Yemen faces long-term challenges as oil production declines

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Economic growth in the Republic of Yemen slowed in 2004 because of a sharp decline in oil production, posing serious long-term challenges, the IMF said in its annual economic assessment. Oil output fell by 5.9 percent, reflecting diminishing recovery from aging large oil fields and the absence of significant new discoveries.With Yemen's economy at a crucial crossroads, the IMF Executive Board welcomed the authorities' plans to develop a comprehensive strategy for promoting growth and diversifying the productive base, and to include reform measures in the 2005 budget.

The 2004 fiscal deficit was larger than expected because of higher development spending and a larger petroleum subsidy.

The Board warned that without policy adjustments, the longterm fiscal and external positions would be unsustainable and urged the government to strengthen fiscal consolidation, deepen structural reforms, and build up the non-oil sector.

It expressed concern about the 2004 surge in prices--largely resulting from expansionary fiscal and monetary policies--and called for a tightening of monetary policy. The Board emphasized that any supplementary budget be subject to stringent discipline and designed to respond only...