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International Monetary Fund. External Relations Dept.

competitive wage rates, but unchecked reliance on foreign workers aggravated labor market segmentation. Foreign workers dominated private sector activities, while GCC nationals were concentrated in the public sector. This situation became unsustainable when public sector hiring reached fiscal and efficiency limits and unemployment increased among GCC nationals. Faced with the dilemma of either restricting the entry of foreign workers and mandating the employment of nationals (with potentially adverse implications for competitiveness, given the wage differential between

Abdullah El-Kuwaiz

for a local agent. This action will free national products from any extra costs such as an agent’s commission and hence they will become better able to compete. To give priority to local products and products of national origin in government projects. This will be an extra incentive in the area of marketing that was not applicable in most of the GCC states before establishment of the GCC. To treat the means of transportation owned by GCC nationals on an equal basis with national ones when passing through any of the member states’ territories and to

Mr. Ugo Fasano-Filho

-owned companies now enjoy the same benefits as those owned by GCC nationals. 11 While GCC economies are generally characterized by labor market segmentation—between nationals and expatriates in terms of sector of employment, wages, nonwage benefits, and skills—the labor market challenges differ across countries. A rapidly growing number of young nationals are currently entering the labor force, particularly in Bahrain, Oman, and Saudi Arabia. With nationals protected, in practice, by relatively more restrictive dismissal regulations and a downward rigidity of wages, a

International Monetary Fund. Middle East and Central Asia Dept.

increasing overall spending, or raise additional non-oil revenues. Overall, while monetary easing (measured by the reduction in the policy rate) in the GCC has exceeded the global average, the aggregate fiscal response has been smaller than in many other regions ( Figure 3 ). This can be attributed to the already large size of government spending as a share of the non-oil economy in the GCC and because the majority of GCC nationals work in the public sector where there have not been job losses. 14. The GCC economies are expected to contract this year before recovering in

Mr. Mohamed A. El-Erian and Ms. Susan Fennell

, establishment of investment promotion agencies, pursuit of privatization programs. A segmented labor market Most GCC countries have segmented labor markets, with heavy reliance on expatriate workers hired on fixed–term contracts (representing from 40 percent to more than 80 percent of the labor force in different GCC countries). The vast majority of GCC nationals are employed in the public sector, which generally pays higher salaries and offers more benefits than the private sector. The national labor force is growing rapidly (given the high population growth rates in

International Monetary Fund

external trade negotiations through the GCC Secretariat. In general, collective trade agreements in the GCC have advanced very slowly, partly reflecting difficulty of adhering to common interests. Trade and Investment Policy Indicators and Impediments 22. Intra-regional trade barriers are very low, apart from those related to the diplomatic rift last year . As of June 2017, tariff barriers were non-existent and nontariff trade barriers between GCC countries had been progressively lowered. GCC nationals could freely participate in business activities related to