E-Paper
Sign In
iPhone | iPad
Android
Fri, Dec 27, 2024 | Jumada al-Aakhirah 26, 1446 | DXB
0°C
Migrant exodus weighs on GCC growth: S&P
Dubai - The GCC's longer-term economic trajectory will depend on the strength of governments' balance sheets as well as their willingness and ability to implement reforms that support a dynamic private sector.
GCC governments are increasingly implementing policies to boost nationals' participation in the private sector. — Reuters
An accelerating shift in the GCC labour market due to an exodus of expatriates amid Covid-induced challenges could weigh on the region's growth and complicate economic diversification over the long run, S&P Global Ratings said on Monday.
The ratings agency estimated that the GCC population might have declined by just over 4.0 per cent on average in 2020, mainly due to migrant outflows. The sharpest decline was noticed in Dubai, followed by Oman, Qatar, Abu Dhabi, and Kuwait.
Zahabia Gupta, S&P Global Ratings lead credit analyst for the report, said while some expats will return as the economic cycle recovers, the proportion of foreigners in the region will continue to decline through 2023 relative to the national population, because of subdued non-oil sector growth and workforce nationalisation policies.
"If these changes are not met with economic and social reforms that foster human capital, they could have repercussions for the regional economy in the long term and pose additional challenges to diversifying away from the GCC's heavy reliance on the hydrocarbon sector."
While some expats will return as the economic cycle recovers, S&P projects that the proportion of foreign workers in the region will decline, particularly in Kuwait and Oman. “The overall GCC population is unlikely to return to the 2019 level of 57.6 million until 2023 owing to weaker economic conditions and labor nationalisation policies.”
The report noted that once-strong population growth in the region has been on a downward trend after peaking at about 6.0 per cent in 2007. The average population growth more than halved to about 2.3 per cent over 2015-2019 following a sharp drop in oil prices in late 2014. “The decline was underpinned by decreasing migrant inflows in most countries, owning partly to government spending cuts and lower employment growth as fiscal pressures mounted on the back of lower hydrocarbon receipts, and slightly falling birth rates among citizens.”
However, the ratings agency ruled out an immediate impact on GCC sovereign ratings due to these shifts given that the majority of foreign workers returning home filled low-income positions, limiting their contribution to the economy.
S&P analysts argued that the GCC's high dependence on expat labour, especially in the private sector where it makes up almost 90 per cent of the workforce, has stymied its development of human capital in the national population.
“The majority of the local workforce is employed by the public sector, which weighs on governments' fiscal positions, especially in times of lower oil prices. GCC governments are increasingly implementing policies to boost nationals' participation in the private sector, mainly through measures that restrict the hiring of expats. We believe these nationalization policies could hamper economic growth and diversification if they impede productivity, efficiency, or competitiveness,” said the ratings agency.
The GCC's longer-term economic trajectory will depend on the strength of governments' balance sheets as well as their willingness and ability to implement reforms that support a dynamic private sector. "Specifically, we see reforms that improve GCC national populations' education and skills, the participation of women in the workforce, labor market flexibility, and competition as paramount to unlocking sustainable growth in the region," said Gupta. — issacjohn@khaleejtimes.com
Sign Up For Breaking News Alerts
Be in the know. Get the latest breaking news delivered straight to your inbox.
