Remittance inflows looks set to take another hit as Saudi Arabia starts to enforce on a policy to limit its intake of foreign workers. Inflows from Saudi Arabia amounted to USD 1.5bn or 8.3% of total remittances in 2010 and a drop in overseas Filipino workers or OFWs deployed would impact negatively on Philippine private consumption growth.

An estimated 1.2mn OFWs are currently working in Saudi Arabia. The ‘Saudization’ labor plan requires Saudi-based firms to make up at least 10% of its staff with locals and has been implemented since 2006. However, over the last five years, the government has never strictly enforced the foreign worker cap. That said, the Saudi government recently announced that it will not renew the work permits of foreign workers who have spent six years or more within the country, clearly signaling its change of stance.

Estimates suggest that over a quarter of total OFWs deployed in Saudi Arabia may be affected. Against a backdrop of slow growth in the US and the Eurozone, it remains to be seen if the Philippine government will be able to diversify and redeploy the OFWs.