Inflation pricing Gulf states out of the market for foreign labor
ABU DHABI — Gulf Cooperation Council states are losing their allure
to foreigners.
A report by Moody's Investors Service asserted that foreigners were
repelled by the rising cost of living in GCC states, Middle East Newsline reported. The report said many
foreign workers were experiencing a significant salary erosion.
"Although inflation is seldom a direct driver of Moody's ratings, it can
affect ratings indirectly through three main channels — fiscal, political
and economic," Moody's said. "We are beginning to observe these in the
Middle East."
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GCC states, which significantly increased civil service salaries, have
acknowledged rising prices. Most of the six member states have imposed price
controls on basic commodities as well as a rent ceiling.
The report attributed inflation to the rapid expansion of private
sector, particularly consumer, credit. In the United Arab Emirates, banks in
Dubai lenders have been offering loan-to-value ratios of up to 97 percent.
In 2007, the Middle East experienced the highest rate of inflation, with
10.4 percent. Moody's said inflation was expected to exceed this level in
2008.
Moody's acknowledged that GCC states could raise government spending to
cushion the cost of inflation. But the report warned that this would make
Gulf Arab oil producers dependent on energy revenues.