Economy of Yemen
Encyclopedia
At the time of unification, South Yemen and North Yemen
had vastly different but equally struggling underdeveloped economic system
s. Since unification, the economy has been forced to sustain the consequences of Yemen’s support for Iraq
during the 1990–91 Persian Gulf War: Saudi Arabia
expelled almost 1 million Yemeni workers, and both Saudi Arabia and Kuwait
significantly reduced economic aid to Yemen. The 1994 civil war further drained Yemen’s economy. As a consequence, for the past 10 years Yemen has relied heavily on aid from multilateral agencies to sustain its economy. In return, it has pledged to implement significant economic reforms. In 1997 the International Monetary Fund
(IMF) approved two programs to increase Yemen’s credit significantly: the enhanced structural adjustment facility (now known as the poverty reduction and growth facility, or PRGF) and the extended funding facility (EFF). In the ensuing years, Yemen’s government attempted to implement recommended reforms—reducing the civil service payroll, eliminating diesel and other subsidies, lowering defense spending, introducing a general sales tax
, and privatizing state-run industries. However, limited progress led the IMF to suspend funding between 1999 and 2001.
In late 2005, the World Bank
, which had extended Yemen a four-year US$2.3 billion economic support package in October 2002 together with other bilateral and multilateral lenders, announced that as a consequence of Yemen’s failure to implement significant reforms it would reduce financial aid by one-third over the period July 2005 through July 2008. A key component of the US$2.3 billion package—US$300 million in concessional financing—has been withheld pending renewal of Yemen’s PRGF with the IMF, which is currently under negotiation. However, in May 2006 the World Bank
adopted an assistance strategy for Yemen under which it will provide approximately US$400 million in International Development Association
(IDA) credits over the period FY 2006 to FY 2009. In November 2006, at a meeting of Yemen’s development partners, a total of US$4.7 billion in grants and concessional loans was pledged for the period 2007–10. At present, despite possessing significant oil
and gas
resources and a considerable amount of agriculturally productive land, Yemen remains one of the poorest of the world’s low-income countries; more than 45 percent of the population lives in poverty
. The influx of an average 1,000 Somali refugees per month into Yemen looking for work is an added drain on the economy, which already must cope with a 20 to 40 percent rate of unemployment. Yemen remains under significant pressure to implement economic reforms or face the loss of badly needed international financial support.
At unification, both the Yemen Arab Republic
and the People's Democratic Republic of Yemen were struggling underdeveloped economies. In the north, disruptions of civil war (1962–1970) and frequent periods of drought had dealt severe blows to a previously prosperous agricultural sector. Coffee
production, formerly the north's main export and principal form of foreign exchange
, declined as the cultivation of khat
increased. Low domestic industrial output and a lack of raw materials made the YAR dependent on a wide variety of imports.
For purchasing power parity comparisons, the US Dollar is exchanged at 150.11 Yemeni Rials only. Mean wages were $1.06 per manhour in 2009.
Remittances from Yemenis working abroad and foreign aid paid for perennial trade deficits. Substantial Yemeni communities exist in many countries of the world, including Yemen's immediate neighbors on the Arabian Peninsula
, Indonesia
, India
, East Africa
, the United Kingdom
, and the United States
. Beginning in the mid-1950s, the Soviet Union
and People's Republic of China
provided large-scale assistance to the YAR. This aid included funding of substantial construction projects, scholarships, and considerable military assistance.
. The seaborne transit trade, which the port relied upon, collapsed with the closure of the Suez Canal
and Britain
's withdrawal from Aden
in 1967. Only extensive Soviet aid, remittances from south Yemenis working abroad, and revenues from the Aden refinery (built in the 1950s) kept the PDRY's centrally planned Marxist economy afloat. With the dissolution of the Soviet Union
and a cessation of Soviet aid, the south's economy basically collapsed.
Since unification, the government has worked to integrate two relatively disparate economic systems. However, severe shocks, including the return in 1990 of approximately 850,000 Yemenis from the Persian Gulf
states, a subsequent major reduction of aid flows, and internal political disputes culminating in the 1994 civil war, hampered economic growth.
is the mainstay of Yemen’s economy, generating more than 20 percent of gross domestic product
(GDP) since 1990 (20.4 percent in 2005 according to the Central Bank of Yemen) and employing more than half (54.2 percent in 2003) of the working population. However, a U.S. government
estimate suggests that the sector accounted for only 13.5 percent of GDP in 2005. Numerous environmental problems hamper growth in this sector—soil erosion, sand dune encroachment, and deforestation
—but the greatest problem by far is the scarcity of water. As a result of low levels of rainfall, agriculture in Yemen relies heavily on the extraction of groundwater, a resource that is being depleted. Yemen’s water tables are falling by approximately two meters a year, and it is estimated that Sanaa’s groundwater supplies could be exhausted by 2008. The use of irrigation
has made fruit and vegetables Yemen’s primary cash crops. With the rise in the output of irrigated crops, the production of traditional rain-fed crops such as cereals has declined. According to the Central Bank of Yemen, in 2005 the production of khat
, a mildly narcotic and heavily cultivated plant that produces natural stimulants when its leaves are chewed, rose 6.7 percent and accounted for 5.8 percent of GDP; its usage in Yemen is widespread. According to the World Bank
and other economists, cultivation of this plant plays a dominant role in Yemen’s agricultural economy, constituting 10 percent of GDP and employing an estimated 150,000 persons while consuming an estimated 30 percent of irrigation water and displacing land areas that could otherwise be used for exportable coffee, fruits, and vegetables.
