Local News

Yemeni government faces international pressure to remove subsidies from oil derivatives

By NY Staff

Any changes in the prices of oil derivatives will lead to a higher price of goods and services in Yemen. This country is the poorest in the Arab world, with a poverty rate of 54.5%, and population growth rate is 3%. It suffers most from food insecurity, which affects around 45% of the population.

During a meeting with president Abdu Rabbu Mansour Hadi, a number of businessmen demanded that subsidies be removed, saying that the public demands the removal of subsidies which only serve a few beneficiaries.

Former Minister of Finance Saif al-Asali warned against the removal, saying that it would harm the poor and cause a serious disaster in Yemen.

“The first disruption would be in the civil provision service, in which more people became enrolled before, during, and after the the crisis of 2011. Any removal to the subsidies will increase the number of those enrolled, and will negatively affect poor people.”

Although an official source in the Prime Minister’s office, and also Yemen Petroleum Company, denied the increase of prices through a repeal of subsidies, many Yemenis link the current oil derivative crisis with decisions of this kind.

10 million dollars a day

The head of the International Monetary Fund mission to Yemen Khaled Sakr emphasized that the estimates in the coming period indicate that raising prices to reduce generalized support will actually achieve clear savings if it is between 10 and 15%.

“The government can use these savings to increase the average monthly subsidies 50% in order to support more families. However, the amounts paid are very little, about $ 17 per month, therefore, this support must be continued to offer more cash transfers and services for the poor.”

Generalized support reaches about $10 million daily, which is about 8% of gross domestic product, which reduces poverty and unemployment, as well as encouraging the decline of diesel prices by mixing it with water, affecting the already scarce water resources.

Reforming the system took an important step last year in which the price of domestic diesel was fixed at YR 100 ($ 0.46) with special prices of YR 40 for the electricity sector and YR 200 for imported fuels. This did not reduce public support for diesel prices, but it did help to reduce smuggling and corruption.

Furthermore, the Yemeni government lacks the sufficient financial resources to meet these needs, and the energy subsidies and public sector wage bills that are being proposed eat at already limited government revenues. It has been argued that the energy subsidies harm job opportunities because it is considered to be the main source of the budget deficit.

A few who benefit from the subsidies

In a statement, the Director of the World Bank office in Yemen Wael Zakout  said that Yemeni government spend about two billion dollars a year to support diesel, but IFC, the World Bank, and local research centers all agree that a few people who benefit from this support.

He added that in the new plan, the government would spend about $10 billion over five years on various projects, including the repair of rural roads, providing water to schools and health clinics, building power stations, and increasing assistance to approximately 1.5 million poor families through the Social Welfare Fund, and also funds from the highway system.

“The government could have some money to repair the roads in the main cities, improve the water system and build schools and hospitals, and therefore many job opportunities would be offered for many people and some others may create their own commercial projects.”

Zakout said that the roads project would include a thousand Yemeni villages, linking them to Aden, Ta’iz, Sana’a, Amran, and Sada’a, through funding partially from Saudi Arabia and the World Bank.