IMF urges labour market flexibility

16 December 2005
Non-oil growth was strong in 2004 as government efforts at diversification bore fruit, said the IMF in the conclusion to its latest Article IV consultations, released on 9 December. However, further policy changes will be needed to reduce fiscal dependence on falling oil revenues, the report said, while also warning Muscat against introducing labour market rigidities.

Non-hydrocarbon real domestic product (GDP) growth in 2004 was 8 per cent, driven by manufacturing exports, construction and services. Overall real GDP growth was 4.5 per cent. Investments in gas-based industries will sustain growth levels over the medium term, the fund said. '[Directors] recommended that the authorities continue to assess carefully all planned gas-based industries in order to ensure that they would remain viable if Oman were to rely on imported gas in the future,' it warned.

To diversify and strengthen the government revenue base, the IMF urged Muscat to 'reinvigorate' its privatisation programme, and welcomed the sale of a stake in Oman Telecommunications Company (Omantel) and plans for further utilities sales. The fund also expressed support for tentative GCC moves to co-ordinate the introduction of a value-added tax (VAT).

The strongest language was reserved for the job market. The IMF warned the authorities to apply Omanisation policies flexibly and not to increase quotas any further until education and training programmes for nationals are further advanced. 'In addition, directors urged the authorities to reconsider plans to impose a matrix of minimum wages by sector and type of jobs,' the report said.

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