Japan eliminates part of Yemen’s debt [Archives:2004/774/Business & Economy]

September 20 2004

By Peter Willems
Yemen Times Staff

Yemen and Japan agreed last week that Japan will write off $17 million of Yemen's debt.
Reducing Yemen's debt to Japan was announced after the agreement was signed by Yemeni Minister of Finance Alawi Saleh Al-Salami and the Japanese Ambassador in Yemen Yuichi Ishii last Wednesday.
“The accord stipulates that Japan waves two billion Japanese yen, which is the equivalent of $17 million, from Yemen's debts,” said a statement from the Japanese Embassy located in Sana'a.
The present reduction of Yemen's debt to Japan is one of several steps planned to be taken to eliminate up to $60 million by 2012.
“Japan and Yemen are making very good progress in lowering Yemen's debt,” Ahmed Ghaleb, Deputy Minister at the Ministry of Finance, told Yemen Times.
The Yemeni government has taken steps to lower its overall debt since economic reform started in the mid-nineties. According to Ghaleb, Yemen's debt was around 200% of its GDP in 1994. The country's debt is now down to 53% of GDP.
“Over the years, Yemen has been able to reduce its debt substantially,” said Ghaleb. “Fifty-three percent of the GDP is healthy to Yemen's economy, at least for the medium term.”
The Yemeni government has also implemented other measures that have stabilized the economy. Last year, foreign reserves surpassed $5 billion for the first time, and even though the riyal has lost some value over the last few years, local currency has been relatively stable. At the beginning of this year, Capital Intelligence, an international emerging markets rating agency, raised Yemen's long-term foreign currency rating.
But many analysts are concerned about the future of Yemen's economy. Economic growth is not keeping up with the rise in population. The population growth rate is estimated to be as high as 3.6 percent annually, while the economic growth rate fell below 3.6 percent last year and might not exceed 3.3 percent in 2004. Forty-two percent of Yemen's population live in poverty, while 25% live just above the poverty line. It is also estimated that as many as 40 percent of the Yemenis are out of work.
The World Bank, which offers guidance and financial support to Yemen, has urged the government to pick up the pace on economic reform. There have been rumors that The World Bank has threatened to pull out of Yemen if more reform measures are not pushed forward. Robert Hindle, Country Manager of The World Bank based in Yemen, said last week that The World Bank has not made any threats. He said that according to the bank's policies, it is likely that The World Bank would reduce financial support if more economic reform measures are not implemented.