Like most of its richer GCC neighbors, Yemen is adopting a cautious approach to the windfall created by increased oil prices and has approved a budget for 2001 projecting a 25% rise in revenues to YR487.8bn ($3.049bn) but only a 17% rise in expenditures to YR501.9bn ($3.14bn). This austerity should lead to a reduction in the country’s total deficit to 1.4% of GDP compared to 3% the previous year, even though the rise in revenue is less than that projected in the previous year’s budget (see table below).

The Yemeni Government projects that oil revenues for 2001 will rise by 34% based on an annual crude oil export sales (accruing to the treasury) of 59.9mn barrels and an underlying oil price assumption of $22/B. (Oil production for domestic consumption is estimated at 31mn barrels per annum. Yemeni total oil production is now around 437,000b/d.) Taxation and customs revenues, however, are projected to increase by only 5% and 3% respectively, less than inflation which is estimated at around 12% in 2000 although expected to fall marginally in 2001. Moreover, no major change is expected in the income portfolio of the state, with oil revenues contributing 67.5% of total income compared to 63.3% in 2000 (MEES, 31 January). According to the budget, GDP in the 2001 is projected to rise by 8.2% to YR1,138bn ($7.11bn) from YR1,231bn ($7.69bn) in 2000.

Despite an ongoing program of structural adjustment which calls for a certain rationalization of the public sector, Yemen has increased its spending allocation to the line item ‘public services’ by 21%, has raised health spending by 11.5% and economic services by 46%. It has, however, reduced defense spending by 12.2% although, less positively, allocations to education have been cut by 0.9%. Moreover, as in the preceding budget, education is receiving a declining amount of the total investment and capital budget – 10.7% in 2001 compared to 12.3% in 2000. And the allocation to health is only 4.2% of the total and much lower than other countries with similar income levels.

A more realistic analysis of the budgetary figures is hampered by the absence of closed accounts for the previous year, allowing only for a comparison of official year-on-year budgetary allocations, but preliminary numbers would seem to suggest a positive outcome for 2000. According to the World Bank, the Ministry of Finance is now releasing monthly revenue and expenditure figures. The Bank says that the figures released for 3Q 2000 show a budget surplus of YR100bn ($620mn) and imply an annual surplus of over 10% of GDP. Recent media reports quoted the Central Bank governor as saying that Yemen is expected to post a budget surplus in the year 2000 due to high oil prices. However, the Bank cautions that “more rapid spending toward the end of the fiscal year, and supplemental budget expenditures to cover the increase subsidy cost due to the higher price of petroleum products, is likely to bring this surplus down to a more modest, yet still substantial, level of about 6%.” 

Even in the absence of final closed accounts, the country’s broad commitment to reform and liberalization is still apparent. Much like the rest of the region, Yemen is unlikely to accelerate the process as pressure eases due to higher oil prices. However, positive events in the past 12 months bode well for continued, albeit possibly slowed, reform. A series of what are seen as positive constitutional amendments were passed during the course of the year, which could underpin such efforts. According to the October issue of the World Bank’s Yemen Economic Update , these amendments reinforce Yemen as a market economy. They also call for “the State to oversee the freedom of foreign trade, and to encourage competition and protect investment, rather than the more interventionist expression of overseeing trade and promoting internal trade and investment.” Financial sector reform is beginning to be addressed with the government now permitting local newspapers to publish black-listed businessmen who have defaulted on commercial bank loans in an effort to reduce lending risk.

Efforts to reform the public sector, and particularly the civil service, are also continuing under the auspices of Yemen’s structural adjustment program. These aim to rationalize the government structure, build capacity and strengthen project management and implementation. One local economist involved in the process told MEES that “there is some progress and I’m optimistic for the next few years. If they modernize the public sector this should improve the tax collection and customs systems. They’re already computerizing the customs offices and the ports.” Yemen is also considering introducing a general sales tax. “It should have been approved by parliament last week,” the economist said, “but they postponed it until after Ramadan – once it is introduced it will contribute to boosting non-oil income.” Even unemployment, which is thought unofficially to be in the 20% range, may be more directly addressed once the labor survey, which was completed this year, is acted upon. And the boost to the treasury that high oil revenues have brought will not go unnoticed. According to the World Bank, due to high oil prices “Yemen’s foreign reserves continue to balloon, increasing by $213mn to $2.56bn or 10.2 months worth of imports by end September.” Yemen is even in the process of taking the necessary steps to start a WTO accession application.

