LONDON: Oil-importing countries in the Middle East have been warned to make deeper reforms and provide jobs for tens of millions of young people — or risk growing social and political upheaval.
In the wake of a regional report by the International Monetary Fund, unemployment, especially among young men, was described by one expert as “the most pressing challenge facing non-oil producing countries in the next decade.”
The IMF said on Wednesday that economic growth in countries such as Morocco, Jordan, Egypt, Somalia, Sudan and Tunisia was too weak to tackle widespread joblessness.
•Joblessness leaves countries such as Egypt and Jordan, with their large youth populations, facing rising social instability.
•Saudi Arabia has made a good start to tackling the challenges of reform, experts say.
•UAE cited as an example of how diversification can work.
Growth rates were likely to average 4.9 percent over 2018–22, the IMF said, and were “too soft” to effectively reduce unemployment, particularly for the young people who make up a large percentage of the region’s population.
The IMF’s comments brought a warning from Fawaz Gerges, professor of international relations at the London School of Economics, who told Arab News that there was an “organic relationship” between youth unemployment and political and social instability.
Lack of jobs was also a driver for “extremism,” he said.
With jobless rates higher than 35 percent in countries such as Tunisia and Jordan, youth unemployment was the most pressing challenge facing non-oil producing countries in the next decade, Gerges said.
“Oil-producing centers such as Saudi Arabia have the resources to compensate for lack of direct employment,” he said.
“The Saudi leadership has made a good start to diversifying the economy to reduce oil dependency, even though change will be gradual.”
However, Jason Turvey, Middle East economist for Capital Economics in London, suggested that Saudi Arabia, and others, needed to introduce further labor reforms.
“Some sort of wage subsidy should be brought in to make it easier for Saudi firms to employ Saudi nationals who had been more attracted to the public sector where salaries have been higher,” he said.
A shakeup in education, with more stress on vocational qualifications, was also needed in the Kingdom and throughout the region.
The IMF reported that at an average of 4.9 percent over 2018–22, growth rates remain too low to effectively reduce unemployment, particularly for young people in oil-importing Middle Eastern countries.
“(Those countries) need sustained growth of 6.2 percent annually just to maintain unemployment at its current level of 10 percent.”
Higher growth would require “an acceleration in structural reforms” to allow the private sector to flourish and generate the required jobs, the IMF said.
“This is especially critical because the scale of countries’ fiscal vulnerabilities means that the public sector does not have the capacity to absorb the new labor market entrants,” it said.
The IMF said that almost a quarter of the Middle East’s youth are unemployed, warning that unless more substantive reforms are made, millions of young people will be unable to find an occupation.
“This region is a very young region. Almost 60 percent of the population is under 30 and the level of unemployment at the youth level exceeds 30 percent,” said Jihad Azour, of the IMF, in an interview with AFP.
However, Gerges said in some countries youth unemployment “topped 40 percent.” Joblessness was seen as one of the main grievances behind the 2011 Arab Spring uprisings, he said.
Economic growth for oil-exporting countries in the region topped 5 percent in 2016, but slowed to 1.7 percent just a year later. The IMF has forecast an upward trend of almost 3 percent this year and 3.3 percent in 2019. “(But) achieving higher growth will require an acceleration in structural reforms that allow the private sector to flourish and generate the required jobs.”
This was critical because the countries’ fiscal vulnerabilities meant that the public sector lacked the capacity to absorb the influx of young people into the labor market, said the IMF.
Nevertheless, countries in the region were taking steps to improve governance and transparency, it said. Sudan had appointed external auditors to review public policies, Afghanistan had criminalized acts of corruption, and anti-corruption laws were being introduced in Morocco, Tunisia and Somalia.
Additional efforts are also being made to bolster the business environment, with Pakistan recently strengthening its bankruptcy framework.
The IMF has urged governments to upgrade the skills of their workforce and provide the private sector with greater access to finance. Its report said that reforms in the region “should also be underpinned by efforts to increase transparency and accountability, and by stronger institutions and governance.”
Saudi Arabia’s Crown Prince Mohammed bin Salman launched a sweeping anti-corruption campaign last year that targeted potential rivals to the throne and dozens of the country’s top businessmen. The government said the campaign netted $106 billion in financial settlements in closed-door exchanges with detainees.
The IMF’s updated regional outlook says that governments in the region continue to spend heavily to employ their populations, resulting in large and growing public sector wage bills. Despite this, “unemployment has remained high, and overly generous public sector compensation has distorted labor markets,” it said.
In Gulf Arab countries there were numerous perks to working for the government, the IMF said. In some countries, for example, the gap between public sector wages and those in the private sector is 200 percent, making government jobs that much more coveted.
At 50 percent, Oman had the highest percentage of youth unemployment of any Arab country. Seventy percent of women in Oman are also outside the labor force, according to the IMF. In countries such as Egypt and Saudi Arabia, more than 30 percent of youth are unemployed and close to 80 percent of women are outside the labor force.
The IMF noted positive steps taken by some countries to address these issues. The UAE has invested in education and innovation. Egypt doubled its budget allocation for public day care to assist women going back to work.
In oil-importing Egypt, tourism and export levels have improved since last year. Growth is expected to rise to 5.2 percent this year, up 1 percent from last year. The IMF expects growth to reach 5.5 percent in 2019, aided by an increase in gas production.
The outlook for oil prices anticipates a rise to above $60 a barrel in 2018–19, a 20 percent increase over 2017. A further increase in oil prices could undermine consumption in oil importing nations, and worsen external imbalances in most countries. For instance, a $10 increase in oil prices relative to the baseline would lead to a worsening in the current account balance by 1 percentage point of GDP across MENAP oil importers.
The IMF welcomed policy measures to ease access to financing in oil-exporting countries. In the UAE, for example, the introduction of a credit registry has helped banks better manage credit risks. In Saudi Arabia, capital market restrictions on foreign investors have been eased, and the loan-to-value ratio for first-time home buyers has been increased.
The UAE was viewed by the IMF as a well-diversified economy that has transformed itself into a regional hub for trade.