IMF: Onus of job creation is on private sector

dubai - Over two million young people will enter GCC labour market in the next few years

The International Monetary Fund (IMF) on Wednesday said a modest recovery in oil prices is unlikely to bridge the budget deficit of GCC nations and governments will have to keep up the momentum to diversify economies.

Masood Ahmed, IMF director for Middle East and Central Asia, appreciated the efforts of Gulf nations to introduce energy reforms and new taxation measures to generate revenue and reduce dependence on oil. He said more taxes will be levied in the coming years.

"The combined fiscal deficit of the six-nation GCC bloc is nearly $500 billion for the next six years. The governments need to introduce new taxes and cut spending. We all know value-added tax is coming, corporate taxes and fees of different kinds are in discussion and beyond that, taxes on property and assets are also in the pipeline," Ahmed told Khaleej Times on the sidelines of a Press conference in Dubai.

To a question about personal income tax, he said it is "further down the road". "I don't think it's an area of urgency. I don't have a timeline because it depends on individual countries to put that together," Ahmed said.

To a question, he said the levy of five per cent VAT in 2018 would not discourage expatriates in the region. "Expatriate workers will not consider five per cent VAT to decide on whether to stay or work in the region. It is really a much bigger package - lifestyle, professional opportunities, among others - that expats are looking at," he said.

The outgoing IMF director said the fundamental challenge for the GCC states is to diversify economies and create new job opportunities in non-oil sectors.

Job opportunities
"Over two million young people are going to come into the GCC labour market in the next couple of years. There is a need to develop a competitive private sector that could create jobs in new areas," he said.

About the GCC's economic outlook, he said it is expected to grow only at 1.75 per cent this year and increase to three per cent in 2017. "The UAE is expected to achieve 2.5 per cent gross domestic product growth next year compared to 2.3 per cent in 2016," he said.

To a question about growth in Dubai's economy, he said the emirate is expected to grow at 3.3 per cent this year compared to 3.5 per cent in 2015. "The Dubai economy is expected to post 3.6 per cent GDP growth next year," he said.

On Abu Dhabi's economy, Ahmed said overall growth in the UAE's capital recorded a sharper decline from 4.3 per cent in 2015 to 1.5 per cent this year as the government faced a big pullback on spending.

"The Abu Dhabi economy is likely to post 1.7 per cent growth in 2017," he said, adding that non-oil growth fell dramatically from four per cent in 2015 to one per cent this year. It will slightly recover to 1.3 per cent next year, he said.

He said the consolidated accounts of the federal government and Abu Dhabi, Dubai and Sharjah together are likely to post a fiscal deficit of 3.9 per cent of GDP in 2016 and 1.9 per cent of GDP next year.

Citing growth in the Middle East, North Africa and Pakistan (Menap), he said the region is projected to achieve 3.4 per cent growth in 2016 and 2017. "The slump in oil prices and prolonged conflicts continue to weigh on the economic outlook of Menap," Ahmed said.

To a question, he said oil price recovery would help the GCC in terms of financial numbers, but it doesn't change the fundamental outlook for the region.

"Despite recent increases, oil prices are projected to remain low over the coming years. The oil price is expected to stabilise at $60 per barrel in the medium term," he said.

An IMF report suggested that the UAE, Iraq and Kuwait would be able to see budget surpluses by 2021.

"Oil exporters are making strides in adjusting their fiscal positions, but much remains to be done. In oil importers, macroeconomic stabilisation has advanced thanks to sound policies and lower oil prices, yet reforms need to be accelerated to be able to further boost inclusive growth and jobs," he said.

- muzaffarrizvi@khaleejtimes.com