End reliance on public jobs, IMF tells Middle East countries

International Monetary Fund (IMF) managing director Christine Lagarde (CNN)
Updated 12 February 2018

End reliance on public jobs, IMF tells Middle East countries

DUBAI: Middle East countries must equip their youth with skills for the private-sector workplace to help curb dependence on government employment, International Monetary Fund (IMF) managing director Christine Lagarde said.

Failure to encourage a transition to the private sector would lead to “a very messy situation if there are no jobs around,” Lagarde told CNNMoney Emerging Markets EditorJohn Defterios.

“Five million (young people) per year every year (will be entering the job market) in the next five years, so there has to be a focus on helping them access the job market, making sure they’re equipped with the skills to adjust to what will be a new workplace,” she said.

The IMF chief said that youth unemployment is a particular concern in the Middle East and North Africa, with jobless rates as high as 30 percent in nine out of 21 countries in the region. The region’s population is among the youngest in the world, with over 40 percent under 20 years of age.

“More young people are coming (to the job market),” she said.

With about 5 million entering the region’s job market annually, there has been pressure on governments to absorb the new workforce through public employment, though the IMF said that this had not translated into lower overall unemployment.

In a study released last month, the IMF called on Middle East countries to reduce their bloated public wage bills at a time of heightened fiscal constraints.

“The use of public wage bill policies to influence broad socioeconomic outcomes has not achieved the desired objectives. Though other factors are also at play, countries continue to struggle with high unemployment, poverty and inadequate service delivery,” the study said.

Public wage bills in the Middle East and North Africa region, as well as Pakistan, are higher than in other emerging market and developing economies, the IMF said. In the past 10 years, these countries allocated an average 6 percent of annual GDP, or about a fifth of their total expenditure, to the government payroll.

“Wage bills are now weighing on fiscal sustainability amid slowing or declining fiscal revenue and economic growth due to lower oil prices and remittances. If left unaddressed, these tensions will intensify in the coming years due to demographic changes and technological innovation,” the IMF said.

Lagarde said that “there has to be a shift from assuming the public sector will employ everybody, as was the case in many countries in the region.

“(We should) welcome the private sector, giving it some certainty, so that investors feel comfortable, (thereby) creating activity, employing young people and avoiding what would be a very messy situation if there were no jobs around,” Lagarde said.

“(Without jobs) there would be no hope,” she said.

Jordanian cabinet approves new IMF-guided tax law to boost finances

Updated 21 May 2018

Jordanian cabinet approves new IMF-guided tax law to boost finances

AMMAN: Jordan’s cabinet on Monday approved major IMF-guided proposals that aim to double the income tax base, as a key part of reforms to boost the finances of a debt-burdened economy hit by regional conflict.
“When only 4 percent of Jordanians pay (personal) income tax, this may not be the right thing,” Finance Minister Omar Malhas said in remarks after the cabinet meeting, adding the goal was to push that to eight percent. The draft legislation was submitted to parliament.
The IMF’s three-year Extended Fund Facility program aims to generate more state revenue to gradually bring down public debt to 77 percent of GDP in 2021, from a record 95 percent.
A few months ago Jordan raised levies on hundreds of food and consumer items by unifying general sales tax (GST) to 16 percent — removing exemptions on many basic goods.
In January subsidies on bread were ended, doubling some prices in a country with rising unemployment and poverty among its eight million people.
The income tax move and the GST reforms will bring an estimated 840 million dinars ($1.2 billion) in extra annual tax revenue that will help reduce chronic budget shortfalls normally covered by foreign aid, officials say.
Corporate income tax on banks, financial institutions and insurance companies will be pushed to 40 percent from 30 percent. Taxes on Jordan’s phosphate and potash mining industry will be raised to 30 percent from 24.
The government argues the reforms will reduce social disparities by progressively taxing high earners while leaving low-paid public sector employees largely untouched.
“This is a fair tax law not an unfair one,” said Malhas, who shrugged off criticism the law is lenient on many businesses connected to politicians whose transactions are not subject to tax scrutiny.
Husam Abu Ali, the head of the Income and Sales Tax Department, said a proposed IMF-recommended Financial Crime Investigations Unit will stiffen penalties for tax evaders. Critics say it will not tackle pervasive corruption in state institutions.
Abu Ali said the government could be losing hundreds of millions of dollars through tax evasion, which is as high as 80 percent in some companies.
The amendments lower the income tax threshold and raise tax rates. Unions said the government was caving in to IMF demands and squeezing more from the same taxpayers.
“It is penalizing a group that has long paid what it owes the state,” the unions syndicate said in a statement.
“It imposes injustice on employees whose salaries have barely coped with price hikes rising madly in recent years.”