Yemen’s financial situation may be further improved by renewed financial aid from Saudi Arabia. Prime Minister 'Abd al-Karim al-Iryani met with Saudi officials on 11 December to discuss the resumption of financial assistance from the kingdom to Yemen. Up until 1989 Saudi aid to Yemen amounted to some $100mn annually, but this was cut off in 1990 following the position taken by Yemen during the Iraqi invasion of Kuwait. The border agreement signed earlier this year has significantly improved relations between the two countries, and the possibility of Saudi Arabia financing other development projects in Yemen is being discussed. According to a report in the Kuwaiti daily Al-Watan on 11 December, this could include the modernization of San'a airport, the construction of a 400km road between San'a and Aden and a 400MW power station. A statement from the Saudi-Yemeni Cooperation Council issued on 14 December said that Saudi Arabia had agreed to reschedule Yemen’s $331mn worth of bilateral debt and to offer a further $300mn in new loans. The two countries also agreed on further cooperation in the field of education, agriculture, health, trade and investment.

Despite these developments, Yemen’s overall economic picture is far from strong. The country faces rapid population growth of 3% per annum and has experienced only limited growth in recent years. According to the World Bank, real GDP growth at market price is estimated at 3.9% and is projected to fall to 3.1% in 2001. Real non-oil GDP is estimated to have grown by 3.8% in 2000 and 4.6% in 2001. Oil continues to dominate the economy, with oil revenues accounting for some 31% of GDP compared to 20% in 1999. Efforts to diversify, such as the establishment of the Aden Free Zone, have been made, but as the World Bank points out, “the overall structure of the non-oil economy remains broadly unchanged.” A source at the Bank told MEES that last year non-oil revenue accounted for 11% of GDP but this year has fallen to 9.5% of GDP.

Privatization is on the cards and a privatization law does exist, although it has yet to be ratified by the parliament. But a Yemeni economist told MEES that “privatization is not what it’s supposed to be because the privatization law is still in the parliament.” Privatization of the National Bank of Yemen is still pending and has been ‘imminent’ for over a year. “I’ll believe it when I see it,” one source told MEES. “Everything is apparently ready to go, although there seem to be some outstanding issues related to bringing in a strategic investor. But if they want to do it they can do it right away.” And in general, private sector activity takes place in an environment often described as ‘challenging’. According to the World Bank, Yemen faces a “huge agenda...should it wish to create a climate that is truly hospitable to the private sector.” Higher oil prices have inevitably slowed the pace of change and notably the removal of the final subsidy targeted under the reform program – that on diesel. Opposition to the move has come from all sides, although the government is expected to move on the issue in the new year.

Yemen also has a significant debt burden to worry about, and according to the IMF is likely to face a continued rise in external debt over the long-term despite government efforts to reduce it. The Arabic daily Al-Hayat quoted the IMF on 1 November as saying that external debt as at end-March 2000 stood at $5,071mn compared to $4,751mn at the same time the previous year. Yemen was to have benefited from the World Bank/IMF-sponsored Highly Indebted Poor Countries (HIPC) program, which aims to secure debt relief for the world’s most burdened borrowers, but is now believed to be outside of the eligibility parameters and viewed as having a “sustainable” level of debt.

The ongoing primary policy issue, according to sources in the country, remains the underlying structure of the economy and its dependence on oil. “The environment is reasonably sustainable and stable, but the issue is that of growth on a per capita basis,” one San'a-based analyst told MEES. “When looking at the non-oil sector, if you’re looking at growth you really should be looking at non-oil growth. What you’re interested in is employment generation opportunities and probably even non-oil, non-government service growth. On a per capita basis, that’s not moving as much as it would need to, to generate reasonable employment opportunities. That’s the big issues that the government faces – how do you attract enough private investment to kick start reasonable economic growth?” 

Yemeni Budgets: 1999-2001

(YRMn)

Yemeni Budgets: 1999-2001 (Cont’d)

(YRMn)

FX: $1=YR160.

