In an exclusive interview with Muscat Daily, Choffel talked about channelising expatriate workers’ remittances for the development of the GCC countries. He believes foreign workers in the GCC should be encouraged by providing more investment avenues within the country they are residing, this could create a win-win situation for expatriates as well as the GCC states. Choffel said sovereign-guaranteed pension funds or other similar savings schemes would encourage foreign workers to invest within the country and it could help GCC governments in reducing their debt burdens.
You are advocating channelising remittance money to reduce debt levels or bridge deficits in the GCC without imposing taxes, please elaborate on this?
In past five years, oil prices have not touched the levels we had seen during 2011-2014 period. This means there has been a decline in the incomes and the GCC states had to borrow money from a number of sources to bridge the gap between income and expenditure. In such a situation, we need to look at what are other sources available to the GCC governments? One option could be to introduce income tax but this will be hugely unpopular. Second one is to augment state income through other taxes such as value added tax, that is already happening but it also has certain limitations.
So, the question is what else can be done? The answer lies in the fact that countries like Oman with a significant expatriate population are exporting around RO4bn every year to other countries, which is roughly equal to 25 per cent of the total budget of the country. My point is that any country facing large budget deficit should also try to channelise this remittance money for the development of the country. We have examples like Hong Kong, which has effectively channelised this money to their own benefits.
Market talks about discouraging remittances by imposing tax on them are going on for a while in the region, but many people have opposed the idea saying it could lead to slippages or misuse by some. What do you say?
I am not talking about taxing remittance money. Imposing taxes is unlikely to yield desired results because people might start using alternative methods to ship money out of the country. For example, a country like Oman is shipping out around RO4bn in the form of outward remittances every year. It is a huge amount and if channelised properly, can be utilised for the development of the country. Moreover, part of the returns achieved by investing remittance money in development activities can be utilised in paying pensions to expatriate workers, who currently are not covered under any social security network.
So a state-backed pension fund or sovereign-guaranteed savings schemes where companies or individuals including foreign workers can contribute will be a good idea. And returns from such funds can be used for paying pensions or providing some sort of social security to workers once they have contributed certain amount or have been investing in these schemes for a stipulated period of time. Such type of arrangements are in the best interest of everyone working in Oman and other GCC countries. There is a huge population of foreign workers in the GCC. If you combine total remittances shipped out of the region, it will be a huge amount. A fraction of that money can be used for developmental activities and it will be hugely beneficial for the whole economy of the region.
While the GCC authorities want to discourage money being sent out of the region, expatriates want to send as much as possible back home. Isn’t it complicated?
We are not suggesting to tax the earnings of expatriates. One of the reasons for exporting money out of the country is that expatriates want it to get invested somewhere else. They also do it because there are no enough investment opportunities available in the country where they are operating. We can say people are effectively living their entire life in the GCC countries without making local investments. So, if expatriates in the GCC are offered some sort of investment opportunities particularly in local currencies, I am sure they will be more than happy to make some investments. These will be much better options for expatriate workers who mostly send money to home countries and invest in schemes where they have no effective control.
But without getting any residency or other types of rights in the GCC, will they be interested in making investments?
Some foreign workers and their families have been living in the GCC region for two or three generations, and they are very committed to the country where they have been working. So our suggestion will be why not invest in the country, you are already committed to. Now, in simple terms these investment opportunities for expatriate communities should be engineered in a way that it is beneficial for everyone in the country. For the government’s point of view, it is a huge amount of available sources to them and can be used to reduce debt or in development activities. A close look at Oman’s finances will reveal that the country had a deficit of around RO2.8bn last year while total remittances from the country stood at around RO4bn. So definitely it is in the best interest of everyone that the government should look into making some arrangements to reduce that flow of money outside the country. You can only reduce that flow if you offer something which makes sense for expatriate workers in the GCC.
Follow the author on Twitter @79deepakSharma