Experts: Yemen needs to stop subsidizing Oil [Archives:2007/1062/Local News]

June 25 2007

SANA'A, June 23 ) In a meeting held at Sana'a University, experts from the World Bank met with the faculty of Sana'a University, economists, and development experts in order to discuss the developmental challenges Yemen faces in the coming short terms.

During the event, the World Bank experts have presented two country reports, the first is the Development Policy Review, and the second is the Country Social Analysis. Under-secretary of the Ministry of Planning and International Cooperation Dr. Mutahar Al-Abasi, expressed the government's faith in the reports of the World Bank, considering that the bank has respectable international experience which provides analytical and technical support for the countries in which it operates. He also stated that the World Bank is heavily involved in the developmental strategies of Yemen in various sectors.

However, he also indicated that although the report did tackle several important economic and social issues affecting Yemen's development, the report ignored other important aspects such as economic growth, macroeconomic reforms, administration of public funds and the government's budget, fiscal policy, as well as other challenges.

In addition to that, he also stated that the report should be more 'optimistic' about the abilities of the Yemeni people, who have fought to survive hardships throughout their history, indicating that such social analysis reports should be less pessimistic in order to provide a more realistic picture.

World Bank Economist Mr. Srinivason Thirumalai, author of the Development Policy Review in Yemen, has stated that although Yemen has had accomplished an average of 5 percent growth rate since unification, however, it does face some serious challenges.

Mr. Thirumalai has summarized the challenges Yemen faces in five points, the first of which is the declining of oil production, which indicated that Yemen might exhaust its Oil resources by 2012, the second is the weak governance mechanism and the problem of widespread corruption, the third is the high population rate of 3 percent, the highest in the Arab world, while the fourth is the shortage of drinking water and the severe water crisis.

Dr. Ali Al-Ansi of Sana'a University has stated that Yemen will face a devastating disaster within the coming few years, as Oil production and revenue declines, this will result in the government's failure in maintaining fiscal sustainability. He also added that although the gas revenue will barely compensate for one quarter of the current oil revenue, Yemen will have severe fiscal crisis. Additionally, he indicated that the development policy review suggests that Yemen lifts all subsidiaries on Oil, and increases taxes, a recommendation which he has several reservations on. He elaborated saying that it is virtually impossible to lift Oil subsidiaries due to the social impact and the increases of almost all prices.

Professor of Economics at Sana'a University Dr. Ali Qaid has stated that the development policy review has some fundamental flaws, as the review has ignored focusing on the sources of positive economic growth, such as the focus on industrial development, human capital creation, and other sources of economic growth. Further, he indicated that the recommendations given by the World Bank to illuminate fuel subsidiaries and increase taxes in order to maintain an acceptable fiscal sustainability is simply “bad advice”, indicating that the social ramifications and the impact this would devastating on the public.

Mr. Thirumalai, author of the development review, has commented that the reforms the World Bank is advocating for is a package, as there are programs on the way in order to create a social safety network in order to help the most deprived segments of the society. Moreover, he pinpointed that Yemen spends 9 percent of its budget on fuel subsidiaries, which benefit mainly the richer segments of the society; he said that subsidiary reduction should be gradual, as a sudden removal of this subsidiary would be suicidal in a fragile economy such as Yemen's. He concluded his remarks by stating that the Yemeni government spends only 2 percent of its budget on health, which does not make any economic sense.