International Monetary Fund and Yemen
The Economic and Commercial Office (ECO) of the Embassy coordinates with the International Monetary Fund (IMF). The purpose is to discuss any existing agreements and obligations that Yemen holds with the IMF; as well as to receive a debriefing from the IMF about the planned meetings and issues to be raised with the Yemeni government in preparation for the annual Article IV Consultation.
Based on the IMF 2007 Article
IV Consultation*,
the following was the assessment rendered:
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Executive Board Assessment
The Executive Board welcomed Yemen's generally favorable
recent economic performance, including the decline in
the poverty rate, as well as the progress being made on
a number of structural reforms. Nevertheless, Directors
concurred that the authorities face considerable
macroeconomic and structural policy challenges to
promote strong economic growth, create ample employment
opportunities, and reduce poverty, while ensuring fiscal
and external sustainability. In this regard, Directors
welcomed the authorities' strategy of basing policies on
existing hydrocarbon reserves, while recognizing that
the country's economic outlook could be significantly
altered by the discovery of new oil and gas resources.
Directors, noting that inflationary pressures have not
fully abated, were encouraged by the authorities'
commitment to reducing inflation. They agreed that
monetary policy should focus closely on price stability
and welcomed the CBY recent efforts to keep the exchange
rate of the rial vis-à-vis the U.S. dollar broadly
stable, which should help limit imported inflation.
Given the limitations of monetary policy in Yemen,
Directors generally considered it to be appropriate for
the CBY to continue to rely substantially on the
exchange rate as a nominal anchor, in order to achieve
lower inflation. While the exchange rate currently
appears to be broadly in line with fundamentals, over
time and in view of the expected decline in oil
production, it will be important for the exchange rate
to reflect evolving economic conditions.
Directors observed that the shallow financial
intermediation, along with a relatively high level of
dollarization, is limiting the effectiveness of monetary
policy. They viewed that the removal of the minimum
interest rate for rial deposits would allow the CBY to
conduct a more active interest rate policy and enhance
financial intermediation.
Directors noted that fiscal restraint, including public
sector wage restraint, should provide an important
complement to monetary policy in reducing inflationary
pressures. They also underscored that frontloading
fiscal adjustment will be needed, given the prospective
decline in oil production and revenues.
Directors agreed that the gradual phasing out of
domestic fuel subsidies will be central to fiscal
adjustment, while recognizing that this will require
political support. They noted that raising fuel prices
should go hand-in-hand with strengthening the social
safety net, in order to cushion the impact on the poor,
including through persevering with ongoing efforts aimed
at improving the Social Welfare Fund. Directors also
were of the view that, if the authorities wished to
cushion the impact of high wheat prices on the poor, it
would be preferable to do so through the SWF. Strong
efforts will also be needed to increase the government's
non-oil revenues, reorient spending towards priority
areas, and improve the quality and effectiveness of
capital spending. Directors supported the progress being
made towards strengthening the budgetary framework and
improving fiscal transparency.
Directors underscored the importance of
productivity-enhancing reforms to strengthen Yemen's
competitiveness in non-oil exports. Further efforts are
needed to improve the investment climate and the quality
of labor, enhance governance and reduce red tape,
including in tax and customs administration. Directors
stressed that deepening financial markets will be
essential for ensuring strong non-oil performance, and
also recommended further strengthening of banking
supervision. In this regard, they encouraged the
authorities to request an Financial Sector Assessment
Program update, which would help to assess potential
risks in the financial system and to develop an agenda
for financial sector reforms. Directors welcomed the
revised Anti-Money Laundering law, and looked forward to
its approval by parliament.
Directors looked forward to further efforts to improve
the quality and timeliness of macroeconomic statistics,
to better facilitate the formulation and monitoring of
economic policies.
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Additional IMF Documents:
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Synopsis of Agreements and Obligations with the IMF
**
Letter of
Intent on Yemen’s Economic and Financial Policies.
Date: August 3, 2002
Outlines the policies that the Republic
of Yemen intends to implement in the context of its request
for financial support from the IMF.
Third Annual PRGF/EFF.
Date: February 28, 2001
Loans and credits totaling SDR 26.5 million (about US$34
million) to support Yemen's third annual program under the
Poverty Reduction and Growth Facility (PRGF) and the fourth
review of the Extended Fund Facility (EFF). Of the total,
SDR 20 million (about US$26 million) is available under the
PRGF and SDR 6.5 million (about US$8 million) is provided
under the EFF..
Second ESAF/EFF.
Date: March 29, 1999
Loans and credits totaling SDR 47 million (about US$64
million) to support the Republic of Yemen’s second annual
programs under the Enhanced Structural Adjustment Facility (ESAF)
and Extended Fund Facility (EFF). Of the total, SDR 36
million (about US$49 million) is available under the ESAF,
and SDR 11 million (about US$15 million) is provided under
the EFF.
Combined ESAF/EFF.
Date: October 29, 1997
Loan and credit package over the next three years totaling
the equivalent of SDR 370.6 million (about US$512 million)
to support the government’s economic program for 1997-2000.
Of this amount, SDR 264.8 million (about US$366 million) is
available in loans under the Enhanced Structural Adjustment
Facility (ESAF), and an SDR 105.9 million credit (about
US$146 million) is available under the Extended Fund
Facility (EFF).
Article VIII
Obligation.
Date: December 10, 1996
Accepting the obligations to refrain from imposing
restrictions on the making of payments and transfers for
current international transactions or from engaging in
discriminatory currency arrangements or multiple currency
practices without IMF approval.
Stand-By
Agreement.
Date: March 20, 1996
15-month stand-by credit totaling SDR 132.4 million (about
$193 million) in support of the Yemeni Government's economic
and financial reform program for 1996-97.
For more
information please visit the IMF website.
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