IMF warns of employment creation challenge

27 August 2004
Manama is making good progress with economic liberalisation and diversification efforts, according to the IMF's latest Article IV consultations, released in late August. However, the government will need to accelerate structural reform if it is to meet the growing challenge of creating employment for nationals.

The IMF provided a generally positive assessment of macroeconomic management, noting that increases in capital expenditure in 2003 were more than offset by higher oil receipts, leading to a budget deficit of only 1.8 per cent of gross domestic product (GDP).

A small surplus is anticipated in 2004. The report described Manama's increasing public debt burden as manageable. Real GDP growth in 2003 is put at 5.7 per cent, compared with 5.1 per cent in 2002, while encouragingly the non-oil sector grew by 6.5 per cent, up from 5.9 per cent the previous year.

The government's success in diversifying away from its dwindling oil revenues is commended, in particular its development of the kingdom as a financial-services centre. Regulatory reform, such as the consolidation of all financial services under the wing of the Bahrain Monetary Agency (BMA - central bank), also met with IMF approval. The only concern expressed is over the need to ensure a sufficient pool of financial services experts to cope with the industry's expansion.

The local labour market more broadly is the focus of the report's concern. The IMF calls on the authorities to intensify their efforts to create jobs for nationals and to train the local workforce in more marketable skills. A draft labour law emphasising vocational training is praised, while adoption of proposals for a minimum wage in the private sector is discouraged.

Further economic liberalisation, including the privatisation of government-run utilities and services, is urged to reduce the size of the public sector and boost private investment.

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