Oman's temporary employment ban on foreigners will lift consumption, lower unemployment

But high youth unemployment is a lingering challenge, economists say

Moody's Investors Service downgraded Oman's rating by a notch to Baa3. Chris Jackson / Getty Images

Oman's temporary suspension of employing foreigners in 87 job categories in the private sector will help boost consumption and lower the unemployment rate especially among the youth, half of which are nearly jobless, economists said.

“The list of jobs includes some higher profile jobs in admin and HR that could attract graduates who have previously turned down employment over pay etc, on the margin that is supportive of consumption,” said Maya Senussi, senior Middle East economist at Oxford Economics.

Oman, the Middle East's largest non-Opec oil producer slapped the six-month ban on hiring foreigners on Sunday in the wake of mounting fiscal pressure brought on by the collapse of oil prices and dwindling revenues.

The new restrictions apply to ten sectors that include administration, human resources, information technology, medical sector, sales and technical jobs. The move would address the government’s promise this month to create 25,000 jobs during six months.

The moratorium "may make a small dent in Oman’s overall unemployment rate of around 17 per cent, the region’s highest," Ms Senussi added. However, it may not address all "the underlying drivers of unemployment, particularly among the youth.”

Oman is not the only country in the region slapping an employment ban on foreigners.

Saudi Arabia, the Arab world's largest economy, said on Monday it would restrict foreigners from working in 12 sectors, which will be only open to Saudi women and men in three phases from September 11, the start for the new Islamic calendar year, according to the labour ministry's Twitter account.

The sectors that will be closed to foreigners from September include four sales jobs: cars and motorcycles; ready-made and children's clothes and men accessories; home and office furniture and kitchenware.

The other 8 categories include jobs that will be restricted later in two batches: sales jobs in shops selling electronics and electric appliances, watches, spectacles, medical equipment, construction and building materials, car spare parts, carpets and sweets.

Unemployment is one of several challenges facing Oman, which is struggling to narrow its fiscal deficit in the aftermath of Brent oil prices falling from the mid-2014 high of $115 a barrel. The country is trying to diversify its economy away from oil and plans fiscal reforms to offset the impact of lower oil proceeds as it lacks the financial buffers enjoyed by several of its peers such as Saudi Arabia and the UAE.

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Unemployment among the Omani youth aged between 15-24 reached 48.7 per cent in 2017, among the highest in the region, according to the World Bank.

Omanisation in the private sector stood at 12 per cent in 2016, versus 84 per cent in the public sector, according to official statistics.

“The decree could help to lower unemployment in the sultanate,” said Garbis Iradian, chief Mena economist at the Washington-based Institute of International Finance. “But initially labour productivity would decline as some of the Omani national labour force lacks adequate skills that is needed by the private sector.”

Oman's private sector and the economy are set to recover this year from an economic slump as oil prices climb to around $70 a barrel and the government spends more in 2018 after revealing an expansionary budget aimed at addressing the Omanis' needs.

Oman is forecasting economic growth of at least 3 per cent and a fiscal deficit for 2018 equalling the shortfall of 2017 as the sultanate’s spending boost is offset by an uptick in revenues on the back of higher oil prices. Its growth forecast is in line with that of the IMF, which estimates its GDP will accelerate by 3.1 per cent this year, compared with 2.5 per cent expansion in 2017.

“Oman’s challenges range from unemployment, slowing private consumption, financing wide twin deficits, public debt rising to 51 per cent of GDP this year and FX reserves that have fallen around 20 per cent in 2017,” said Carla Slim, a MENA economist at Standard Chartered.