Yemen: Reorienting Public Spending Would Create Jobs, Fight Poverty

Yemen’s economy has stabilized, but recovery remains fragile

Redirecting resources to pro-growth, pro-poor expenditure is key

Donor support plays vital role in country’s development

The crisis of 2011 impacted the economy, leading to a GDP decline of more than 12 percent.

Yemen has since made progress toward recovery and restoring economic stability, thanks to strong donor support and prudent monetary policy. But it should move quickly to implement essential reforms in order to preserve and build on recent gains and fight poverty and unemployment.

In an interview, IMF mission chief Khaled Sakr discussed the challenges Yemen faces in cultivating this nascent recovery in fighting unemployment and poverty.

IMF Survey: Could you paint a broad picture of Yemen’s economy?

Sakr: Yemen is a strategically important country in the Arabian Peninsula and has great economic potential with its large labor force, long shoreline, and agricultural and mineral resources. Yet nearly half of its population lives below the poverty line and roughly one in two children suffers from malnutrition. The country is highly dependent on exhaustible hydrocarbon revenue and faces a serious water shortage. Unemployment is very high, especially among the youth, and social tension contributes to security challenges.

Yemen’s ongoing constitutional process, the National Dialogue, is considered by some a model for other Arab countries in transition, as it is based on broad participation across the political and social spectrum. The successful conclusion of this process would greatly facilitate the economic recovery by improving confidence. At the same time, economic reforms for strong, inclusive growth could support the political process.

IMF Survey : What progress has the government made on economic reforms to date?

Sakr: To give you one example, diesel was being sold to the population at 100 rials a liter and to the electricity sector at 40 rials, when it in fact costs more than 200 rials. Recently, the authorities took the wise decision to unify the price at 100 rials. At the same time, they are compensating the electricity sector to avoid an increase in electricity prices. This diesel price unification will bring some important benefits in terms of reducing smuggling and improving efficiency.

Transparency is also being increased with the publication of the IMF staff economic assessment reports and, for the first time, the full audited financial statements of the...