Building Bridges To The Future In The Gulf

IMF Blog, November 12, 2013

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Author: Christine Lagarde
Date: November 12, 2013
Context: Observations from a visit to Kuwait and reflections on economic and social challenges facing Gulf Cooperation Council (GCC) countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates).
Main message: The GCC must save for future generations, diversify economies, create private sector jobs for citizens, and invest in education and women's economic participation.

Finding: Most GCC countries could do more to save their oil revenues for future generations.
Recent action: Some countries have started to cut back on public spending in 2013.
Policy guidance:
- Contain current spending while minimizing the impact on growth and enhancing social equity.
- Rein in hard-to-reverse expenditures (wages and subsidies).
- Target spending on high-quality capital investments and social programs.

Observations:
- The number of years students spend in school has risen considerably over the past decade.
- Math and science scores are relatively poor.
- Skills acquired do not match private sector requirements.
Rationale:
- Education is critical to restoring productivity—the key driver of long-term growth.
- Historical legacy: the Arab world was an early pioneer in scientific enquiry (e.g., Al-Hasan Ibn Al-Haytham and Jabir Ibn Hayyan).
Implication: Further investment in skills and education for both boys and girls is essential so citizens can compete in the global economy.

Key statistics:
- Over the first decade of this century, Gulf countries created about 5½ million private sector jobs.
- Nearly nine in ten of these jobs went to expatriates.
- If current trends continue, only a third to a half of citizens joining the labor force by 2018 would find private sector jobs.
Diagnosis:
- Productivity has declined or stagnated in part because graduates prefer public sector employment over private sector jobs.
Policy recommendations to boost private employment for citizens:
- Resist opening the floodgates of public employment in times of stress.
- Boost private sector pay by facilitating on-the-job training and offering dual-education systems that combine apprenticeships with formal vocational schooling.
- Consider well-targeted wage subsidies, at least temporarily.
Individual recommendation: Graduates should be prepared to seek employment in the private sector.

Observation: Kuwait has the highest women's labor force participation in the Gulf region.
Potential gains:
- For the entire Middle East and North Africa region, the labor force participation gap between men and women over the past decade was almost triple the average gap in the emerging market and developing economies.
- If this gap had simply been double instead of triple, the gains for the entire region (including Gulf countries) would have been almost $1 trillion in output, amounting to annual gains of about 6 percent of GDP.
Policy recommendations to increase women's participation:
- Ensure all girls have access to quality education.
- Remove restrictions on the economic role of women (mobility, participation in certain sectors, property rights).
- Enshrine the principle of equal pay for equal work.
- Provide parental leave programs and quality child care to give mothers and fathers real choices.

Summary: To build bridges to the future, the Gulf region needs to save more, diversify economies more, and invest more in its young, dynamic population and in women's participation.
IMF stance: The IMF is ready to stand with the region while building those bridges.

Source: Building Bridges To The Future In The Gulf — Christine Lagarde, November 12, 2013