The economies of the Gulf Cooperation Council (GCC) are expected to return to an overall growth rate of 2.6% in 2021, according to the latest issue of the World Bank’s Gulf Economic Update (GEU).
Their robust recovery, which is driven by rising oil prices and growth in non-oil sectors, will accelerate through 2022 as the oil production cuts mandated by OPEC + are phased out and the increase higher oil prices will improve business confidence and attract additional investment, the World Bank said.
These favorable oil market conditions have reduced fiscal and external imbalances as export earnings recover, the World Bank said in its update titled “Seizing the Opportunity for a Sustained Recovery”.
However, the medium-term outlook is subject to risks associated with the slowing global recovery, resumption of coronavirus epidemics and volatility in the oil sector.
The World Bank’s latest GEU report focuses on the treatment of the wage bill in the GCC – the amount of government spending on salaries and benefits for government employees. Well-paying public sector jobs are part of the region’s social contract, as are free health care, education, social security benefits, and subsidized public housing and services, which are often also available to people. citizens.
“With strong population growth and limited options in the private sector, the wage bill has become unsustainable in some GCC countries, as it accounts for a large part of public spending and the economy in general,” said Issam Abousleiman, Regional Director of the World Bank (GCC).
“With their improving fiscal situation, the time has come for GCC governments to step up their reform agenda and achieve their goals. “
According to the report, the average GCC wage bill over the past two decades has exceeded the Organization for Economic Co-operation and Development (OECD) average, except in Qatar and the United Arab Emirates.
Many GCC countries have public sectors that fall well within OECD standards in terms of number of employees. However, civil servants receive a wage premium of between 50 and 100%, which translates into a high wage bill relative to the country’s total expenditure and GDP.
Despite the fall in oil prices, both wage bill spending and the number of people employed in the public sector have grown inexorably.
Kuwait’s 2022 budget allocated KWD12.6 billion (about $ 42 billion) to salaries and benefits, or 55% of its total spending. Other GCC countries are in a similar position: Oman’s wage bill has doubled over the past decade despite efforts to cap its growth. Compensation paid to civil servants in Saudi Arabia increased from SR 44 billion in 2016 to SR 148 billion in 2019 and now represents more than a third of the total government wage bill.
“These high payrolls add undue pressure on GCC budgets, especially in countries with fewer resources and limited budget buffers. As a result, most are introducing or broadening their tax base, cutting benefits and exploring early retirement options for some staff, ”the World Bank said.
“Rather than providing a prescriptive solution in their report, World Bank economists highlight some of the options adopted by other countries and suggest that GCC countries reach consensus among stakeholders before moving forward. forward, ”according to the World Bank’s Gulf Economic Update.