Another signal of the government’s poor performanceIMF: Yemen’s economy not looking good [Archives:2005/845/Front Page]

May 26 2005

By Walid Al-Saqqaf
For the Yemen Times

Washington – Yemen may face economic catastrophe in the long-run if the government's economic performance does not improve, according to the International Monetary Fund (IMF). In its annual economic assessment, the IMF warned the Yemeni government of long-term challenges if it continues to ignore or delay serious urgently needed reforms. The IMF said Yemen's economy is at a crucial crossroads and if the government does not adjust its policy, “long-term fiscal and external positions would be unsustainable.”

According to the reputable economic organization, the year 2004 witnessed one of the worst performances in economic development. It is a year marked with significant slowdown in economic growth with a per capita GDP growth of -0.4, a high fiscal deficit of more than 3%, and most important of all, a declining oil production by a record margin of -5.9%. This indicated 'diminishing recovery from aging large oil fields and absence of significant new discoveries.'

The IMF warned that the government's over-dependence on oil production, as the major source of income, carries with it long-term risks and implications. Income from oil production constitutes about 60% of the government's annual budget.

Meanwhile, the IMF joined the Yemeni public in expressing concern about the 2004 surge in prices and attributed this increase to the government's 'expansionary fiscal and monetary policies'. Besides the need to tighten monetary policy, the IMF recommended that the government protect the poor by 'strengthening social protection mechanisms' and improve public expenditure management and tax customs administration.

However, the IMF also urged the government to start lifting petroleum subsidy, something that the government had been delaying time after time because of an anticipated inevitable result of skyrocketing prices of almost all goods, consequently leading to more suffering of the poor, particularly as the government has not prepared any means to 'strengthen social protection' for the poor as suggested by the IMF. The organization also called for the reduction in the wage bill through retrenchment rather than a wage freeze, and called for the immediate implementation of the revised General Sales Tax.

The need to address the thriving phenomenon of corruption has also been noted by the IMF, which viewed the current investment environment as lacking significant improvements to enable private businesses to operate with high profit and help drive the economy forward.

To avoid long-term trouble, the government should focus on structural reforms and the development of non-oil income sources, the IMF suggested.

The annual report is the last of a series of economic reports assessing Yemen's economic performance, which has been viewed negatively by both the World Bank and IMF in the last few years.

Yemen remains one of the least developed countries in the world and ranked 149 out of 177 countries on the UNDP Human Development Index (2004). With an extremely low per capita GDP of US$460, recent economic setbacks are expected to lower this further and increase the rate of people living in poverty, which currently stands just below 50%. Yemen's unemployment rate, standing at a strong 40% is also expected to rise and alarming economic indicators have been looming in the country for the last few years despite several pledges and promises of the government to improve the economy and living standards of the public.