[11/September/2005] BY Abdul-Salam Al-Korary.
Yemen perhaps is unlucky country , history and circumstances both seem they are always rebel against it as there is someone wants to divest it from its ancient pithet “Arabia flex “ on assumption that it does not deserve it “. As an economist commented on Yemen’s economic conditions over the first half of the 1990s decade .
Yemen has entered a new era as a single state in 1990 with a heavy burden legacy of the economical ,social and political problems inherited from the pre-unification .
Since the late of the 1970s decade the growth of Yemen’s economy entirely rely on the revenues of the workmen in the neighboring oil countries . In addition to some funds from international sources but these finances reduced due to the fall down of oil prices and the changes in the structure of the labor market in the Gulf countries.
Consequently , the remittances of Yemeni emigrants declined from around (2) billion Us dollar, in the early 1980s to half of this amount before the second Gulf War .
Yemen’s unification came at the same time as the collapse of the Soviet Union that coincided with the collapse of strong bilateral economical ties with Russia which used to extend large assistance to both of the Yemeni states before the unity .
The collapse of former Soviet Union left large debts exceeding (8) billion US dollar, amounting to 1.5 times of its GDP.
The announcement of Yemen Unity came at the same time as the Gulf War broke out on August 1990. As a result of the war more than (800) thousand of Yemeni emigrants were forced to return home.
Consequently , worker remittances declined to (300) million US dollar. Those returning joined refugees coming from the African Horn to create an overwhelming demand on domestic goods and services besides that , loans and aids which Gulf states and Gulf financial institutions used to grant Yemen were discontinued, because of Yemen’s position on the war which was interpreted as pro-Iraq .
Furthermore , the process of combining the Yemeni institutions after unification led to existence of a” hyper- civil-service “.
This double civil service exceeded the needs and capabilities of the government causing a growing financial burden that the government had to confront in paying public sector salaries and the requirements of re-structural the Yemeni institutions and infrastructures.
The political conflict escalated to crisis gave rise to wide spread of bribery and corruption .
The zenith of the crisis was the war of 1994 ,whose material cost reached $ (11-13) billion.
The conditions in Yemen, from 1990-1994, were as the prime minister Mr Abdulkader Ba-jummal described “ registering a devastating imbalances “.
As a result of all the above there was a precipitous fall in the rate of economic growth , the average annul growth of the (GDP) in 1994 estimated at (2.3%) while population growth reached to (5.5%) at the same period following the emigrants return.
As a result of this abysmal gap between rates of real economic growth and population growth , the productive capacity of the Yemeni economy found itself unable to satisfy aggregate demand .
The chasm between the production structure and demand structure enlarged , represented by surplus of aggregate demand that affects the (GDP).
The surplus of aggregate demand reached (174 %) in 1994.Civilian and military wages and salaries made up to (50 %) of total government expenditure.
This deficit has been covered through issuing banknote and borrowing from the banking system so the rate of growth of money supply has increased to come up to (54%) in 1990.
The government’s wheat subsidy continued with (10%) of the (GDP) aimed to alleviate the pressure of poverty for needy social classes but unfortunately, large percentage of these subsidies found their way to the hands of non- targeted population.
Consequently, the country’s accumulation of debt arrears reached $(4.4) billion dollar at the end of 1944, of the total external debt of the country which reached up to (10) billion US dollar .
Consequently ,the country has slipped into wave of hyperinflation . The rate of core inflation went up to (71.4 %) in 1994 against (33%) in 1991.
The Yemeni Rial recorded a very fast fall against dollar from (18) R/d in 1990, to (120), to (165)rials per dollar in 1994.
The per capita decreased from ($650)in 1990, to ($280) at the end of 1994 , besides the national balance of payments has afflicted by the same illnesses .
The overall deficit reached at (13.2) , while the foreign exchange reserves of the Central Bank of Yemen were (357) million US dollar. At this point , it was essential to take decisive action to confront and halt this rapid economic deterioration, otherwise the country would fall into complete collapse.
Based on the above background of economic retrogression the Yemeni government , in cooperation with the IMF and the WB, has adopted the Structural Reforms Program depends on comprehensive strategy .
This new strategy depends on the following axis:
Strengthening the political system of the newly unified state and increasing the democratization process as well as developing the civic society institutions.
Adopting a balanced foreign policy with entire neighboring counties , regional countries and international community as well as participating in the peace process and bringing about security and stability in the region.
Improving the legislative and judicial systems , undertaking the comprehensive reforms in the fields of economy , finance , administration and civil service as well as the development policies led by the domestic and foreign private sector.
