By Andy Sambidge
Institute of Chartered Accountants in England and Wales say private sector growth is vital for region's long term prospects
Fiscal pressures on Gulf economies are mounting with dropping oil prices accelerating the need to broaden and strengthen non-oil revenues, according to a new report by the Institute of Chartered Accountants in England and Wales (ICAEW).
Its latest Economic Insight report said private sector job creation and maintaining an inclusive labour market are crucial to achieve long term fiscal sustainability in the region.
Public sector workers account for a large share of employment in GCC countries, which distorts the health of the region's labour markets, the report said.
It added that reducing the market's dependence upon state spending to support jobs must be prioritised, especially given high rates of youth unemployment, gender imbalance within the workplace and projected growth of the region's working age population over the next 15 years.
The ICAEW also said the gap between male and female labour force participation in the Middle East also remains one of the highest of any region in the world.
"Addressing barriers - such as gender wage gaps and provision of child care support - could greatly expand the talent pool available to economies in the region, contributing to growth and economic diversification," the report said.
The report calls for an improvement in business environments to spur job creation, private sector investment and entrepreneurship. Simplifying regulations, ensuring provision and reliability of vital infrastructure, supporting the flow of credit to SMEs, and establishing stable legal and tax frameworks are some of the measures demanded, and many countries have made progress, the ICAEW said.
Charles Davis, ICAEW economic adviser and director at Cebr said: "Delivering economic diversification and growth, alongside sustainable job creation, for a young and rapidly-growing population will be an immense test. Many GCC countries are on the right path, but the real challenge will be reducing public spending while continuing to invest in education. Only those countries implementing long term solutions in partnership with the private sector will be able to face future economic challenges."
Ensuring robust and inclusive employment growth will depend on the supply of high quality, skilled labour. Many GCC countries plan to continue education spending arrangements despite lower oil prices. Saudi Arabia has pledged that spending on schools will remain high in the 2015 budget, and the UAE has made education one of the central themes of its Vision 2021 agenda.
The report also said that Saudi Arabia's growth is expected to slow to 3.4 percent this year while Bahrain's economy is projected to expand by 2.7 percent in 2015.
The ICAEW said that with a $30bn pipeline of infrastructure delivery on the cards for 2015, Qatar's non-oil sectors will continue driving growth, leading to expected GDP growth of 7.1 percent in 2015.
It said Kuwait's GDP is likely to grow by 1.8 percent this year while Oman has indicated that lower oil prices will not hinder infrastructure delivery during 2015 with development of ports, roads and railways confirmed to continue.