The World Bank response [Archives:2004/755/Business & Economy]

By Peter Willems
Yemen Times Staff
President Ali Abdullah Saleh announced last month that reducing subsidies on diesel fuel would be delayed. The president claimed that there might be repercussions, such as social unrest, if prices for consumer products rose when subsidies for diesel, which amounts to $600 million a year, decreased.
The World Bank, which assists the Yemeni government to plan and implement economic reform, has expressed concern for the delay of reducing, and eventually eliminating, subsidies on oil products.
The government of Yemen has been quite clear with us that while they say they accept our recommendations, now is not the time to act on them, Robert Hindle, Country Manager of The World Bank in Yemen, told Yemen Times. But The World Bank continues to believe that our recommendations, which the government broadly accepts, are easier to follow sooner rather than later.
One of The World Bank's concerns is the possible pressure on Yemen's budget that could develop in the near future if important economic reform measures are not implemented soon.
The budget depends mostly on oil revenue: Roughly 85% of the budget relies on oil royalties. Oil revenue stabilized over the last four years, and The World Bank predicted that it would go down 5% in 2004. But according to Hindle, It looks like it is going down faster than that.
Hindle paints a picture that is not very pretty of what could happen to Yemen's economy as the government's revenue continues to fall. As oil royalties go down, the government will not have enough money to continue its investments in projects, such as building schools, roads and improving the water supply. To continue to pay salaries the largest part of the budget the budget would turn into a deficit. A budget deficit could lead to inflation which puts pressure on the exchange rate which means that the stability of the overall system will be in question, said Hindle.
Worse yet, some of the symptoms of a possible economic crisis are already popping up: Inflation over the last 12 months was up to around 15%.
“We are concerned that there will be a squeeze on the budget