Saudi Economy shrinks: Pakistan shivers!!!!!

Saudi Arabia's gross domestic product shrank from a year earlier in the first quarter of 2017 for the first time since the global financial crisis, but the private sector strengthened gradually.

GDP, adjusted for inflation, shrank 0.5 percent year-on-year between January and March, its first fall since 2009. That was almost entirely because of a 2.3 percent contraction in the oil sector, as Saudi Arabia cut its crude output under a global deal among producing countries to prop up prices.

The non-oil government sector of the economy shrank 0.1 percent, showing Riyadh continued to keep a tight rein on state spending as it tried to cut a big budget deficit caused by low oil prices.

But the non-oil private sector grew 0.9 percent, accelerating from a revised 0.5 percent in the fourth quarter of last year. It was the fastest private sector expansion since the fourth quarter of 2015. Private businesses have been hit hard by government austerity measures, including higher domestic energy prices and delays in the government paying its debts to companies.

Also, the government plans to introduce a 5 percent value-added tax at the start of 2018, so there may be a consumption mini-boom in the preceding months as Saudis make big-ticket purchases to avoid the tax.

But some austerity steps are going ahead this year, such as higher residence fees for expatriates, who make up about a third of the population. Also, the oil output deal extends through the end of 2017, so the oil sector will continue to drag on growth.

Despite the deal, the Brent oil price is back around $48 a barrel - not far above its level when Riyadh originally agreed on the deal late last year - which may mean the government has less money to spend on kick starting economic projects than the private sector has been hoping.

Between 2005 and 2014, when oil prices were mostly high, demand for foreign workers in Saudi Arabia soared as the country undertook large infrastructure projects and, after 2011 and the Arab Spring, allocated US$130 billion (Dh477.5bn) for subsidized housing developments. Two-and-a-half million jobs were created in the kingdom over this period, and although figures on countries of origin are not kept by Riyadh, and Pakistan does not keep track of how many of its citizens work in the Arabian Gulf, the construction jobs were filled almost exclusively by South Asian labourers.

However, since the beginning of 2015, when it was clear oil prices were unlikely to recover, tens of thousands of Pakistani workers have been issued exit visas by companies in Saudi Arabia, while new job openings have declined dramatically.

Money sent home to Pakistan reached $19bn in 2015 and essentially covered Islamabad's large trade deficit. The drop in oil prices, meanwhile, has saved Pakistan about $5bn since 2014 because the country imports most of the oil it consumes.

With Pakistanis from across the country travelling to the Gulf for work, remittances have had a nationwide effect on Pakistan and helped spur societal changes including greater urbanisation, small business growth and greater consumer spending.

The situation is crucial for Pakistan too. Saudi Arabia is home to more than 1.9 million Pakistanis, mostly unskilled workers. Saudi Arabia tops the list of countries with the highest remittances to Pakistan, with only $4.52bn in funds sent home by Pakistanis in the current fiscal year, according to Pakistan's central bank.