Population 25.884 million
GDP 36.37 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
6.2 |
-10.5 |
3.5 |
4 |
|
Inflation (yearly average) (%)
|
11 |
19.5 |
11.5 |
11 |
|
Budget balance (% GDP)
|
-5.5 |
-6.5 |
-10.2 |
-10 |
|
Current account balance (% GDP)
|
-4.5 |
-4.5 |
-5.1 |
-4.4 |
|
Public debt (% GDP)
|
47 |
52 |
54 |
56 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Political and financial support from the international community
- Moderate external debt
- Importance of expatriates’ remittances, a source of foreign exchange earnings
- Architectural and cultural heritage
WEAKNESSES
- Latent risk of civil war and disintegration, insecurity and poverty (affecting 45% of the population)
- Depletion of oil reserves not compensated for by liquefied natural gas production
- Water shortage affecting agriculture
- Deterioration of public finances
- Unfavourable business environment (bureaucracy, corruption, inadequate infrastructures)
Risk assessment
Political and security situation still very precarious
The poorest country of the Arabian Peninsula, Yemen suffered from violent confrontations between rival forces in 2011, leading to the resignation in late November 2011 of President Ali Saleh, in power for thirty three years, under the Gulf Cooperation Council’s mediation plan. Under this agreement, Vice-President Abdel-Rabbuh Hadi was elected president at the end of February 2012. At the same time, the government of national unity has been charged with an interim process spread over two years aimed at drafting a new constitution with new presidential and parliamentary elections at the end of this period, namely in 2014.
Yemen nevertheless remains prey to the risk of civil war, particularly because the Saleh clan has kept control of certain military forces and the party of the deposed president, the General People’s Congress, is continuing to clash with the former opposition Joint Meeting Parties, the main component of which, Islah, is an offshoot of the Muslim Brotherhood.
Moreover, there is still a risk of disintegration, exacerbated during this critical period. In the south, in the former People’s Democratic Republic, the authorities are confronted with a revival of secessionist sentiment. In the north, despite a ceasefire with the rebellion of the Shiite Zaydite tribes, fighting is likely to recur. These difficulties are compounded by the Al Qaeda insurrection in the Arabian Peninsula, though all the other political factions seem to oppose this movement.
Continuation of a modest economic recovery
After picking up in 2012, economic activity is expected to maintain its recovery in 2013, provided that a relatively orderly political transition continues. Household consumption will be supported mainly by higher public spending and subsidies. A certain number of investments, delayed by the deterioration of the political and security situation, are expected to start again. On the supply side, the country’s main sector, agriculture, is expected to recover, though it remains affected by the worsening water shortage. Now that the country’s main oil pipeline, Marib, is operational again, oil production is expected to contribute to the recovery of private sector activity.
Inflation will remain high due to continuing supply bottlenecks and the further depreciation of the riyal, leading to a rise in the cost of imports.
Continuation of substantial fiscal and external deficits, but promise of significant financial aid from donor countries
In 2010, confronted with an excessive dependence on hydrocarbons (60% of revenues), the authorities introduced a general sales tax. However, in 2011 and 2012, to reduce socio-political tensions, economic stimulus measures were introduced: public sector wage rises and job creation, and reintroduction of fuel subsidies. These measures severely tested the public finances. Despite the necessity of reducing the substantial fiscal deficit, the authorities prioritise social stability over austerity, which is why an expansionary budget has again been adopted for 2013. The resulting deficit is, however, expected to be largely funded by donor countries which, in September 2012, pledged a significant global aid package of $8 billion for the transition period (2013 -2014).
As to foreign trade, hydrocarbons remain the main export component (90%). However, the rising importance of liquefied natural gas will only partially offset the downward trend in oil production. Moreover, hydrocarbon exports remain affected by sabotage, while imports continue to climb. The widening trade gap will, however, be partly offset by transfers from expatriate workers and foreign donors. Finally, the current account deficit is expected to decline slightly without, however, preventing a further erosion of foreign exchange reserves.
In this context, Yemen obtained an emergency IMF loan in April 2012 of $100 million as a “Rapid Credit Facility” , in anticipation of the implementation of a three-year aid programme by the Fund. This loan will be used to support the balance of payments and is also part of the larger national development plan, which emphasises non-hydrocarbon sector growth, while aiming to restore public finances to a sound footing.
