Singapore: Oil markets are busy speculating whether the workers’ strike at Kuwaiti fields will eliminate the global glut in crude production.
That’s an unlikely scenario. As fellow Gadfly columnist Liam Denning has argued, given the outsize importance of oil revenues to the Persian Gulf state’s economy, the supply cutbacks will probably last weeks rather than months.
Amount Filipinos working overseas sent home in February- $2.1 billion
Still, the strike will have spillovers. After all, the rare industrial action represents an important push back against the government’s austerity drive by a section of public servants with bargaining power over state finances. Even if Kuwait concedes and spares oil workers some of the harsher reductions in pay and benefits, it’ll need to find other line items to rein in spending.
With oil hovering near $40-a-barrel, all governments in the region will be facing similar pressures. But seeking to cover their revenue shortfalls by pruning capital and operating expenditure would reduce overall demand in economies that rely heavily on state largesse. That, in turn, could shrink incomes for immigrant workers. Countries such as India, the Philippines, Pakistan, Bangladesh and Vietnam would see inward remittances drop, thereby indirectly surrendering some of the gains they’ve seen from lower oil import costs.
Asia’s $250 billion “money-order" economy is an important source of stability for the recipient nations’ balance of payments and exchange rates: Annual remittance inflows are equal to about 20% of India’s foreign-exchange kitty, and total almost 200% of Pakistan’s hard-currency reserves. Overseas Filipinos account for 20 to 25% of home sales by developer Robinsons Land. All told, South Asia’s four main economies—India, Pakistan, Bangladesh and Sri Lanka—get more than half of their remittances from the Middle East.
Moody’s estimates that fiscal tightening by the six member countries of the Gulf Coordination Council, which are collectively staring at a budget deficit of 12.5% of GDP, could trim remittance flows. The hit may come from several directions, it says. Labour-intensive infrastructure projects could get mothballed, jobs in manufacturing and construction might be lost, or salaries delayed. Labour laws, too, could tighten as the region’s governments prefer to employ their own citizens in tough times: In six months, Saudi’s entire mobile-phone retail and repair industry will switch to using only local workers.
Filipinos based overseas sent home 9.1% more in February than a year earlier, but the outlook for the rest of 2016 isn’t great. India is already witnessing a slowdown in remittances, and Sri Lanka, which is negotiating a bailout by the International Monetary Fund, needs all the help it can get from its diaspora to avoid depleting foreign-exchange reserves.
The Kuwaiti strike may not be able to rebalance demand and supply in the oil market, but it’s still a significant early warning signal.
Slashing subsidies and budgetary spending won’t go down well with the public, but it’ll be inevitable if oil prices stay low for a long time. More importantly, the tighter the fiscal squeeze in the Middle East, the bigger the headache for emerging Asia. Bloomberg
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