Times of Oman
Aug 03, 2015 LAST UPDATED AT 01:33 AM GMT
Sunday beat: Pay rise beats inflation, but private sector struggles
August 9, 2014 | 12:00 AM
Saleh Al Shaibany - Times of Oman
 
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Muscat: The cost of living crisis is over for the workers in the civil service but employees in the private sector are still struggling to cope with household bills as inflation continues to bite deep into their pay packets.

It will cost the government OMR900 million per year since it decided to increase the wages of civil servants from January this year but salaries in the private companies remain the same.

The figures released by the National Centre for Statistics and Information (NCSI) show that inflation in the first half of this year increased by 2.2 per cent, compared to the same period in 2013. The increase was dominated by hikes in food prices and accommodation.

Civil servants received an average pay rise of 25 per cent, far outstripping the inflation rate, while eight months later, the workers in the private sector are still waiting for a similar rise.

The growing divide between winners and losers is wider than ever in pay structures with those in the private companies struggling to make ends meet with rising goods prices.

The Central Bank of Oman's current quarterly report suggests that the private sector's employees will continue to rely on borrowings to sustain their spending habits in the absence of pay increase. To help them out, the Central Bank will need to consider cutting down interest rates so that consumers are not hurt as they try to cope with their normal expenditures.

The Central Bank also expects no real economic gain in the wake of the government pay rise since only 33 per cent of Oman's total workforce has benefited. Out of 1.6 million workers in the Sultanate, both Omanis and expatriates, a majority are in the private sector.  With a steady two to three per cent annual inflation, the private sector seems to draw the short straw in the pay scale distribution.

Given the fragility of the situation, most people would have to rely on cheap food and inferior accommodation to maintain just basic spending habits. The government would then need to follow the example of the United Arab Emirate of subsidising food and accommodation for the nationals working in the private sector to keep them afloat. However, the effort will erode the state's coffers as expenditures have been stretched to the limit already.

As for the expatriates, they will simply leave to look for better wages somewhere else. It is a different situation for nationals in the private sector. Thousands of Omani graduates will be looking for jobs at the end of this summer and the private sector will not be their first priority.  

With the reluctance of Omanis to join the private sector together with the steady flow of expatriates leaving their jobs, companies will struggle to find quality replacements. Of course, the civil service cannot be blamed for increasing the standard of living of its employees though the action is creating a consumer imbalance likely to be felt at a substantial scale in the market.

To say that the private sector must do something about it is not an exaggeration. Companies maintain that they cannot afford to match pay rise as much as the government has increased it in case of civil servants. Their profitability will take a dive if they do. It is a lame excuse.

What they cannot see is that profitability is linked to better remunerations of the workers.

To keep up with the steady rise of inflation, employees must be compensated to increase their productivity and quality of their work. Higher pay package is an investment the private sector cannot do without. Employers must simply put in more money as an incentive, not only to keep their talent on board but to attract skills they currently do not have in their repertoire.

The huge imbalance of pay between the public and private sector, if not corrected, will drive back the economy towards stagnation, not forward. With nearly a million workers still receiving the same pay they started with is not going to help the country in its push towards diversification. With no pay rise and persistent inflation, they subsequently earn less every year. In conclusion, pay rise in the government sector will only have any meaning if it is matched by the private sector as well.

To get in touch with the writer saleh@timesofoman.com


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