Thursday, December 29, 2011

Government's new plan neglects economic development in Yemen

December 29th, 2011
Both political sides convened in parliament this week for the first time in more than a year following a boycott by the opposition that began weeks before anti-government protests took hold in January.
The parliamentary sitting was chaotic. Armed men protecting rival politicians clashed and the building was thrown into darkness by the familiar power outages that have blighted the capital for more than nine months. The purpose of the meeting was the presentation of the new government's draft two-year programme. The 38-page document, which aims to "restore political stability and security to achieve safe power transfer in line with the Gulf initiative", was read out.
Despite International Monetary Fund (IMF) predictions that Yemen's economy would contract by 2.5 percent this year, there was no mention of economic reforms in the draft document, a point that was noted by several members of parliament present. Nearly 11 months of unrest have left Yemen's economy on the brink of collapse. IMF forecasts put this year's budget deficit at more than US$4 billion (Dh14.6bn).
Hisham Sharaf, former industry and trade minister, said last month that the political turmoil had cost the economy more than $8bn. Analysts say half the country's workforce is unemployed. "The crisis has depleted all the country's resources, and without foreign financial support, the government will only be able to partially implement its proposed programme," said an independent MP, Naser Arman. The amount of foreign economic support the country will receive next year has yet to be determined. Last month, Yemeni officials met with the IMF in Jordan. In 2010 the IMF approved a $370 million loan for Yemen. That money will help repay government debt, among other pressing needs.
Further IMF assistance has yet to be approved and the IMF declined to comment on Yemen's situation following last month's discussions. The conditions for further monetary assistance appear to rely on Yemen's political stability and economic reforms. The government's primary source or revenue is oil, accounting for 60 percent of income and 90 percent of exports, according to IMF figures. This year production was halted as oil and gas lines where damaged by anti-government tribesmen.
The Ras Isa offshore oil terminal in the Red Sea, which usually produces 110,000 barrels per day of exports, ceased production in March, and the Aden refinery was closed. Yemen has since relied on donations from Saudi Arabia and the UAE for oil. Electricity supplies also have been hit with many areas, including the capital, where residents and business have been restricted to an average of three hours a day of power.
"For months now we have been living in darkness. The price of fuel, gas, water, everything, is making living almost impossible," said Mohammed Farhan as he sat in his candle-lit shop. "If a political solution is not found, the alternatives are horrible: a civil war and an economic collapse," predicted Ibrahim Sharqieh, the deputy director for the Brookings Doha Center, this year. Sanaa residents have staged regular protests against power cuts and the rising cost of fuel and cooking gas.
The GCC deal has now provided a fragile political resolution. But foreign donors appear to be waiting to see how successful the transition process is at maintaining stability and addressing corruption. "Instability links directly to investor confidence," said Mr Sharqieh, a delay that Yemen's economy can ill afford.

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