Saudi Arabia’s growing financial crisis: Implications to Pakistan

Saudi Arabia has raised $1.87 billion in a new Islamic bond issue as the kingdom bids to finance a budget deficit resulting from low oil prices. According to Finance ministry of Saudi Arabia, demand was strong for the third sale of Islamic bonds, known as sukuk, this year with orders exceeding 24bn riyals ($6.4bn).

The first two issues were made in April and July and were worth a total of $13.5bn. The kingdom had also issued conventional domestic and global bonds.

The largest Arab economy is suffering from a sharp slide in oil revenues since crude prices plummeted in mid-2014, forcing Riyadh to cut subsidies and delay projects.

The kingdom has forecast a budget deficit of $53bn this fiscal year, down slightly from last year’s shortfall. Riyadh has also withdrawn more than $230bn from its fiscal reserves since the end of 2014 to finance the budget deficit. Its reserves now stand at just over $490bn. Economic growth in Saudi Arabia is expected to hit just 0.1 per cent this year, according to the International Monetary Fund. That would be the country’s worst growth since 2009, when its economy contracted by 2.0pc as oil revenues slumped following the global financial crisis.

Vulnerabilities to Pakistan

Foreign remittances have fallen not just because of declining oil prices. The financial crisis has forced the gulf countries to resort to extensive retrenchment of their workforce, and foreign workers are bearing the brunt of this action. Nearly 39,000 Pakistanis have been deported from Saudi Arabia between October and February, according to the Saudi media.

According to the Saudi media, a large number of Pakistani workers were also deported because of their alleged involvement in crime and terror-related incidents.

In February 2017, the Saudi Gazette quoted chairman of the security committee of the Shoura Council Abdullah al-Sadoun calling for thorough scrutiny of Pakistanis before they were recruited for work in the gulf state.

The Pakistani workers, on the other hand, complained of exploitation at the hand of their Saudi employers. Many of them complained that they had not been paid their salaries for months, causing unease among them as well as their families.

Official Saudi figures show more than 240,000 Pakistani workers were deported between 2012 and 2015. In total, there are close to one million Pakistanis working in Saudi Arabia mainly in its construction industry.

However, the overall construction slump in the Kingdom has resulted in a drastic reduction in the jobs mainly for the foreign workers.

Saudi Arabia is the biggest source of foreign remittances for Pakistan. According to a report of the State Bank of Pakistan issued last year, remittances from Saudi Arabia made up the lion’s share of the over 18 billion dollars sent by expat Pakistanis from July to December.