Zulfath Saheed assesses the impact of the Mideast’s diplomatic standoff

Entering the already murky waters of Middle Eastern geopolitics this year was the widening rift between a number of Gulf states (with Saudi Arabia at the forefront) and their erstwhile regional ally Qatar.

It all came to a head in early June when Qatar was issued a series of ultimatums by a group of neighbouring nations including the Kingdom of Saudi Arabia, Egypt, the United Arab Emirates (UAE) and Bahrain. The group cited concerns over Qatar’s alleged funding of terrorism in the region.

On the face of it, the move would also appear to be a case of strong-arm tactics by the Saudis to counter what it perceives to be Qatar’s overly cordial relations with the oil kingdom’s traditional foe Iran.

Nevertheless, what is of immediate concern to Sri Lanka, as well as some other South and Southeast Asian nations, is the impact this turn of events would have on their own economies – particularly with regard to the migrant labour market given the number of foreign workers currently stationed both in Qatar and the region.

MIGRANT LABOUR Indeed, the Middle East is a major destination for Sri Lankan migrant workers. Data compiled by the Economic Intelligence Unit (EIU) of the Ceylon Chamber of Commerce reveals that last year, more than 80 percent of the total migrant employees were recruited by just four countries – viz. Saudi Arabia, Qatar, the UAE and Kuwait.

It is estimated that some 150,000 Sri Lankan workers currently reside in Qatar. And Sri Lankan workers in other Gulf states whose employers are of Qatari origin also need to be thrown into the mix. In 2015, over 65,000 departures of the total migrant worker departures of more than 263,000 were to Qatar, according to the Sri Lanka Bureau of Foreign Employment (SLBFE).

Meanwhile, the EIU-June 2017 Economic Update notes: “There are approximately 150,000 Sri Lankan migrant workers in Qatar (who) are said to not be affected by this issue in the short run. Considering that Qatar is highly reliant on imports from the region and the fact that the Qatari Riyal is being devalued due to the above-mentioned Middle East countries selling off the currency, there may be long-term issues that may impact the economy.”

“However, the Finance Minister has stated that the sanctions will not impact Qatar greatly as they have ample foreign reserves and will source their imports from other nations. This prevailing uncertainty may have a significant impact towards Sri Lanka’s worker remittances,” it adds.

FOREIGN EARNINGS Worker remittances comprise a large chunk of Sri Lanka’s foreign earnings. Last year, the country benefitted from a moderate expansion in such remittances, which amounted to US$ 7,242 million compared to 6,980 million dollars in 2015.

The Central Bank of Sri Lanka (CBSL) observes that “the relatively low growth in workers’ remittances can be attributed to the fall in the income levels in countries in the Middle Eastern region as a result of persistently low oil prices and geopolitical uncertainties.”

It also points to “a decline of 8.6 percent in labour migration under categories such as skilled, semi-skilled and unskilled that include housemaids during 2016” due to concerted efforts by the SLBFE to streamline migration of low-skilled female labour, which would also have contributed to the deceleration of worker remittances.

“This decline could also be attributed to the restrictions imposed to discourage foreign labour through labour market nationalisation policies of Saudi Arabia, which is a key destination for Sri Lankan migrant workers. However, according to the data released by SLBFE, labour migration under the professional category increased by 5.1 percent during the year, continuing the compositional transformation in workers’ remittances observed over the past few years,” CBSL explains.

WORDS OF CAUTION The monetary authority has also warned of the impact the growing diplomatic spat could have on remittance flows with the Director of the Central Bank’s Economic Research Department Dr. Y. M. Indraratne informing reporters that “the ongoing Qatar-Gulf crisis could pose a risk to workers’ remittances as Qatar is a key migrant employment destination for Sri Lankans.”

At the time of writing, the situation surrounding Qatar and its Gulf Cooperation Council (GCC) partners is growing increasingly fluid with a meeting of foreign ministers convened in Cairo on the day the deadline expired for Qatar to accede to a list of demands – including the closure of state-funded broadcaster Al Jazeera – or face further censure.

At the same time, Moody’s Investors Service downgraded the Government of Qatar’s long-term issuer and senior unsecured debt ratings to ‘Aa3’ from ‘Aa2.’ It cited “a weakening of Qatar’s external position and uncertainty over the sustainability of the country’s growth model beyond the next few years” as being the key determinants of the rating downgrade.