IMF's Christine Lagarde calls for ‘urgent action’ to create jobs in Arab world

Christine Lagarde, Managing Director of International Monetary Fund IMF attends the opening session of the Opportunities For All economic conference in Marrakech, Morocco, Tuesday, Jan. 30, 2018. (AP)
Updated 30 January 2018

IMF's Christine Lagarde calls for ‘urgent action’ to create jobs in Arab world

LONDON: Arab countries need to do more to create private sector jobs and bolster inclusive growth amid growing youth unemployment and regional dissatisfaction, said Christine Lagarde, managing director of the International Monetary Fund (IMF), said on Tuesday.
Speaking at an IMF conference in Marrakesh, Morocco, she said 27 million young people would join the workforce in Arab countries in the next five years in a region that has the highest rate of youth unemployment in the world at 25 percent.
Although Arab states are progressing with reforms, they must move away from being “state employers” and focus on improving social safety nets, Lagarde said.
During the two-day conference on inclusive growth, Lagarde said the public dissatisfaction that is “bubbling up” in several countries is a reminder that even more ‘urgent action’ is needed.
In Tunisia, violent demonstrations broke out again this month as anger mounts over IMF-backed measures that include subsidy cuts and tax increases.
Chris Doyle, director of the Council for Arab-British Understanding (CABU), told Arab News: “Frustrations across the Arab world are growing.”
Doyle said: “The region must urgently deploy more resources to tackle youth unemployment and these resources must be deployed far more effectively.”
The director said Middle Eastern governments must take action to end its “many conflicts and crises” to unlock the region’s potential.
Doyle urged the region to look at redesigning its education system to ensure it provides the right skills for a twenty first century jobs market.
“The region needs to look at skilling up for the digital economy,” he said. “However, be under no illusion, it’s a massive challenge.”
The Cabu expert said that Egypt represents a particularly pressing challenge due to its central location and large and growing population.
“[Joblessness] will have an immediate impact on the country and it’s not rosy,” he warned.
“We may well witness more protests and discontent. Governments really should be really aware that [protests] represent genuine economic weaknesses and reflect the levels of corruption in the region.”
Wes Schwalje, COO of GCC research firm Tahseen Consulting, agreed that regional education systems are struggling to produce national workforces with the skills that meet “the needs of knowledge-based economic development and the Fourth Industrial Revolution.”
Schwalje told Arab News: ” A youthful, growing labor market can be beneficial to economic development if it is accompanied by job creation. Without job creation, the counterfactual is youth becoming unemployed, discouraged, or entering the informal economy.
“Discontent among youth is particularly significant since there is a strong link between youth bulges experiencing economic hardship and political violence. If the public sector is unable to create sufficient jobs for Arab youth, the only other option is private sector job creation.”
High levels of public sector employment in the Arab World have been criticized as “perpetuating low productivity, lack of economic diversification, and high public sector wage bills, Schwalje said.
The COO added: “Market reforms will need to reorient Arab youth toward private sector jobs… A number of Arab countries are piloting ambitious labor market reforms, such as unemployment benefits, minimum wages, fees on foreign workers, and increased mobility of foreign workers, but their success is far from certain.”

Record budget spurs Saudi economy

The budget sets out to lift spending and cut the deficit. (Shutterstock)
Updated 19 December 2018

Record budget spurs Saudi economy

  • “It is a growth-supportive budget with both capital and current expenditure set to rise.”
  • Government spending is projected to rise to SR 1.106 trillion

RIYADH: Saudi Arabia on Tuesday announced its biggest-ever budget — with spending set to increase by around 7 percent — in a move aimed at boosting the economy, while also reducing the deficit. 

However, analysts cautioned that the 2019 budget is based on oil prices far higher than today — which could prove an obstacle in hitting targets. 

Government spending is projected to rise to SR 1.106 trillion ($295 billion) next year, up from an actual SR 1.030 trillion this year, Minister of Finance Mohammed Al-Jadaan said at a briefing in Riyadh. 

The budget estimates a 9 percent annual increase in revenues to SR 975 billion. The budget deficit is forecast at SR 131 billion for next year, a 4.2 percent decline on 2018.

“We believe that the 2019 fiscal budget will focus on supporting economic activity — investment and wider,” Monica Malik, chief economist at Abu Dhabi Commercial Bank (ADCB), told Arab News.

“It is a growth-supportive budget with both capital and current expenditure set to rise.”

A royal decree by Saudi Arabia’s King Salman, also announced on Tuesday, ordered the continuation of allowances covering the cost of living for civil sector employees for the new fiscal year.

“The continuation of the handout package will be positive for household consumption by nationals,” said Malik. “We expect to see some overall fiscal loosening in 2019, which should support a further gradual pickup in real non-oil GDP growth.”

World oil prices on Tuesday tumbled to their lowest levels in more than a year amid concerns over demand. Brent crude contracts fell to as low as $57.20 during morning trading.

Malik cautioned that the oil-price assumptions in the Saudi budget looked “optimistic.”

“We see the fiscal deficit widening in 2019, with the higher spending and forecast fall in oil revenue,” she told Arab News.

Jason Tuvey, an economist at London-based Capital Economics, agreed that the oil forecast was optimistic, but said this should not pose problems for government finances.

“The government seems to be expecting oil prices to average $80 (per barrel) next year,” he said. 

“In contrast, we think that oil prices will stay low and possibly fall a little further to $55 … On that basis, the budget deficit is likely to be closer to 10 percent of GDP. That won’t cause too many problems given the government’s strong balance sheet. 

“Overall, then, we think that there will be some fiscal loosening in the first half of next year, but if oil prices stay low as we expect, the authorities will probably shift tack and return to austerity from the mid-2019, which will weigh on growth in the non-oil sector,” Tuvey said.

John Sfakianakis, chief economist at the Gulf Research Center, based in Saudi Arabia, said that the targets of the budget were “achievable” and the forecast oil price reasonable. 

“It is an expansionary budget that should spurt private sector activity and growth,” he said. 

“With Brent crude averaging around $68 per barrel for 2018 and $66 per barrel for 2019, the authorities have applied a conservative revenue scenario.”