The Short-Lived Glory: Fiscal & Monetary Crash [Archives:1998/43/Front Page]

October 26 1998

The main showcase of the on-going economic and administrative reforms has been the success achieved in fiscal and monetary policies. Now, even that is in doubt. 
The IMF/World Bank supported reform program looks good on paper. But the point which has been repeatedly made is that the system in which such a program is supposed to work is not a good one. 
The basic requirement for the success of any reform program is good governance, which we presently don’t have in Yemen. Hence, the hundreds of millions of dollars poured in by multilateral and bilateral donors, is a misuse of funds. In addition, it leaves us saddled with a new debt burden, however good the terms. 
Correcting the government budget deficit was a major objective of the reforms. It was even shown to work, albeit with lots of subsidy to the state. But look at the situation this year. 
The budget deficit, so far, is fast approaching the YR 100 billion mark – a solid 13% of GDP. By year end, it could reach a troubling 20%. 
The problem is simple. The main point of any good fiscal policy is better management of expenditures, and better collection of revenues. In both cases in Yemen, the people who are supposed to do the job are the culprits. The people who mismanage our public expenditures are those same people who avoid paying taxes – the influential people who run the country directly or indirectly. 
Another part of the reform showcase has been the steadying of the exchange rate. The US dollar-Riyal rate remained within the YR 130-138 for a long time. That is because the Central Bank of Yemen has had the foreign exchange resources to intervene to keep it there. Now that the CBY has less FX resources, the riyal has started a downhill tumble. It seems to lose a riyal a day. The market exchange rate stands today YR 148 per US dollar, in spite of angry warnings from our ruling politicians, and lots of maneuvering by technocrats. The fall continues. 
If we want real reforms, the nation has to go back to basics – good governance. Unless the reforms achieve that, forget about everything else. 
By: Abdulaziz Al-Saqqaf, 
Professor, Sanaa University