By: Tahani al-Sabri
Yemen’s economy is currently facing rapid inflation set to occur perhaps during the next stage of the political transition. Observing the different economic indicators in Yemen, the ongoing economic breakdown can likely be traced to the weakening of all economic factors and erosion of the economic infrastructure in general. Economic resources are also strained by the tug-of-war on national coffers, between use on general budget in the funding of salaries of public services and provisions for society and partner development.
An official source has confirmed that the public treasury will be unable to cover the salaries of its employees for the last quarter of this year, pointing out that the government covers the salaries of employees by withdrawing from national savings.
Economic experts have pointed out that an economic collapse would not necessarily mean a failure of the Yemeni government or state, but instead would facilitate a decline in all of Yemen’s economic indicators.
Sakher al-Wajih, the Minister of Finance, has revealed a comprehensive slump in all of Yemen’s economic indicators, brought about by Yemen’s ongoing recession, deterioration of Yemen’s balance of payments, and the freezing of most investment programs. In addition to the growing financial fiscal deficit and the troubling humanitarian situation in Yemen, dwindling food stores are increasing malnutrition indicators across the country. In a state already undergoing rising unemployment and poverty, inefficient allocation of insufficient food resources can be disastrous, particularly in rural areas.
The minister attributed the causes of the financial collapse to a number of problems and challenges. Declining oil incomes caused by repeated bombings of the oil pipeline are partially responsible, as is the deteriorating security situation and negative changes in the international investment environment.
An Economic Slowdown
The International Monetary Fund (IMF), in a recent report on Yemen’s economy, stated that Yemen’s economy is still in a very fragile condition. The report expressed concern over the growing budget deficit. Yemens economy grew by only 2.4% in 2012, following a 12.7% contraction (negative growth) in 2011.
According to a report from Yemen’s central bank, the country’s external debt totaled $7.178 billion at the end of June, almost $93 million higher than one month prior. Claims on the government sector reached 1.5 trillion rial at the end of June 2013. Yemen’s foreign reserves totaled $5.69 billion that same month, $133 million lower than in May.
In 2013, fiscal debt increased significantly; it is expected to reach 620 billion rials by the end of the year. The IMF similarly expects the budget deficit to reach 5.8% of Yemeni GDP in 2013, which will be the largest experienced in the country since 2009. The deficit sat at 5.5% of GDP in 2012. The Debt/GDP ratio is expected to exceed 61.9% this year, as well.
The ongoing economic recession has doubled unemployment rates in recent years based on government estimates. This has only furthered the decline in GDP growth. Political and economic limitations on new jobs, especially in the private sector, have led to projections of continued high levels of unemployment. Some expect that unemployment may reach 30% to 35% of the labor force in the near future.
Taking into account the high growth rate of Yemen’s work force, currently at approximately 4%, these worrying unemployment statistics indicate an inevitable descent of scores of people into impoverished conditions. The number of unemployed persons at Yemen is estimated at a current six million persons, though the severity of the crisis will only increase as thousands of expatriates are forced to return from Saudi Arabia. These migrant workers are often the only breadwinners for their families, which number in the hundreds. Reports issued by international humanitarian agencies suggest that 40% of Yemenis are suffering from hunger, suggesting serious problems for the country.
The central bank has further reported that the government’s share of revenues from oil and gas has decreased to 12 million barrels during the first half of 2013 as compared to 16 million barrels during the same period last year.
Acts of sabotage continue to hinder the country’s economic recovery and squander its limited resources. Bombing of oil and gas pipelines also discourage potential investment projects, which leads to the erosion of additional needed funds.
Economists see the government’s decision to raise the prices of petroleum products two years ago as a myopic act insensitive to the realities of Yemen’s economic situation, including the low quality of life, the high unemployment rate and high levels of poverty. They similarly did not take into consideration the goal of economic and social improvement as the basic ruling in their decisions. Finally, their decisions failed to take into consideration the impact of these policies on Yemen’s agricultural, fisheries, and transport sector, the last of which plays a fundamental role in the fuel operation.
Economists have confirmed that the reconciliation government has not worked according to the stated economic agenda for the transitional period, as issues of food security and development issues such as unemployment and poverty have continued to thwart officials. Yemen has also struggled to recover or regain the faith of external donors, diminishing the country’s ability to finance some of its initiatives with external resources and spread the benefits of developments to all groups in society. These missed opportunities demonstrate the hesitance of donors to support Yemen and loss of confidence in Yemen’s ability to recover.
Citizens have also expressed disappointment in the successes, or lack thereof, of the current transitional government. Many have criticized the government for “reaching a deficit and ignoring everything that raises visions and processors of these issues. They are bringing the situation to a state of collapse, as reflected in the daily lives of the Yemeni people.”
Poverty in Yemen today exceeds 50% of the population, especially after the increase in petroleum prices two years ago. This similarly shook the confidence of local and foreign investors, increasing their reluctance to invest in Yemen. This reluctance is likely to extend for years to come, and its economic consequences will continue to haunt Yemen in the upcoming stages of its development.