The remaining challenges are widely acknowledged and even publicly discussed, and include issues such as reform of the judiciary, legal enforcement mechanisms, corruption and issues related to land, but such questions are likely to be more time consuming, as the same analyst explained. “If you look at stabilization measures, they can be implemented with the stroke of a pen. A couple of technocrats can implement the unification of the exchange rate or reduce trade tariffs. But when you start talking institutional reforms and building development capacity, this is not something that can be done overnight.” Fewer political incidents could also serve to strengthen overall economic stability and encourage foreign investment. President 'Ali 'Abd Allah Saleh told Reuters on 14 December that the recent bombing of a US warship in Aden and the bomb attack at the British embassy “frightened off investors, companies and tourists and has damaged the economy.”

On the whole, however, both Yemeni and international sources seem convinced that the government is at least committed in theory to a reformist policy. “They are moving positively but slowly. If you were being generous you would say they are moving as quickly as they can, given their institutional capacity and that they are up against a tremendous amount of opposition from a variety of different places. When you try to implement change, it takes time to bring all parties on board, so things that you think should take only a couple of months take a couple of years. But whether it takes them two or 10 years, what counts is that they are moving in the right direction.” Any stalling in the process, however, may risk the loss of broad public and commercial support. In recent times, anti-reform protests have been minimal, but popular patience may run out if tangible progress does not result from reduced government financial support. As local analysts suggest, the removal of the diesel subsidy could prove a significant test for popular faith in the government. “If and when they begin to do that,” said one source “that’s when you will see what level of public support there really is.” 

© Copyright MEES 2003.

Like most of its richer GCC neighbors, Yemen is adopting a cautious approach to the windfall created by increased oil prices and has approved a budget for 2001 projecting a 25% rise in revenues to YR487.8bn ($3.049bn) but only a 17% rise in expenditures to YR501.9bn ($3.14bn). This austerity should lead to a reduction in the country’s total deficit to 1.4% of GDP compared to 3% the previous year, even though the rise in revenue is less than that projected in the previous year’s budget (see table below).

The Yemeni Government projects that oil revenues for 2001 will rise by 34% based on an annual crude oil export sales (accruing to the treasury) of 59.9mn barrels and an underlying oil price assumption of $22/B. (Oil production for domestic consumption is estimated at 31mn barrels per annum. Yemeni total oil production is now around 437,000b/d.) Taxation and customs revenues, however, are projected to increase by only 5% and 3% respectively, less than inflation which is estimated at around 12% in 2000 although expected to fall marginally in 2001. Moreover, no major change is expected in the income portfolio of the state, with oil revenues contributing 67.5% of total income compared to 63.3% in 2000 (MEES, 31 January). According to the budget, GDP in the 2001 is projected to rise by 8.2% to YR1,138bn ($7.11bn) from YR1,231bn ($7.69bn) in 2000.

Despite an ongoing program of structural adjustment which calls for a certain rationalization of the public sector, Yemen has increased its spending allocation to the line item ‘public services’ by 21%, has raised health spending by 11.5% and economic services by 46%. It has, however, reduced defense spending by 12.2% although, less positively, allocations to education have been cut by 0.9%. Moreover, as in the preceding budget, education is receiving a declining amount of the total investment and capital budget – 10.7% in 2001 compared to 12.3% in 2000. And the allocation to health is only 4.2% of the total and much lower than other countries with similar income levels.

A more realistic analysis of the budgetary figures is hampered by the absence of closed accounts for the previous year, allowing only for a comparison of official year-on-year budgetary allocations, but preliminary numbers would seem to suggest a positive outcome for 2000. According to the World Bank, the Ministry of Finance is now releasing monthly revenue and expenditure figures. The Bank says that the figures released for 3Q 2000 show a budget surplus of YR100bn ($620mn) and imply an annual surplus of over 10% of GDP. Recent media reports quoted the Central Bank governor as saying that Yemen is expected to post a budget surplus in the year 2000 due to high oil prices. However, the Bank cautions that “more rapid spending toward the end of the fiscal year, and supplemental budget expenditures to cover the increase subsidy cost due to the higher price of petroleum products, is likely to bring this surplus down to a more modest, yet still substantial, level of about 6%.” 

