- International Monetary Fund
- Published Date:
- November 1997
© International Monetary Fund
Cover Design: IMF Graphics Section
Financial systems and Labor markets in the Gulf Cooperation Council Countries. — [Washington, D.C.]: Middle Eastern Dept., International Monetary Fund, 1997.
1. Finance—Persian Gulf States. 2. Labor Market—Persian Gulf States. 3. Manpower policy—Persian Gulf States. I. International Monetary Fund. Middle Eastern Dept.
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The economies of the countries of the Gulf Cooperation Council (GCC) share many features. They are endowed with abundant oil and gas reserves, which have been used to generate considerable wealth, build an extensive network of physical infrastructure, and raise per capita income to more than double the world average. Also, these countries share a long tradition of liberal economic policies, open trade and exchange systems, low inflation, and stable currencies. These positive attributes have created an enabling environment for economic growth and financial stability. At the same time, however, the narrow production and revenue base and heavy dependence on hydrocarbon exports and imports of goods and labor have increased the vulnerability of the GCC economies to external developments and the vagaries of the international oil market.
The key challenges facing the GCC countries are how to sustain a relatively high growth rate and create employment opportunities for a growing number of nationals entering the labor market. Several GCC countries have already begun implementing medium-term reform programs to increase their economies’ resilience to adverse oil market developments, strengthen medium-term growth prospects, and create a more conducive environment for private sector activity and employment.
In the aftermath of the 1990-91 regional conflict, remarkable efforts were made to overcome the legacy of the crisis and resume the reform programs that had been interrupted by the war. A premium was put on fiscal consolidation through mobilization of non-oil revenue and expenditure restraint, with most of the GCC countries setting for themselves the target of achieving fiscal balance by the year 2000. Supported by higher oil prices in 1995 and 1996, fiscal consolidation efforts in all GCC countries have reduced significantly financial imbalances, helped eliminate the external debt of Saudi Arabia and Kuwait, and restored private sector confidence. Moreover, a qualitative shift in economic policies toward liberalization, deregulation, and promotion of private sector activity has been taking place throughout the region.
An important feature of the medium-term plans has been the increased emphasis on structural reforms, including government disengagement from commercial activities, privatization, and financial sector reform, as well as a heightened interest in labor market issues and policies. Healthy and dynamic financial intermediaries and deeper capital markets are essential to supporting private sector growth and enhancing the beneficial effects of reforms in other areas. In turn, efficient labor markets would contribute to economic growth and diversification while supporting job creation.
This volume comprises two separate papers on key structural aspects of the reform process in the GCC countries. The first paper addresses issues related to financial intermediation and reform in the context of the evolving economic environment in the GCC countries. The second discusses the labor market challenges and policy issues in the GCC countries and their implications for the Middle East and North Africa (MENA) region.
The authors are grateful for valuable comments and input from colleagues in the Middle Eastern Department. Special thanks are due to V. Sundararajan for comments on the financial systems paper, and to Mohamed A. El-Erian and Susan Fennell for comments on the labor market paper. The authors greatly appreciate the valuable research assistance provided by Sayeed Mahyoub. Martha Bonilla, of the External Relations Department, edited the publication. Maria Llames, Joan Wise, and Anne Yee were helpful in the final preparation of the manuscript. The views expressed in this study are the sole responsibility of the authors and do not necessarily reflect the views of the Executive Directors of the IMF or other members of the IMF staff.
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