Over the past decade, most of the Gulf Cooperation Council (GCC) countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) experienced robust economic growth. The main force behind this growth is a strong labor force, composed mainly of expatriates. Largely due to its geographical proximity, the Gulf has been a preferred destination for workers from South Asia for years. More recently, however, the GCC has attracted foreign labor from all over the world. Though extraordinarily diverse, expatriate workers share one common goal: to send as much money home as possible.

In Western countries, expatriates are referred to as immigrants because they can adjust their status and eventually obtain citizenship. This opportunity is not available to expatriates living in the Gulf. Nor are the majority allowed to bring family to join them or to own property. These factors have rendered the Gulf a temporary destination for thousands of foreign workers and, consequently, have made it one of the top remitting regions in the world.

Expatriates in the GCC

None of the studies on remittances have looked at the economic effects of remittances on the sending country. One reason is that in most sending countries, migrants do not constitute a significant portion of the total population. The GCC countries are unique in this regard since the expatriate population, on average, comprises about 50.4% of the total population, with the highest being Qatar (78.3%) and the lowest being Oman (24.5%) (see Table 1).

Table 1 reveals a direct relationship between the percentage of the expatriate population and the mean annual GDP growth rate for the period between 2002 and 2006. The top source of expatriates across the GCC countries is India. In fact, out of the top ten migration corridors in the world, the India–UAE and India–Saudi Arabia corridors rank fourth and ninth. The next most common source countries are Egypt (with the Egypt–Saudi Arabia migration corridor ranked tenth), Pakistan, Philippines, Jordan, Sri Lanka, and Bangladesh. As mentioned earlier, the GCC countries, notably Kuwait and Oman, were able to attract labor from the West (e.g., from the United States, United Kingdom, Denmark, Netherlands, Sweden and France).

Figure 1 ranks the top ten countries by the highest number of immigrants as a percentage of their populations. Of the top 10, four are from the GCC (Qatar, United Arab Emirates, Kuwait, and Bahrain).

Source: Migration and Remittances, Factbook 2008.

Figure 2 shows the percentage of the population who are expatriates for all six GCC countries from 1960 to 2005. Kuwait, Qatar, and the United Arab Emirates are all on a much higher scale than the other three countries. Historically, Kuwait and Qatar have always had a higher dependency on foreign labor while the United Arab Emirates played catch-up during the last two decades. All six countries exhibit a positive trend of the percentage of population who are expatriates.

Source: World Development Indicators.

Remittances from the GCC

The Middle East is considered one of the top destinations for migrant remittances. In fact, the Middle East has two countries in the top ten remittance receiving countries in 2006 as a percentage of their Gross Domestic Product (GDP). Lebanon and Jordan rank eighth and tenth, with 23% and 20% respectively.

Nevertheless, the GCC countries exhibit an opposite remittance behavior. In fact, Saudi Arabia was the second highest remittance sending country in the world in 2006, with an estimated value of remittances of $16 billion. Kuwait, Oman, and Bahrain are ranked in the top 30 sender countries. Bahrain ranks fourth among remittance sender countries, with remittances equal to 12% of its GDP. Saudi Arabia and Kuwait remit 5% and 4% of their GDP, respectively (see Table 2).

The increasing percentage of the population who are expatriates in the GCC countries, along with a decrease in the transaction fees for sending money back, have led to a huge increase in the amount of money sent from the Middle East. Figure 3 shows the sums of remittances sent from Bahrain, Kuwait, and Oman in the last three decades. Remittances sent from Saudi Arabia are separately shown in Figure 4 for scaling purposes.


Figures 3 and 4 both show a consistent increase in the monetary transfers from all four countries in the last 30 years. However, Saudi Arabia differs from Oman and Kuwait in terms of the timing of the largest surge in the value of remittances. Remittances from Saudi Arabia peaked in the late 1980s and early 1990s while in Oman and Kuwait this surge occurred in the early 2000s.

The Potential Effect of Remittances on Sending Economies

Past research on remittances has focused mainly on the effects of these monetary flows on the receiving economies. It has been argued that remittances on the receiving end affect household decisions through the channels of alleviating poverty, improved education and healthcare, and the amount of labor supply. Moreover, remittances impact the macro-economy of the receiving country by affecting exchange rates, interest rates, consumption, and saving levels.

These studies, however, have ignored the impact of remittances on the sending economy. The main reason is the fact that normally the monetary leakage from these economies is negligible if taken as a percentage of GDP. For instance, the remittances that flow out of the United States or Europe to less developed countries have an infinitesimal impact on these large sending economies. However, this is not the case for the GCC economies. In fact we can argue that GCC economies are unique in the sense that outflow remittances constitute a large slice of their GDP and therefore deserve special attention (see Table 2). In what follows we highlight the major potential concerns regarding the outflow remittances of GCC countries on their economies.

Pressure on exchange rates. Expatriates’ remittance of money home distorts the exchange rate market by placing pressure on foreign reserves. As GCC countries peg their currency to the US dollar, by remitting money, the expatriates are converting the local currency into a more easily converted and widely accepted currency such as the dollar or the euro. This exerts additional pressure on GCC central banks to keep high foreign reserves in order to maintain the pegged exchange rate.

Pressure on fiscal policy. Given the sheer size of the money fleeing the economy, it is expected that this would weaken the performance of the fiscal policy. The growing size of these remittances adds downward pressure on the government spending multiplier. In other words, when the government plans to boost spending in case of recession, this spending level should be relatively higher to compensate for the higher remittances.

Pressure on monetary policy. It is argued that the monetary policy of the GCC countries is closely linked to the US monetary policy because of the pegging of their currencies to the dollar. Therefore, interest rates volatilities follow those of the United States. However, the pressure of remittances is felt on the money supply and therefore on the money multiplier. This issue will be amplified when the GCC economies become united under one monetary union.

Pressure on investment. The lack of re-investing expatriate money in the GCC economies hinders the real business cycle dynamic, as the money made in these countries is not fully recycled domestically. This puts downward pressure on the investment multiplier.

Rise of underground economic activities. The possibility of money laundering being transformed or legalized through remittances is a grave concern. In general, to remit money, expatriates use conventional methods such as financial institutions (local and foreign banks, International Service Providers) and relatives and friends visiting home. However, due to cost effectiveness, some expatriates prefer the Hawala system, whereby the money is transferred through a system of individuals and agents located in the sending and receiving countries. If this practice is not efficiently monitored, it might damage the image of the investment environment and consequently economic growth.

What can be done?

The limited human capital in the GCC countries has made economic growth contingent on a large expatriate population. One of the consequences of the dependency on foreign labor is the monetary leakage that is associated with expatriates sending money back to their families.

The monetary transfers from the GCC countries have dramatically increased over the last two decades, placing the GCC countries among the top remittance senders in the world. The sheer size of these monetary transfers is a major concern for policymakers. In fact, some GCC countries are already sketching policies to prevent these huge amounts from leaving their countries. The ultimate objective is to direct this money into domestic investments. For that to happen, the goal is to make expatriates feel more at home. Following are some suggestions for policymakers that should help reduce the flow of remittances from the GCC countries:

  • Allow full or partial foreign ownership of property
  • Making family reunions for blue-collar workers less burdensome
  • Open the door for gradual naturalization

All in all, remittances flows from the GCC are one of the major consequences of the huge economic boom in the region. The size of these flows poses various challenges and imposes new dimensions to the practice of public policy that cannot be ignored. Some of these challenges relate to labor policies, wage structures, and increasing inflation.