Even in the absence of final closed accounts, the country’s broad commitment to reform and liberalization is still apparent. Much like the rest of the region, Yemen is unlikely to accelerate the process as pressure eases due to higher oil prices. However, positive events in the past 12 months bode well for continued, albeit possibly slowed, reform. A series of what are seen as positive constitutional amendments were passed during the course of the year, which could underpin such efforts. According to the October issue of the World Bank’s Yemen Economic Update , these amendments reinforce Yemen as a market economy. They also call for “the State to oversee the freedom of foreign trade, and to encourage competition and protect investment, rather than the more interventionist expression of overseeing trade and promoting internal trade and investment.” Financial sector reform is beginning to be addressed with the government now permitting local newspapers to publish black-listed businessmen who have defaulted on commercial bank loans in an effort to reduce lending risk.

Efforts to reform the public sector, and particularly the civil service, are also continuing under the auspices of Yemen’s structural adjustment program. These aim to rationalize the government structure, build capacity and strengthen project management and implementation. One local economist involved in the process told MEES that “there is some progress and I’m optimistic for the next few years. If they modernize the public sector this should improve the tax collection and customs systems. They’re already computerizing the customs offices and the ports.” Yemen is also considering introducing a general sales tax. “It should have been approved by parliament last week,” the economist said, “but they postponed it until after Ramadan – once it is introduced it will contribute to boosting non-oil income.” Even unemployment, which is thought unofficially to be in the 20% range, may be more directly addressed once the labor survey, which was completed this year, is acted upon. And the boost to the treasury that high oil revenues have brought will not go unnoticed. According to the World Bank, due to high oil prices “Yemen’s foreign reserves continue to balloon, increasing by $213mn to $2.56bn or 10.2 months worth of imports by end September.” Yemen is even in the process of taking the necessary steps to start a WTO accession application.

Yemen’s financial situation may be further improved by renewed financial aid from Saudi Arabia. Prime Minister 'Abd al-Karim al-Iryani met with Saudi officials on 11 December to discuss the resumption of financial assistance from the kingdom to Yemen. Up until 1989 Saudi aid to Yemen amounted to some $100mn annually, but this was cut off in 1990 following the position taken by Yemen during the Iraqi invasion of Kuwait. The border agreement signed earlier this year has significantly improved relations between the two countries, and the possibility of Saudi Arabia financing other development projects in Yemen is being discussed. According to a report in the Kuwaiti daily Al-Watan on 11 December, this could include the modernization of San'a airport, the construction of a 400km road between San'a and Aden and a 400MW power station. A statement from the Saudi-Yemeni Cooperation Council issued on 14 December said that Saudi Arabia had agreed to reschedule Yemen’s $331mn worth of bilateral debt and to offer a further $300mn in new loans. The two countries also agreed on further cooperation in the field of education, agriculture, health, trade and investment.

Despite these developments, Yemen’s overall economic picture is far from strong. The country faces rapid population growth of 3% per annum and has experienced only limited growth in recent years. According to the World Bank, real GDP growth at market price is estimated at 3.9% and is projected to fall to 3.1% in 2001. Real non-oil GDP is estimated to have grown by 3.8% in 2000 and 4.6% in 2001. Oil continues to dominate the economy, with oil revenues accounting for some 31% of GDP compared to 20% in 1999. Efforts to diversify, such as the establishment of the Aden Free Zone, have been made, but as the World Bank points out, “the overall structure of the non-oil economy remains broadly unchanged.” A source at the Bank told MEES that last year non-oil revenue accounted for 11% of GDP but this year has fallen to 9.5% of GDP.

Privatization is on the cards and a privatization law does exist, although it has yet to be ratified by the parliament. But a Yemeni economist told MEES that “privatization is not what it’s supposed to be because the privatization law is still in the parliament.” Privatization of the National Bank of Yemen is still pending and has been ‘imminent’ for over a year. “I’ll believe it when I see it,” one source told MEES. “Everything is apparently ready to go, although there seem to be some outstanding issues related to bringing in a strategic investor. But if they want to do it they can do it right away.” And in general, private sector activity takes place in an environment often described as ‘challenging’. According to the World Bank, Yemen faces a “huge agenda...should it wish to create a climate that is truly hospitable to the private sector.” Higher oil prices have inevitably slowed the pace of change and notably the removal of the final subsidy targeted under the reform program – that on diesel. Opposition to the move has come from all sides, although the government is expected to move on the issue in the new year.

