By Asa Fitch
IMF Deputy Managing Director Nemat Shafik speaks during a meeting of Gulf Arab monetary and finance officials in Riyadh on October 5. Reuters
The International Monetary Fund’s deputy managing director Nemat Shafik offered an upbeat take on the GCC’s economies after a meeting with regional finance ministers and central bank governors on Saturday, pointing to strong GDP growth and prudent budgeting despite the twin challenges of youth unemployment and global economic uncertainty.
The combined GCC region’s GDP is projected to grow at 3.7% this year and 4.4% next year, thanks to rising oil production and increased government spending on infrastructure, Ms. Shafik said in a statement. While that’s lower than the average growth rate between 2010 and last year, it’s still good by global standards, she said.
Regional fiscal policies are also in fairly good shape, she said. Countries are benefiting from high oil prices and reining in government budget deficits.
“Given the substantial buffers that have been built up in recent years, fiscal policy is well positioned to respond to the challenges that may stem from the continued uncertain global environment,” she said. “Fiscal consolidation is needed over the medium-term, and this has been set in motion in most countries this year. Continuing on this consolidation path next year is appropriate, although fiscal policy has room to respond to external shocks.”
While Gulf economies have been buoyed by high oil prices, a number of challenges loom. The biggest among them might be youth unemployment, a major issue in a region where more than half of the population is under 25. Arab Spring unrest has only made solving the problem a greater priority for governments wary of the political consequences of such a large contingent of people without jobs.
One common response to the Arab Spring has been salary increases for government employees and the creation of new government jobs to help address unemployment. This, however, is seen by many economists as problematic because it forces private-sector companies to compete with high government salaries. Even the Gulf’s oil-rich governments can’t afford to employ their entire young populations, and need private-sector job creation to solve unemployment.
“The GCC is successfully creating jobs, but additional reforms could help in containing the growth of public sector jobs to reset expectations and realign incentives and strengthening education outcomes to create a high-skilled workforce,” Ms. Shafik said. “At the same time, it is important to consider ways of further expanding employment opportunities for women.”