The Economical reform program embodies procedural policies for ensuring the economic stabilization and launching structural adjustments and social protection programs .
some of these policies such as:
* Price liberalization .
* Controlling the budget deficit and fixing it at no more than (3 %) of (GDP) at the beginning of 1997.
* Gradual reduction of subsidies .
* Devaluation and floating exchange rates.
* Controlling inflation and its reduction to (5%) by 1997.
* The issuance of treasury bills beginning in December 1995 , in preparation for establishing the stock market.
* Reform of taxation and tax collection.
* Trade liberalization , concealment of import licensing and correction of the tariff system.
* Increasing the real growth in the non-oil sector in order to reduce unemployment and to improve the standards of living.
* Reform the structure of public b8udget to decrease the dependence on oil revenues and to get ride of subsidies and surplus employment in the civil service.
* Expansion of expenditure of education , health and social security.
* Privatization of the public sector.
* Increase the coefficient of investment to (19%) of (GDP) beginning in 1997.
RESULTS OF (ERP).
Returning to the principal objectives of the Economic Reform Program it can be said with some certainty that the program has achieved its goals in terms of general financial and monetary indicators.
The achievements of the (ERP) can be underlined in the following two fields .
At the Political Level.
The democratization experience has been increased to include the establishment of the local councils for broadening the popular participation in the decision making process via evolving advanced electoral system and adopting the administrative and financial decentralization.
(332) the total number of the local councils ,represented by (6700) members shoulder the responsibility of the local authority administration.
The state’s general budget has become of two parts, the first is centrally and the second is domestically .
The local councils have undertaken the whole affairs of the governmental development and the private investment in addition to administrating all institutions within its geographical borders.
The parliamentary elections held on its scheduled time on April 27-2003.
At the Economical Level.
The (ERP) has made great progression such as:
The government budget has been reduced as percentage of (GDP)to (6%) in 1995, and to (4%) in 1996 and roughly (2%) in 1997, down from the high level of (17%) recorded in 1994.
The average rate of the (GDP) reached (2.7 %) in 1999 and (4.4 %) in 2000 and (4.6) in 2001.
The rate of inflation declined from a high of (74%) in 1994 to (56%) in 1995 and (29%) in 1996 and roughly to (11%), (9 %) in 2000 and 2001.
The deficit of general budget has reduced from (17.1%) in 1994 to (6.7%) in 1998, and to (1.2%) in 1999, then the deficit turned into surplus estimated at (2.5%) in 2001.
The government payroll was reduced from (56%) of expenditure in 1994 to (41%) in 1996 and to (27%) in 1997.
The advanced financial position of the government due to the surplus achieved in the general budget helped in discontinuing the issuing of the banknote.
Consequently, the Cetral Bank of Yemen started to issue deposits credits since January 2000, to absorb surplus liquidity and to reduce the inflation and the strike of foreign currencies .
Following the long chronic deficit in the balance of payments the last once in 1998, when it came up to (463.1) million us dollar , the deficit changed to surplus estimated at (316.8) US million dollar in 1999, and consecutively to (14.8) in 2000 and (669) US million dollar in 2001 .
The balance in the Central Bank of Yemen has achieved a surplus over the three years estimated consecutively at (25.7) million US dollar in 1999, and (1609) US million dollar in 2000 and (669) us million dollar in 2001.
The foreign exchange reserves of the Central Bank rose from (430) US million dollar in 1994, to (3569) million Us dollar in 2001, and went up to around (4.2) US billion dollar in 2002, to cover (18) months of imports, and this is the largest reserves the Central Bank has ever possessed.
The rate of growth of the domestic money declined from (35%) in 1994, to (19 %) in 2001. Furthermore , positive results were achieved in rescheduling Yemen’s foreign debt in accordance with Paris Club and Napoli terms supported by the agreements with the IMF .
Around (80 %) of Yemen’s foreign debt to Russia estimated at (7) billion US dollar were forgiven at Paris Club, as a result of direct negotiation with the Russian government and rescheduling the remaining on the long term - so Yemen’s foreign debt has become less than five billion dollar.
Over the years of 2000-2001, Yemen has signed a memorandum with the donor member states for rescheduling the debt and to re-buy what equals (695) million US dollar of the commercial debt through grant extended by the International Agency for Development estimated at (15) million US dollar .
Thereupon ,the government has managed within the frame of the (ERP) to reduce the total the foreign debt from around (11) billion US dollar - and that is of (206%) of the (GDP) in 1995, to (4869.9) million US dollar and of (56%) of the (GDP) in 2001 .