Yemen also has a significant debt burden to worry about, and according to the IMF is likely to face a continued rise in external debt over the long-term despite government efforts to reduce it. The Arabic daily Al-Hayat quoted the IMF on 1 November as saying that external debt as at end-March 2000 stood at $5,071mn compared to $4,751mn at the same time the previous year. Yemen was to have benefited from the World Bank/IMF-sponsored Highly Indebted Poor Countries (HIPC) program, which aims to secure debt relief for the world’s most burdened borrowers, but is now believed to be outside of the eligibility parameters and viewed as having a “sustainable” level of debt.

The ongoing primary policy issue, according to sources in the country, remains the underlying structure of the economy and its dependence on oil. “The environment is reasonably sustainable and stable, but the issue is that of growth on a per capita basis,” one San'a-based analyst told MEES. “When looking at the non-oil sector, if you’re looking at growth you really should be looking at non-oil growth. What you’re interested in is employment generation opportunities and probably even non-oil, non-government service growth. On a per capita basis, that’s not moving as much as it would need to, to generate reasonable employment opportunities. That’s the big issues that the government faces – how do you attract enough private investment to kick start reasonable economic growth?” 

Yemeni Budgets: 1999-2001

(YRMn)

Yemeni Budgets: 1999-2001 (Cont’d)

(YRMn)

FX: $1=YR160.

The remaining challenges are widely acknowledged and even publicly discussed, and include issues such as reform of the judiciary, legal enforcement mechanisms, corruption and issues related to land, but such questions are likely to be more time consuming, as the same analyst explained. “If you look at stabilization measures, they can be implemented with the stroke of a pen. A couple of technocrats can implement the unification of the exchange rate or reduce trade tariffs. But when you start talking institutional reforms and building development capacity, this is not something that can be done overnight.” Fewer political incidents could also serve to strengthen overall economic stability and encourage foreign investment. President 'Ali 'Abd Allah Saleh told Reuters on 14 December that the recent bombing of a US warship in Aden and the bomb attack at the British embassy “frightened off investors, companies and tourists and has damaged the economy.”

On the whole, however, both Yemeni and international sources seem convinced that the government is at least committed in theory to a reformist policy. “They are moving positively but slowly. If you were being generous you would say they are moving as quickly as they can, given their institutional capacity and that they are up against a tremendous amount of opposition from a variety of different places. When you try to implement change, it takes time to bring all parties on board, so things that you think should take only a couple of months take a couple of years. But whether it takes them two or 10 years, what counts is that they are moving in the right direction.” Any stalling in the process, however, may risk the loss of broad public and commercial support. In recent times, anti-reform protests have been minimal, but popular patience may run out if tangible progress does not result from reduced government financial support. As local analysts suggest, the removal of the diesel subsidy could prove a significant test for popular faith in the government. “If and when they begin to do that,” said one source “that’s when you will see what level of public support there really is.” 

© Copyright MEES 2003.

Like most of its richer GCC neighbors, Yemen is adopting a cautious approach to the windfall created by increased oil prices and has approved a budget for 2001 projecting a 25% rise in revenues to YR487.8bn ($3.049bn) but only a 17% rise in expenditures to YR501.9bn ($3.14bn). This austerity should lead to a reduction in the country’s total deficit to 1.4% of GDP compared to 3% the previous year, even though the rise in revenue is less than that projected in the previous year’s budget (see table below).

The Yemeni Government projects that oil revenues for 2001 will rise by 34% based on an annual crude oil export sales (accruing to the treasury) of 59.9mn barrels and an underlying oil price assumption of $22/B. (Oil production for domestic consumption is estimated at 31mn barrels per annum. Yemeni total oil production is now around 437,000b/d.) Taxation and customs revenues, however, are projected to increase by only 5% and 3% respectively, less than inflation which is estimated at around 12% in 2000 although expected to fall marginally in 2001. Moreover, no major change is expected in the income portfolio of the state, with oil revenues contributing 67.5% of total income compared to 63.3% in 2000 (MEES, 31 January). According to the budget, GDP in the 2001 is projected to rise by 8.2% to YR1,138bn ($7.11bn) from YR1,231bn ($7.69bn) in 2000.

