GCC’s growth outlook remains positive but youth employment is key challenge – IMF

By bne IntelliNews November 22, 2013

High public spending on infrastructure projects will support the six GCC oil producers’ growth outlook despite being affected by global and regional developments, the IMF said in a regional report. But the region’s growth prospects are constrained by the path of oil prices, increased volatility in global financial markets and potential broader unrest in the Middle East region, the IMF underscored. The GCC’s macroeconomic policies, however, have scope to react to economic developments as they unfold, the IMF said.

The substantial buffers the six oil-producing nations have built up over the years support their fiscal policies that are well positioned to manage demand as needed, according to the IMF.

Monetary and macro-prudential policies can reportedly also be proactively used. Over the medium term, however, fiscal consolidation will be needed to boost buffers and increase savings for future generations.

The GCC states face a key common challenge which is to generate jobs in the private sector for their rapidly growing young population, the IMF said. Policies are already being introduced to achieve that objective, but further efforts are needed to limit incentives for public-sector employment, the IMF noted. Raising educational quality and making nationals more competitive in the private labour market are also crucial to generate jobs.

The IMF called on the GCC states to change their long-standing policy of relying on cheap foreign labour in order to curb rising unemployment among their citizens in coming years.

Given a rapidly rising youth population, private-sector job generation for GCC nationals has become a challenge and unemployment could increase in the coming years unless more nationals find jobs in the private sector, the IMF said.

The GCC labour force will likely grow 3-4% yearly, meaning that further 1.2-1.6mn GCC citizens could join the labour market by 2018, the IMF estimated. If the current share of nationals in the private sector remains flat, nearly 600,000 new private-sector jobs must be generated for GCC nationals by 2018.

In all GCC countries, female unemployment rates are higher than for males, hitting nearly 35% in Saudi Arabia and over 28% in the UAE, the IMF said. The fund warned that higher employment of GCC nationals in the public sector has made government budgets more vulnerable to any drop in oil prices.

The IMF reckoned that only Kuwait and Oman have succeeded to increase the proportion of nationals employed in the private sector over the past decade.

Excluding the UAE, for which data are unavailable, around 7mn jobs were created in the GCC in 2000-2010. About 5.4mn of them were in the private sector, the IMF estimated.

Nearly 88% of those private sector jobs were taken by foreign workers, according to the IMF. In the public sector, where average wages can be much higher, nearly 70% of new jobs were taken by local citizens, the IMF said.

 

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