Yemen has passed a budget for 2003 which forecasts a deficit of YR64bn ($365.9mn), an increase of 28.6% from the country’s budgeted deficit of YR49.8bn ($284.6mn) in 2002. This represents some 3% of GDP. The deficit has hovered around this mark since 1997 and represents a dramatic improvement on the troubled first half of the 1990s which saw the deficit at around 14.5% of GDP in 1994. Yemen even saw a realized budget surplus of some 6-10% in 2000 on the back of high world oil prices (MEES, 18 December 2000). Total public income and total public expenditure for 2003 are both set to rise by just over 25%, with income reaching YR604.4bn ($3.45bn) and expenditure increasing to YR668.4bn ($3.82bn). The budget also forecasts nominal GDP for 2003 at YR2,136.4bn ($12.2bn), an increase of 28.7% on 2002 nominal GDP.

However, the real increase in GDP (which the government puts at 4.2%) and in revenues and expenditure, is significantly less than the nominal figure suggests, owing to the high rate of inflation which continues to plague Yemen. According to the IMF, the consumer price index (CPI) reached 22% in December 2001 on the back of large increases in diesel and electricity prices, and the price of agricultural goods, although core inflation remained in single digits. This does, however, represent an improvement on the performance of the 1991-96 period when inflation averaged 41.6%, and the trend for 2002-03 continues to be downwards according to the IMF (MEES, 16 September 2002). According to Deputy Prime Minister and Finance Minister 'Alawi Salami the Yemeni Government is aiming to keep inflation checked at 7% in 2003.

The lion’s share (67.8%) of total self-generating income is expected to come from minerals and oil revenue which is forecast to earn YR373.9bn ($2.14bn), demonstrating the country’s continuing over-dependence on volatile oil revenues. The figure represents an increase of 21.9% against year 2002 budgeted mineral and oil revenue of YR306.6bn ($1.75bn), and is based on an oil price assumption of $21/B, as given in the draft budget approved in November (MEES, 11 November 2002). Oil exports for 2003 are forecast at 59.86mn barrels, generating revenue of YR220bn ($1,257mn) and local consumption is set at 36.5mn barrels generating YR135.5bn ($774.2mn). Gas production is put at 616,494 tons which, at an estimated price of $129 per ton, is expected to generate YR13.9bn ($79.5mn). The remaining YR4.5bn ($25.8mn) in projected mineral and oil revenues is accounted for by the repayment of debt owed to the state oil company by Yemen’s Ministry of Defense. 

Taxation (including zakat) and customs revenue contribute YR134.3bn ($767.4mn) or 24.4% of self-generating income, while a total of around $295mn is expected in loans and aid. Expenditure sees YR199.2bn ($1.14bn or 30% of total expenditure) spent on wages and salaries, while capital expenses and transfers come to YR154.4bn ($882.1mn, 23.1% of total), and debt service and current transfers account for YR129.1bn ($737.9mn, 19.3% of total). Capital expenses see a particularly large increase of 60.7% on budgeted spending in 2002, while debt service also sees a significant rise of 26.7%. Foreign debt payments, though, see a fall of 12.6%. Budgeted spending on general public services (under Investment and Capital Budgets) has increased by a total of 58.6% to YR184.6bn ($1.05bn). All categories apart from defense, which sees a 58.4% fall, are forecast to receive significant increases in spending. This is despite the fact that Yemen has become the focus for part of the US war on terrorism, and security around the country’s ports has been stepped up following the attack on a French oil tanker in October last year.

According to Mr Salami, the new budget focuses on economic recovery by expanding the development base in terms of production, services, the development of basic infrastructure, and increases in investment spending. The government is also encouraging local and foreign private sector firms to enter into new investments in the oil industry, mineral extraction and cement. As part of this policy Yemen launched a push to increase investments in oil and gas in July, announcing a policy of flexibility in negotiation and a commitment to amend existing legislation if necessary to ease the path for new investors seeking to establish operations in the country (MEES, 8 July 2002).

The overall picture for the Yemeni economy looks reasonable, despite many problems such as high unemployment, population growth and poverty rates, inflation, low foreign exchange reserves, and over-reliance on oil revenue. Following unpromising performance of 2000-01, 2002-03 is set to see an upturn, according to recent IMF Article IV consultations (MEES, 16 September 2002). The IMF has urged Yemen to implement reform of its tax system, rationalize the civil service, speed up privatization and control monetary growth to reduce inflation, but these are common complaints amongst development institutions, and the IMF has frequently commended the government’s efforts to maintain macroeconomic stability in a difficult environment. These efforts were recently rewarded with a pledge from donor countries to provide $2.3bn over the next three years to implement a Poverty Reduction Strategy (PRS) designed with the help of the World Bank (MEES, 4 November 2002). The PRS will help to promote the government’s general development goals and in particular focus on promoting development of human resources, good governance and administration, ensuring social protection, and encouraging participation of the private sector. With potential local instability caused by the government’s participation in the US war on terrorism limiting much needed foreign investment and tourism, the country will continue to need such outside help to stay on an even keel.

Yemeni Budgets: 2000-2003

(YRMn)

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Exchange rate: $1=YR175.

Source : Yemen Government official documents.

© Copyright MEES 2003.