Despite an ongoing program of structural adjustment which calls for a certain rationalization of the public sector, Yemen has increased its spending allocation to the line item ‘public services’ by 21%, has raised health spending by 11.5% and economic services by 46%. It has, however, reduced defense spending by 12.2% although, less positively, allocations to education have been cut by 0.9%. Moreover, as in the preceding budget, education is receiving a declining amount of the total investment and capital budget – 10.7% in 2001 compared to 12.3% in 2000. And the allocation to health is only 4.2% of the total and much lower than other countries with similar income levels.

A more realistic analysis of the budgetary figures is hampered by the absence of closed accounts for the previous year, allowing only for a comparison of official year-on-year budgetary allocations, but preliminary numbers would seem to suggest a positive outcome for 2000. According to the World Bank, the Ministry of Finance is now releasing monthly revenue and expenditure figures. The Bank says that the figures released for 3Q 2000 show a budget surplus of YR100bn ($620mn) and imply an annual surplus of over 10% of GDP. Recent media reports quoted the Central Bank governor as saying that Yemen is expected to post a budget surplus in the year 2000 due to high oil prices. However, the Bank cautions that “more rapid spending toward the end of the fiscal year, and supplemental budget expenditures to cover the increase subsidy cost due to the higher price of petroleum products, is likely to bring this surplus down to a more modest, yet still substantial, level of about 6%.” 

Even in the absence of final closed accounts, the country’s broad commitment to reform and liberalization is still apparent. Much like the rest of the region, Yemen is unlikely to accelerate the process as pressure eases due to higher oil prices. However, positive events in the past 12 months bode well for continued, albeit possibly slowed, reform. A series of what are seen as positive constitutional amendments were passed during the course of the year, which could underpin such efforts. According to the October issue of the World Bank’s Yemen Economic Update , these amendments reinforce Yemen as a market economy. They also call for “the State to oversee the freedom of foreign trade, and to encourage competition and protect investment, rather than the more interventionist expression of overseeing trade and promoting internal trade and investment.” Financial sector reform is beginning to be addressed with the government now permitting local newspapers to publish black-listed businessmen who have defaulted on commercial bank loans in an effort to reduce lending risk.

Efforts to reform the public sector, and particularly the civil service, are also continuing under the auspices of Yemen’s structural adjustment program. These aim to rationalize the government structure, build capacity and strengthen project management and implementation. One local economist involved in the process told MEES that “there is some progress and I’m optimistic for the next few years. If they modernize the public sector this should improve the tax collection and customs systems. They’re already computerizing the customs offices and the ports.” Yemen is also considering introducing a general sales tax. “It should have been approved by parliament last week,” the economist said, “but they postponed it until after Ramadan – once it is introduced it will contribute to boosting non-oil income.” Even unemployment, which is thought unofficially to be in the 20% range, may be more directly addressed once the labor survey, which was completed this year, is acted upon. And the boost to the treasury that high oil revenues have brought will not go unnoticed. According to the World Bank, due to high oil prices “Yemen’s foreign reserves continue to balloon, increasing by $213mn to $2.56bn or 10.2 months worth of imports by end September.” Yemen is even in the process of taking the necessary steps to start a WTO accession application.

Yemen’s financial situation may be further improved by renewed financial aid from Saudi Arabia. Prime Minister 'Abd al-Karim al-Iryani met with Saudi officials on 11 December to discuss the resumption of financial assistance from the kingdom to Yemen. Up until 1989 Saudi aid to Yemen amounted to some $100mn annually, but this was cut off in 1990 following the position taken by Yemen during the Iraqi invasion of Kuwait. The border agreement signed earlier this year has significantly improved relations between the two countries, and the possibility of Saudi Arabia financing other development projects in Yemen is being discussed. According to a report in the Kuwaiti daily Al-Watan on 11 December, this could include the modernization of San'a airport, the construction of a 400km road between San'a and Aden and a 400MW power station. A statement from the Saudi-Yemeni Cooperation Council issued on 14 December said that Saudi Arabia had agreed to reschedule Yemen’s $331mn worth of bilateral debt and to offer a further $300mn in new loans. The two countries also agreed on further cooperation in the field of education, agriculture, health, trade and investment.

