Economic Reform: What Remains?! [Archives:2001/50/Business & Economy]

December 10 2001

Mahyoob Al-Kamali
The World Bank is still supervising the economic, financial and administrative reforms in Yemen. The majority of people wonder what the last five years of the reform program has accomplished so far. On this topic, Mr. Mahmoud Ayoub Al-Moshref, the Regional Manager of the World Bank and the Supervisor of the Economic, Financial and Administrative Reforms Program, said five important issues were still in need of being tackled. Water shortages, population growth, environment and economy, illiteracy, and education are the most pressing issues that urgently require solutions, he said.
He said the shortage of water would be a real challenge during the next twenty years. Many plans to address this problem have been developed.
Yemens population growth exceeded three percent. The Regional Manager greatly stressed the problem of maintaining the current rate of population growth without an increase in economic growth. He also discussed problems of meeting the needs of the increasing population, including providing employment opportunities and encouraging the private sector to take part in the process of development.
The third issue that Ayoob addressed is improving the environmental and economic conditions in the country, including the participation of the private sector. This issue constitutes one of the most significant challenges to the Yemeni government. The government cannot achieve the economic reforms without reviewing current administrative rules to eliminate obstacles to investment by the private sector.
The Regional Manager of the World Bank has proposed new strategies involving the financial sector assisting the private sector in order to create an atmosphere of economic trust and to increase economic performance. This, of course, will lead to a comprehensive development process.
Education Reform
The fourth issue, which is vital to the success of the other economic reforms, is addressing the deteriorating situation of education. This includes urging each citizen to participate in the economy resulting from the policies of globalism. The World Bank sees that Yemen must pay great attention to the issue of womens education and eradicating the high levels of illiteracy among Yemeni women. The World Bank has urged Yemen to implement technical and educational programs, as well as offer rehabilitation and training to women to enable them to become active members of Yemeni society, according to their vocational specializations.
Diversification of Income
Perhaps the most significant issue of the economic reforms is the need to diversify the sources of national income, rather than depending on oil revenues. The diversification of income will ensure adequate revenue for the national general budget. Consequently, the government has to perform the following:
1. Encourage an increase in the production of local products in order to raise exports, including agricultural and economic products.
2. Increase the funds from the budget allocated to farmers, fishermen, market research and advertising programs.
3. Impose a sales tax in order to increase the national income.
The Problems and Challenges of Economic Reform
It is noticeable that implementation of what remains of the economic reform policies in Yemen will of course lead to other economic problems. The most significant challenge is the difficulty of decreasing population growth while eliminating birth control, which is considered disagreeable to Islam. In this case, the government has to take administrative measures and issue labor legislation in order to provide job opportunities for unemployed people, urging the private sector to participate in the developmental process. In addition, imposing a sales tax will lead to the augmentation of prices and will negatively affect low-paid employees, which will in turn entail an increase in funds to social programs to ensure the well-being of thousands of poor families.
Concerning the diversification of income through non-oil resources, the government must conduct studies regarding the possibilities of exporting agricultural and economic products and replacing the cultivation of qat with useful products such as fruits and vegetables, which can be canned and exported. However, the problem lies in the fact that the government has to find immediate alternatives in order to ensure incomes for qat growers. This, of course, will cost a large amount of money.
Accordingly, the economic reform programs in Yemen require a long tentative study, and implementing what remains of this reform will entail additional expenses in order to account for the chronic deficiency in the budget.
World Bank Finances New Projects at Cost of US $200 Million
The government sources expected that the World Bank will finance new projects during the next two years amounting to US $200 million as part of a plan to support economic reforms. Recently, the World Bank has implemented 22 projects in the area of general social services, including a strategy to eliminate poverty in Yemen and to address the problem of income distribution in Yemeni society.
The Intentional Bank has offered simple loans at a rate of 25% for ten years. The projects financed by these loans will focus on basic education, health, drainage in the rural areas, improving irrigation and supporting women in all aspects of life.
The official statistics point out that the turnover of loans and assistance granted to Yemen from the World Bank from 1971 to 2000 total approximately 119 projects in all different sectors, including agriculture, health, energy, electricity, fish, transportation, water and industry.
Sources in the Ministry of Development and Planning said that around 111 projects have been implemented, and among those projects financed by the World Bank to support economic reforms is technical assistance to privatization programs, which totaled US $200 million. Support for the judicial system totaled US $2.5 million. The World Bank also financed the project of Public Works at the cost of US $60 million, and the Social Fund is financed at the cost of US $75 million.
These projects aim at alleviating poverty and unemployment, and attending to the negative effects of the economic reform programs, which have resulted in the elimination of government assistance for foodstuffs and raising the prices for electricity, water, telephone and transportation services.
The Bank has offered loans to finance some reforms in the banking system totaling US $80 million, US$ 25 million to the agricultural development sector and US $1.8 million to the health sector. Thus, Yemen will not deal with the commercial loans granted by the World Bank to the Yemeni Bank for Construction and Development. Instead, it will get loans and grants from the International Development Corporation, which is one of the five corporations belonging to the World Bank, along with the Yemeni Bank for Construction and Development.
Yemen is a member of the International Insurance Corporation for Investment and has been granted loans from the International Monetary Fund with the aim of establishing financial and economic reforms in accordance with the commitments promised by these sides in the Donors Conference in Paris in 1997.