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IMF hopes to agree loan for Yemen, mobilize donor aid

National Yemen

Aden from a sea side angle

The International Monetary Fund hopes to agree a new longer term loan for impoverished Yemen by the end of 2013 and mobilize aid from international donors which has been slow to arrive.

The IMF has not decided yet on the exact size of the program, a central bank official has put at as much as $500 million, as it depends on the financing gap and how much money it will be able to get from the donors, Deputy Managing Director Nemat Shafik said on Tuesday.

“That’s a sort of an order magnitude. We have made quite a lot of progress,” she said in an interview. “I think there will be one more visit before we finalize something. I hope by the end of the calendar year we will get something agreed.”

An IMF official said last week that the government first needed to agree on its economic program.

Economic recovery remains fragile in the second-poorest Arab state after Mauritania with frequent attacks on oil pipelines denting vital budget revenues.

Yemen’s gross domestic product grew by mere 0.1 percent in 2012, the IMF estimates, after shrinking 10.5 percent in 2011 when political unrest crippled the economy.

Shafik said economic growth has been “a little bit disappointing,” making state energy subsidies, which are as high as 5 percent of GDP, the main area of concern.

“Yemen is a very poor country and they need huge investments in education, infrastructure and health. There is no room in the budget to do that unless we deal with the subsidy problem.”

Removing energy subsidies is a politically sensitive issue in Yemen, where a third of the population of 25 million live on less than $2 a day, and unemployment is around 35 percent.

Shafik said it supported the government’s effort to phase out the subsidies in a gradual manner and put in place mechanisms to shield the poorest people from price increases.

“It is up to the Yemenis really to decide how fast they can go. We do not have a deadline but what we would like to see is a clear plan over time and eventually to get to the place where price increases are more automatic and less politicized.”

The IMF expects Yemen’s budget deficit to widen to 5.8 percent of GDP this year, the biggest gap since 2009, from 5.5 percent in 2012.

Last year wealthy Gulf Arab states, Western governments and other donors pledged $7.9bn in aid over several years to Yemen, but only a small fraction has so far arrived.

Shafik said that Yemen needs a predictable medium term support from its donors to be able to transform its budget and move away from subsidies, which the IMF is trying to secure.

“We want to see medium term pledges that are actually realized. That’s what Yemen needs at the moment,” she said.