Despite these developments, Yemen’s overall economic picture is far from strong. The country faces rapid population growth of 3% per annum and has experienced only limited growth in recent years. According to the World Bank, real GDP growth at market price is estimated at 3.9% and is projected to fall to 3.1% in 2001. Real non-oil GDP is estimated to have grown by 3.8% in 2000 and 4.6% in 2001. Oil continues to dominate the economy, with oil revenues accounting for some 31% of GDP compared to 20% in 1999. Efforts to diversify, such as the establishment of the Aden Free Zone, have been made, but as the World Bank points out, “the overall structure of the non-oil economy remains broadly unchanged.” A source at the Bank told MEES that last year non-oil revenue accounted for 11% of GDP but this year has fallen to 9.5% of GDP.

Privatization is on the cards and a privatization law does exist, although it has yet to be ratified by the parliament. But a Yemeni economist told MEES that “privatization is not what it’s supposed to be because the privatization law is still in the parliament.” Privatization of the National Bank of Yemen is still pending and has been ‘imminent’ for over a year. “I’ll believe it when I see it,” one source told MEES. “Everything is apparently ready to go, although there seem to be some outstanding issues related to bringing in a strategic investor. But if they want to do it they can do it right away.” And in general, private sector activity takes place in an environment often described as ‘challenging’. According to the World Bank, Yemen faces a “huge agenda...should it wish to create a climate that is truly hospitable to the private sector.” Higher oil prices have inevitably slowed the pace of change and notably the removal of the final subsidy targeted under the reform program – that on diesel. Opposition to the move has come from all sides, although the government is expected to move on the issue in the new year.

Yemen also has a significant debt burden to worry about, and according to the IMF is likely to face a continued rise in external debt over the long-term despite government efforts to reduce it. The Arabic daily Al-Hayat quoted the IMF on 1 November as saying that external debt as at end-March 2000 stood at $5,071mn compared to $4,751mn at the same time the previous year. Yemen was to have benefited from the World Bank/IMF-sponsored Highly Indebted Poor Countries (HIPC) program, which aims to secure debt relief for the world’s most burdened borrowers, but is now believed to be outside of the eligibility parameters and viewed as having a “sustainable” level of debt.

The ongoing primary policy issue, according to sources in the country, remains the underlying structure of the economy and its dependence on oil. “The environment is reasonably sustainable and stable, but the issue is that of growth on a per capita basis,” one San'a-based analyst told MEES. “When looking at the non-oil sector, if you’re looking at growth you really should be looking at non-oil growth. What you’re interested in is employment generation opportunities and probably even non-oil, non-government service growth. On a per capita basis, that’s not moving as much as it would need to, to generate reasonable employment opportunities. That’s the big issues that the government faces – how do you attract enough private investment to kick start reasonable economic growth?” 

Yemeni Budgets: 1999-2001

(YRMn)

Yemeni Budgets: 1999-2001 (Cont’d)

(YRMn)

FX: $1=YR160.

The remaining challenges are widely acknowledged and even publicly discussed, and include issues such as reform of the judiciary, legal enforcement mechanisms, corruption and issues related to land, but such questions are likely to be more time consuming, as the same analyst explained. “If you look at stabilization measures, they can be implemented with the stroke of a pen. A couple of technocrats can implement the unification of the exchange rate or reduce trade tariffs. But when you start talking institutional reforms and building development capacity, this is not something that can be done overnight.” Fewer political incidents could also serve to strengthen overall economic stability and encourage foreign investment. President 'Ali 'Abd Allah Saleh told Reuters on 14 December that the recent bombing of a US warship in Aden and the bomb attack at the British embassy “frightened off investors, companies and tourists and has damaged the economy.”

On the whole, however, both Yemeni and international sources seem convinced that the government is at least committed in theory to a reformist policy. “They are moving positively but slowly. If you were being generous you would say they are moving as quickly as they can, given their institutional capacity and that they are up against a tremendous amount of opposition from a variety of different places. When you try to implement change, it takes time to bring all parties on board, so things that you think should take only a couple of months take a couple of years. But whether it takes them two or 10 years, what counts is that they are moving in the right direction.” Any stalling in the process, however, may risk the loss of broad public and commercial support. In recent times, anti-reform protests have been minimal, but popular patience may run out if tangible progress does not result from reduced government financial support. As local analysts suggest, the removal of the diesel subsidy could prove a significant test for popular faith in the government. “If and when they begin to do that,” said one source “that’s when you will see what level of public support there really is.” 

© Copyright MEES 2003.