New IMF Study Offers Options for Bolstering Gulf Economies

Generating jobs for nationals is an important priority

Fiscal policy is key for maximizing the benefits of natural resource wealth

Region is closely interconnected with the global economy

According to a new study published by the IMF’s Middle East and Central Asia Department, the resource-rich countries of the GCC face unique challenges. The region’s economies are dominated by the highly capital-intensive oil and gas sector and will continue to be for the foreseeable future. Despite accounting for almost half of GDP, however, the oil sector employs less than 3 percent of the region’s labor force. As a result, a large part of the region’s growth has had a limited impact on employment.

How to generate jobs for the fast-growing populations in the GCC countries is one of several policy issues discussed in Gulf Cooperation Council Countries: Enhancing Economic Outcomes in an Uncertain Global Economy. Authored by IMF economists Samya Beidas-Strom, Tobias Rasmussen, and David O. Robinson, the report also presents analytical work exploring how best to enhance the effectiveness of fiscal and monetary policies, reduce vulnerabilities, and use the region’s oil wealth to ensure that future generations may also benefit.

“The study shows how interlinked the GCC’s economies are with the global economy,” the authors noted. “Not just through the price of oil, but also through the role of expatriate labor, via global financial markets, and the impact of fiscal and monetary policies in the advanced economies and emerging Asia.”

Growth strategies

The study begins by outlining the GCC countries’ national development strategies, which emphasize economic diversification and employment creation. Over the past decade, dependence on gas and oil revenues has increased as a result of higher oil prices, but all GCC countries have experienced growth in the non-oil economy, particularly in services. This growth has translated into a rapid increase in employment, but many of the jobs have gone to expatriates who now account for more than half of the total labor force (or significantly more, in some countries).

Consequently, unemployment among GCC nationals is a concern in many GCC countries, and with more than 4 million new nationals expected to enter the job market over the next five years, the problem could worsen.

To meet the region’s development objectives, a reorientation of the growth model—not merely an acceleration of growth—will be key. Such a growth...