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Middle East's economic growth will not curb unemployment: IMF

Palestinian Marxists protesting against poor living conditions and unemployment in Gaza [Getty]

Date of publication: 2 May, 2018

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Deeper reforms must be made to curb high unemployment rates in the Middle East, the International Monetary Fund said on Wednesday.

Nearly a quarter of the Middle East's youth are unemployed, the International Monetary Fund said on Wednesday, noting that unless deeper reforms are made, millions of young people entering the labour market each year may not find jobs.

Current levels of growth across the region will not generate a sufficient number of jobs to reduce unemployment, the IMF said, which was one of the main grievances which inspired the 2011 Arab Spring uprisings.

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 predicts an upward trend of close to 3 percent this year and 3.3 percent in 2019.

For the Middle East's oil-importing nations, economic growth is expected to remain steady at well over 4 percent.

"This region is a very young region. Almost 60 percent of the population is below 30 and the level of unemployment at the youth level exceeds 30 percent," said Jihad Azour, the IMF's Mideast and Central Asia department director. "This needs to be addressed."

Azour, who spoke with The Associated Press for the launch of a new report, said countries in the region must push ahead with deeper structural reforms. The IMF is urging governments to upgrade the skills of their workforce and provide the private sector with greater access to finance.

The IMF has also encouraged Middle Eastern oil importers and exporters to reduce spending and find new sources of revenue by introducing new taxes and lifting subsidies.

This year, Saudi Arabia, the United Arab Emirates and Bahrain— traditionally known for being tax-free havens— introduced a 5 percent value-added tax to most goods and services to increase state revenue.

Despite such efforts, the cumulative fiscal deficit for the six oil-exporting countries in the Gulf, plus Algeria, Iraq, Iran, Yemen and Libya, is projected to reach $294 billion over the next five years, the IMF report found.

Not growing enough to curb unemployment

The IMF predicts growth rates of about 4.9 percent over the coming five years for oil-importing Middle Eastern countries, but says these "growth rates remain too low to effectively reduce unemployment, particularly for young people."

These countries, which include Egypt, Jordan, Lebanon, Morocco and Syria, would need sustained growth of at least 6.2 percent a year just to keep unemployment at its current average rate of 10 percent, the IMF report found.

The IMF's updated regional outlook says that governments in the region continue to spend heavily to employ their nationals with large and growing public sector wage bills. Despite this, the institute says "unemployment has remained high, and overly generous public sector compensation has distorted labour markets."

In Gulf Arab countries there are numerous perks to working for the government. In some of these countries, for example, the IMF says 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 has the highest percentage of youth unemployment of any Arab country. Seventy percent of women in Oman are also outside the labour force, according to the IMF. In countries like Egypt and Saudi Arabia, more than 30 percent of youth are unemployed and close to 80 percent of women are outside the labour force.

But the lender noted some positive steps taken by countries to address these issues. The UAE, for example, has invested in education and innovation, while Egypt doubled its budget allocation for public day care to assist women going back to work. Meanwhile, Iran has developed job-creation programs for women and young people.

In oil-importing Egypt, tourism and export levels have improved since last year.

Growth is projected 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.

Azour said Egypt needs to create between 700,000 to 1 million new jobs per year. He said Egypt must take steps to allow the private sector to create these jobs sustainably.

"Allow the private sector to be in the leading role and for the state to move from being an operator to an enabler, and give more room for the private sector to invest" he said.

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