2005: Negative economic impact & social failure [Archives:2006/910/Business & Economy]

January 9 2006

In 2005, Yemen accomplished economic gains and developments, especially in infrastructure construction. However, against this emerged many hot issues related to implementing a price reform package in which prices of oil products increased, thereby negatively impacting society and leading to violent acts and confrontations.

Among 2005 measures were legislative and legal amendments to many financial laws, such as customs tariff law, which created some conformity among customs work concepts and tried as much as possible to overcome some neighboring countries' practices, especially GCC states, in dealing with tariff structure and organization. Another act involved sales tax law and what results from some exemptions serving citizens. There also were financial and administrative reforms, such as a strategy to reform the financial administration, raise employee salaries and restructure many government institutions.

Economists view measures adopted by the Yemeni government to be among efforts that might help uproot corruption disseminated throughout state institutions, but they need actual implementation, which was not done in 2005, nor was there any tangible progress seen or commitment to requirements stipulated in the United Nations agreement to fight corruption, approved by Yemen that same year. This led to Yemen's being deprived of support from the Millennium Fund and a reduction of approximately $200 million in World Bank support.

Yemen was an increase in its foreign trade exchange the first half of 2005, wherein the volume of trade exchanged between Yemen and world nations rose to YR 755 billion. Officials expected the value of trade exchange to increase to YR 1.8 trillion, compared to YR 1.4 trillion in 2004, a 21 percent increase.

While Yemen's government officials view the increased volume of trade exchange as resulting from trade liberalization and investment openness by the Yemeni government since 1995, specialists in this area consider that the open trade policy did not reflect positively on the nature and structure of Yemeni exports because oil still is the main export commodity, consisting of more than 90 percent of exports and about one-third of the gross domestic product. Against this, non-oil export shares remained marginal, limited to 8 percent of total exports, less than industrial product exports.

Although Yemen managed to reduce its external debts to $5.6 billion, equaling about 40 percent of the gross domestic product, it faces problems due to lack of a clear strategy in dealing with loans, lack of active coordination with concerned parties and weakness in monitoring and evaluating implementation of funded projects. This led to appropriating YR 19 billion in the 2005 budget to repay debts resulting from installment interest and allotting YR 29 billion for the same purpose in the 2006 budget, indicating annually increasing loan burdens.

This made financiers reconsider and reduce loans and assistance to about 34 percent. The situation increased financiers' demands on Yemen for real endeavors in structural reform, establishing a suitable environment to attract foreign investment capital and fighting corruption.

Yemeni specialists and officials expect the country will witness noticeable economic recovery in 2006, especially in tourism, investment and infrastructure and that oil prices will maintain their increase, produce a stable exchange rate, stabilize balance payments, assist government spending and provide for continued implementing of infrastructure projects. By implementing this, Yemen will work towards partnership with GCC states in a manner reflecting positively on expatriates' circumstances in those countries and realizing economic growth, approximating GCC demands regarding economic improvement.

Specialists also expect 2006 will see a real and serious campaign against corruption, especially after the president's announcement to form a committee specialized in fighting corruption. In the wake of retreating international support for Yemen, Members of Parliament have worked toward setting up another committee to fight corruption. This may constitute a reasonable limit on corruption, considered a stumbling stone to economic development in Yemen.