ignore. The International Monetary Fund (IMF) Managing Director, Mr Dominique Strauss-Kahn, in his first regional briefing for the Asia Press held recently in Washington, has raised the spectre of slowdown in economies, where people of different nationalities go to work, leading to possible diminishing of remittances.

Pointing out that remittances viz. transfer of money by foreign workers to their home countries, have become a very important source of revenue for many countries, the IMF chief said, “It goes from 3 per cent (of GDP) for India to sometimes 8 to 10 per cent in countries like Bangladesh. Of course, the slowdown in the economies where people from different nationalities go to work may diminish the remittances.”

This caution is pertinent to India as millions of workers are employed in the Gulf Cooperation Council (GCC) countries such as Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE. Lay-offs, especially in the construction sector, due to economic slowdown in the Gulf are likely to have serious economic repercussions for households in India as many depend on remittances.

According to Mr M. Venugopalan, Managing Director & CEO of the Kerala-based Federal Bank Ltd, remittances are likely to come down on account of the economic slowdown in the Gulf.

Visible slackness

“Slackness is visible in remittances from the Gulf. Blue-collar workers in the construction sector have been affected. This slackness could persist for a couple of quarters. However, once recovery happens, remittances will be back on track,” said Mr Avijit Nanda, President, TimesofMoney.

As per a report in the Ministry of Overseas Indian Affairs’ Web site, over four million Indian workers in the Gulf region remit nearly $5 billion annually. According to the World Bank, the top five recipients of migrant remittances in 2007 were India ($27 billion), China ($25.7 billion), Mexico ($25 billion), the Philippines ($17 billion), and France ($12.5 billion).

A World Bank study on outlook for remittance flows has highlighted the fact that remittance flows from the GCC countries are likely to fall more than those from the US and Europe, affecting recipient countries in West Asia, North Africa and South Asia.

The study reasoned that a continuation of the recent decline in oil prices, which have plunged from $150 to under $40 a barrel in five months, would make the GCC economies more vulnerable.

Combined with the impact of the financial crisis in the banking sector of these countries, this could potentially lead to a significant deceleration in construction activities in which a large number of migrants have been employed in recent years.

Under the base case scenario, remittance flows from the GCC countries would fall by 9 per cent in 2009 in nominal dollar terms as compared to an increase of 38 per cent in the previous year.

According to Mr Kiran Shetty, Country Director, Western Union Money Transfer, North America i.e. the US and Canada, account for 40-45 per cent of remittances into India, Gulf (20-25 per cent), Europe (14-15 per cent), and others (15-16 per cent).

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