ABU DHABI // Developing countries are facing a "dire" fallout from large-scale job losses and a sharp drop in remittances being sent home by workers, a leading economist has warned. As families struggle to cope when cash from abroad dries up, it is feared that the added economic burden of workers returning home jobless from the Gulf could lead to social unrest in countries such as Pakistan that are already fragile.
Ralph Chami, Middle East division chief at the International Monetary Fund Institute, said during a visit to Abu Dhabi: "Everybody's worried about foreign direct investment, everybody's worried about everything else - the banking sector - but there's a crisis on the remittance side and it's hitting the poorest hardest. The impact is going to be quite dire." Remittances keep millions of families out of poverty and make up a significant share of many nations' GDP. The flow of this money may already have dropped by about 20 per cent from 2007 levels, Mr Chami said, citing estimates from the Overseas Development Institute.
The economist, who specialises in remittances and is the co-author of several papers dedicated to the topic including the IMF study Macroeconomic Impact of Remittances, last week delivered a speech on the same topic at the Africa Arab Gulf Relations conference in Abu Dhabi. Speaking on the sidelines of the conference, he said the drop in remittances could be even more acute over the next year as the effects of the credit crunch are felt in countries such as the UAE. The GCC employs about 13 million foreign workers, 66 per cent of whom are from Asia and 28 per cent Arab.
A fall in remittances has a deeper and more immediate impact than other financial flows; although the amounts transferred are generally small, they amount to hundreds of billions of dollars that go directly to support families. When these remittances stall, entire families are left without income. As well as fuelling consumption in developing nations, remittances work as "social insurance", so the humanitarian impact of a drop could be far-reaching, Mr Chami, said.
Remittances have also propelled property booms and spending. Being "counter-cyclical" they normally play a unique role in a country's economy, providing income in a time of need, so the current situation is unprecedented, Mr Chami said. "When an economy is not doing well, capital flows out of the economy, but normally remittances flow in, because when your parents at home are in trouble, you send them more money, not less."
In addition, when unemployed labourers return home and begin looking for work there may be further problems. "Again it's going to put pressure on the countries that are most vulnerable," Mr Chami said. The total made redundant in the UAE over the past few months is unknown but thousands have been laid off, with the construction and property sectors hardest hit. According to Proleads, a property consultant, about 45 per cent of the $1.3 trillion (Dh7.8trillion) of developments in the Emirates have been delayed or cancelled.
Filipino labour officials estimate that about 3,000 of their nationals have lost their jobs in the Emirates since last October. According to Kuwait's foreign minister, Sheikh Mohammed Al Sabah, up to 60 per cent of the GCC's development projects have been cancelled. It is not only Asian countries that depend heavily on remittances from the Gulf. Lebanon, Algeria, Morocco, Syria and Egypt are among those that export white-collar workers. In Lebanon remittances make up 20 per cent of GDP, Mr Chami said.
And the effects of the lost jobs are not just economic. Theodore Karasik, director of research and development at the Dubai-based Institute for Near Eastern and Gulf Military Analysis, pointed to the potential social unrest as thousands of unemployed men, many of whom may be owed wages, return home. "There's a certain amount of discontent because of the loss of income. If these workers become dissatisfied with life here and they have to leave, they bring that dissatisfaction back with them, which then destabilises their homeland," he said. "That to me is the real key, how much that will impact those countries."
The effect on Pakistan was a particular worry, he said. "Pakistan is a country that is already fragile. At this point, you have discontented workers going back, you have a Taliban movement that's gaining strength in the Swat valley, you have discord and the tension between Pakistan and India and the insurgency in Baluchistan. "As these workers go back, how will their home country absorb that?" firstname.lastname@example.org