Yemen’s economic reform programWhy price hikes may fail [Archives:2004/711/Business & Economy]

February 12 2004

By Mohammed Hayder
For the Yemen Times

Criticism against the course of the economic reform program of the government continues because of rising prices that are scheduled.
The reform also seems to disregarded corruption policy.
The government on the other hand has complained on many occasiona of corruption and its spread inside the administrative machinery of the state and in various areas of economic and social areas.
This expression by the government is more felt that the citizen who is overwhelmed by the situation and feels the heavy impact of corruption throughout the eight past years, since the implementation of the program was kicked off in 1995.
We cannot at any rate take seriously into consideration what the government has termed the policy of price rise, without any objective justification, as ” price reforms,” even though it is carried out at circumstances necessitating the reform process.
Reform would necessarily require a big amount of creating balance between what is economic and what is social. The absence of such equilibrium would lead to failings in the policies of the economic and financial reform, and it would cause the program to lose its credibility in addressing the real reforms and expose it to failure, as the case now is.
The government is focusing on carrying out price rise doses and making it the central issue of the reform processes, disregarding the reform of other central and more vital issues mentioned in its financial statements over the past years.
It is not necessary to have the prices rising in all cases, for sometimes it is necessary to have the indicator at lower scales, and relatively firm price indicators, because that is a major factor for the stability of the national currency and purchasing power, and for the economic and social stability in general.
The relative stability of prices also helps much to encircle inflation, unlike the price rise that would cause continuous drop in the economic performance and deterioration of social situations and the increase of the volume of unemployment and poverty.
The program is characterised largely by a contradiction of policies and precepts.
On the one hand, the program calls, among other things, for lowering the rate of inflation and the rise in rates of gross domestic product growth, fighting poverty, stability of prices and improvement of living conditions of the population, but the price hike dose to be introduced in this year, embodied by reducing the subsidiary of oil and its products prices to YR 40 billion after it was in the budget of he year 2003 at YR 48.1 billion. And this is at the expense of the citizen's living. How can we practically imagine that the program would realize such goals while it is in a condition of ambiguous vision of an integrated strategy for the program?
Comparing the volume of overall estimation of the 2004 budget to that of 2003 we find a deficit by 3.99%. This deficit represents a group of failures the national economy is suffering and embodied by economic burdens reaching percentages ranging between 2 to 3% of the GDP in the past years.
The government has to bear the responsibility of results of the policies and measures of the reform program, and to evaluate its performance in a way to achieve relative balance, economically and socially.
Before carrying out this assessment operation, the government has to halt implementation of the new price dose for this year, which is intended to mainly raise prices of oil and its products, that consequently would lead to multi-lateral dangers and damage such as:
-continuation in the rise of prices of foodstuffs, transport and communications and other vital services,
-continuation in the increase in rates of poverty and unemployment in the society,
– continuation in the rise inflation, growth and deterioration of the Yemeni rial, as well as retreat in growth of investments, resulting from weakness of savings growth. It would keep dependence on borrowing loans and foreign aid, a process managed in a non-economic mentality,
– drop in rates of GDP growth and an increase in the rates of the growth of the state budget deficit.
The government has been used in previous times of implementing the program to choose the suitable timing it sees suitable for carrying out the decision of raising prices of commodities.
This time it could be anytime after the Eid holidays and then it could be fully prepared for to subdue any possible reactions by those targeted by the new dose.