Reforms package to inaugurate 2006 [Archives:2006/909/Business & Economy]

January 5 2006

By Mahyoub Al-Kamali
The Yemeni government intends to begin the New Year by introducing a comprehensive reforms package in an attempt to win Yemeni citizens' trust prior to presidential elections this September.

The Yemeni cabinet obliged relevant ministries to prepare executive programs so there will be immediate implementation of executive reform measures taking clear-cut practical steps at the beginning of this year. In its last meeting, the cabinet approved measures concerning political, democratic, judicial, financial, investment and taxation processes, as well as reforming local authority and civil service systems. The measures also touch on modernizing the administration and enhancement of women's roles in public and political life.

The cabinet established a team to inspect and follow up the timetable of the executive reforms, which are to be submitted for final approval and adoption prior to implementation, as well as follow up field implementation.

Parliamentary recommendations approving the 2006 budget were not confined to financial affairs but included improving self-resources and revenues from non-inflationary sources and supporting domestic development efforts.

A parliamentary budget committee report mentioned that the inflation rate exceeded 10 percent in 2005 due to increased public spending at a rate of 41 percent, as well as the 2006 draft budget spending increase to 74 percent of total spending. This situation will have an inflationary impact leading to increased prices for goods and services due to weakness and inflexibility of the national economy's production apparatus, as well as imbalanced supply and demand for commodities and services.

The report also anticipated a rise in foreign currency exchange rates against the falling national currency, thereby denying government's ability to fulfill its promise to stabilize exchange rates. The report attributed this increase to the growing negative trade deficit of 11 percent alongside a six percent increase in imports. The current deficit amounts to YR 27 billion, in addition to chronic deficit due to services related to balance payments.

The budget committee warned of continued price increases if interest results in a further drop in average economic growth. It also criticized government negligence in defining monetary and developmental policy in its financial statement.

It did not touch on treasury bond policy or treatment of increased loan interest, noting it has risen to 21 percent and how it will negatively reflect on investment. The committee's report also mentioned weakness in amounts allotted to budget essential infrastructures such as roads, electric power and water. It anticipated future aggravation of unemployment in the light of current economic growth rates characterized by weakness and retreat.

Parliamentary opposition blocs, on the other hand, criticized government's “program of economic reform,” saying no development is occurring in supporting Yemeni exports and that oil is still the major commodity in that it constitutes 90 percent of exports and approximately one-third of Gross Domestic Product. Contrary to that, the share of non-oil exports remained marginal and limited at 8 percent while exports of manufactured goods maintained a level less than 1 percent.

The government also approved a draft law to fight corruption. The law stipulates establishing the Higher National Body on fighting corruption, staving off its dangers and impact, pursuing those who are corrupt and retaining and restoring proceeds resulting from illegal transactions. The law also stipulates stabilizing the principle of transparency in economic, financial and administrative dealings, as well as evolving the principle of decency.