Oman’s public sector reform risks brain drain

By letting go of thousands of foreign experts, Oman risks losing know-how central to achieve economic diversification.

al-monitor General view of old Muscat the day after Oman's Sultan Qaboos bin Said was laid to rest in Muscat, Oman, Jan. 12, 2020.  Photo by REUTERS/Christopher Pike.

Jun 1, 2020

“Slimming the government apparatus is one of the prime initiatives in the Vision 2040,” public policy analyst Ahmed al-Mukhaini told Al-Monitor. In his capacity within the national development strategy, he contributed to Oman’s latest reform: the contracts of 70% of foreign experts and consultants working in civil and government units will not be renewed

The move is arguably one of Oman’s boldest labor market reforms in recent years. Tackling a long-standing dependence on foreign workers is key to reform the poorly diversified rentier economy. Yet in the short-term their know-how comes in handy to drive the transition.

A diplomatic source in Muscat told Al-Monitor that Oman might “fire more people than what they need to operate efficiently” and "need to re-hire if things do not move as expected."

“We may run short of some expertise, but it will not be the end of the world because as long as we say to ourselves, ‘We do not want to lose expertise,’ we will always be dependent on foreign consultancy. We need to equip Omanis,” Mukhaini said.

Joachim Duster, a former German diplomat with over 50 years of experience on Oman, believes the move to be very much political. Speaking to Al-Monitor, he characterized the decision as "more like an indication in which direction things are going, to show Omanis that they are not the only one to suffer.”

The decision is similar to announcements made a decade ago that have been continuously ignored, because “it is easy to ask foreigners to do everything,” the public policy analyst said. 

Public sector jobs

Besides foreign experts and consultants, Omani employees working for civil government units and whose services exceeded 30 years are requested to retire by Dec. 31, 2020.

According to Mukhaini, it is “the only way” to allow the young generation to “come into the government” at a time when youth unemployment rates are high. This, however, raises suspicions over Oman’s seriousness in tackling the preconception among its population that a public sector job is the way to go — about 43% of Omanis work for public entities.

Mukhaini acknowledged the circular is only a step toward the long-term objective, not an end in itself. “If the government does not cut on wages in government entities and state-owned companies, does not reduce annual leaves [and does not make jobs in the private sector more appealing to Omanis], then this step would be no more than a brief relief,” he said. 

In recent years, the Gulf country has expressed interest in driving young Omanis toward the private sector and promised to allocate 223,000 direct tourism jobs to Omani nationals by 2040 as well as to support the development of small and medium-sized enterprises.

“This mantra of saying, 'Look for jobs in the private sector,' if you are Omani, you must think someone is playing a joke at your expense. Where are the jobs in the private sector? There are none,” Duster said, adding that "Omanization" policies in the private sector are “nothing new."

New influx of pensioners

Since the oil bust of 2014, Oman’s public debts have multiplied twelve-fold, annual budgets are expected to be in the red until 2023 and Fitch Ratings expects the 2020 fiscal deficit to widen to around 16% of the gross domestic product. “Oman is trapped into a vicious circle of debt” commented a macro analysis by the Denmark-based Saxo Bank.

In this context, curtailing of public spending is required. Alongside the exit of senior public servants and foreign experts, the salaries of new government employees will be cut by up to 23%. Analysts believe shrinking the workforce may happen sooner than later.

The sultanate employs about 180,000 civil servants whose salaries and bonuses account for a large share of the annual budget. “No matter how good you are with your austerity measures, it is very easily consumed by the huge number of people on the payroll,” Mukhaini noted.

However, is Oman’s pension system ready to absorb the influx of Omani public servants whose services exceeded 30 years? “We have estimated that it might take up to three years of readjustment for pension funds,” Mukhaini said, calling to reduce the benefits to minimize the impact. “That is the other thing [for which] we are awaiting the announcement,” he said.

As Oman's debts are piling up, its model of development is becoming unsustainable. 

To reverse the trend, the Omani government has cut down on capital expenditures and reduced by 10% the budgets of ministries and government units for 2020. Oman’s wide-reaching social welfare system is also expected to be downsized and public taxation is on the rise — a serially delayed value-added tax could be implemented in 2021.

The labor market reform announced on May 28 is thus in line with a need to put the house in order. According to rating firm S&P, the Omani monarch will face “a difficult trade-off” to address high unemployment among youths, weak growth, and fiscal and funding pressures.

“The golden time of Sultan Qaboos is definitely a matter of the past … Sultan Haitham has to take tough decisions delayed by his predecessor, which could endanger his rule,” Duster said. “But on the other hand, he has this fantastic excuse that it is all due to COVID-19.”

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