DUBAI: Yemen has made good progress in addressing fiscal imbalances weighing on its economy but the impoverished country’s dwindling oil output and unrest make for an uphill struggle, a senior IMF official said.
Total revenues in 2010 stood at around 27 percent of gross domestic product (GDP), up from 25 percent in 2009, while total expenditures were 32 percent of GDP, down from 35 percent in the previous year.
"That actually is quite some progress compared to 2009," Hassan Al-Atrash, the International Monetary Fund (IMF) head of mission to Yemen, told Reuters by phone from Washington.
Measures including the introduction of a general sales tax and the elimination of most customs exemptions had helped boost revenues, while spending had fallen thanks to cuts in fuel subsidies, he said.
But Yemen’s economic situation was still difficult, he said, especially given the country’s reliance on its declining hydrocarbon sector. Proceeds from oil exports make up around 60 percent of government revenues, he said.
"Oil production is on a declining trend so the situation will get more difficult … Yemen needs to continue to take measures to improve the revenue base and diversify away from the hydrocarbon sector," he said.
Yemen is an oil minnow producing 300,000 barrels per day in a region of crude giants such as neighbour and top exporter Saudi Arabia.
The country’s rapidly growing population, high poverty, unemployment and challenging security situation were added complications, Atrash said.
One in three Yemenis suffers from chronic hunger, according to UN aid agencies, and nearly a third of the country’s workforce is unemployed, the government says.
Analysts also see the southern Arabian Peninsula country’s security situation growing steadily worse as it battles a resurgent al Qaeda wing and violence continues to flare up between southern secessionist and state security forces.
The latest round in a bloody six-year war against northern rebels ended only in February with a fragile truce.
Stabilizing rial
Yemen’s currency, which tumbled around 16 percent in the first seven months of the year, had stabilized, Atrash said, but tight management would be required to keep it that way.
"It depends on the fiscal policy and on the security situation. If fiscal policy continues to be appropriate, then we expect the rial to remain stable," he said.
The decline in the Yemeni rial, which hit 250 to the dollar in August, the weakest level in its history, prompted the central bank to intervene numerous times throughout the year.
The currency has stabilized at around 215 rials to the dollar since August.
After a $370 million was loan approved in August, the IMF was not considering fresh loans for Yemen, he said.
"It’s too early to tell whether Yemen will meet the targets. So far the situation is promising. But we will review economic performance in February 2011."