Although Yemen’s extensive territorial waters and marine resources have the potential to produce 840,000 tons of fish each year, the fishing industry is relatively underdeveloped and consists largely of individual fishermen in small boats. In recent years, the government has lifted restrictions on fish exports, and production has reached one-quarter of capacity, yielding revenues valued at US$260 million in 2005. Fish and fish products constitute only 1.7 percent of Yemen’s GDP but are the second largest export. In December 2005, the World Bank approved a US$25 million credit for a Fisheries Management and Conservation Project to be launched in all coastal governorates along the Red Sea
and the Gulf of Aden
. This project is expected to improve fish landing and auction facilities, provide ice plants for fish preservation, and enable Yemen’s Ministry of Fisheries to undertake more effective research, resource management planning, and regulatory activities.
predicts that Yemen's oil and gas revenues will plummet during 2009 and 2010, and fall to zero by 2017 as supplies run out, and UK's Royal Institute for International Affairs warns that instability there could expand a zone of lawlessness from northern Kenya to Saudi Arabia, while describing Yemen's democracy as "fragile" and pointing to armed conflicts with Islamists and tribal insurgents. Thus western and other diplomats and leaders are concerned to preserve Yemen's stability and to avert adverse outcomes. According to statistics published by the Energy Information Administration, crude oil output averaged 413300 oilbbl/d in 2005, a reduction from 423700 oilbbl/d in 2004. For the first eight months of 2006, crude oil output was flat, averaging 412500 oilbbl/d.
Following a minor discovery in 1982 in the south, an American company found an oil basin near Ma'rib
in 1984. A total of 27,000 m³ (170,000 barrels) of oil per day were produced there in 1995. A small oil refinery began operations near Ma'rib in 1986. A Soviet discovery in the southern governorate of Shabwah has proven only marginally successful even when taken over by a different group. A Western consortium began exporting oil from Masila in the Hadhramaut
in 1993, and production there reached 67,000 m³ (420,000 barrels) per day in 1999. More than a dozen other companies have been unsuccessful in finding commercial quantities of oil. There are new finds in the Jannah (formerly known as the Joint Oil Exploration Area) and east Shabwah blocks. Yemen's oil exports in 1995 earned about US$1 billion.
Marib oil contains associated natural gas
. In September 1995, the Yemeni Government signed an agreement that designated Total
of France
to be the lead company for a project for the export of liquefied natural gas (LNG). In 1997, Yemen Gas Company joined with various privately held companies to establish Yemen LNG
(YLNG). In August 2005 the government gave final approval to three LNG supply agreements, enabling YLNG to award a US$2 billion contract to an international consortium to build the country’s first liquefaction plant at Balhat on the Arabian Sea
coast. The project is a $3.7 billion investment over 25 years, producing approximately 6.7 million tons of LNG annually, with shipments likely to go to the United States and South Korea. Production of LNG began in October 2009. The Yemen government expects the LNG project to add US$350 million to its budget and enable it to develop a petrochemicals industry.
and cooking oil
has increased in recent years. Approximately 10 percent of the establishments are classified as manufacturing mixed metal products such as water-storage tanks, doors, and windows.
Yemen’s tourism industry is hampered by limited infrastructure as well as serious security concerns. The country’s hotels and restaurants are below international standards, and air and road transportation is largely inadequate. Kidnappings of foreign tourists remain a threat, especially outside the main cities, and, coupled with terrorist bombings at the Port of Aden in 2000 and 2002, present a significant deterrent to tourism. As recently as September 2006, tribesmen in the Shabwa province, east of Sanaa, kidnapped four French tourists on their way to Aden. They were freed two weeks later. In October 2006, the U.S. Department of State reiterated previous warnings to U.S. citizens, strongly urging them to consider carefully the risks of traveling to Yemen. Britain’s Foreign Office has issued a similar advisory. Recent statistics for tourist arrivals in Yemen are not available, but in 2004 the number rose to 274,000 from 155,000 in 2003.
According to the World Bank
, Yemen’s civil service is characterized by a large, poorly paid work force and inadequate salary differential between high and low skilled jobs to attract and retain qualified workers. In 2004 the government increased civil service salaries by 20 to 40 percent in order to alleviate the impact of anticipated economic reforms that were never implemented. The result was a 20 percent rise in wage costs; civil service wages constituted 7 percent of gross domestic product in 2004. The 2005 budget reduced economic subsidies but in exchange required the government to make various concessions, including increasing civil service wages another 10 to 15 percent by 2007 as part of a national wage strategy.
The economic assistance package the International Monetary Fund (IMF) pledged to Yemen is contingent on the implementation of civil service reform, which the government has resisted because of the country’s estimated 20 to 40 percent unemployment rate. In 2004 the government claimed to have reduced the civil service labor force through retirements and layoffs, but it appears that the large salary increases have lessened the impact of any reforms. The IMF has stated that civil service salaries as a component of gross domestic product should be reduced 1 to 2 percent, a level that can only be achieved with continued reductions in the size of the civil service. It is unclear whether the national wage strategy, which may succeed in streamlining the system and removing irregularities, will in fact be able to reduce employment costs.
During the years immediately following unification (1990–96), Yemen experienced a very high average rate of inflation
—40 percent. Economic reforms brought this rate down to only 5.4 percent in 1997, but high oil prices and cuts in the fuel subsidy in recent years have had a negative impact on the inflation rate, which has generally been on the rise despite some fluctuations. In 2004 efforts by the Central Bank of Yemen to tighten the money supply were offset by a weakening U.S. dollar
, to which the Yemeni riyal is linked in a managed float, and by rising global commodity prices, resulting in an inflation rate of 12.5 percent. In July 2005, the government succumbed to public opposition and lowered the new general sales tax
from 10 to 5 percent. This tax, coupled with reductions in government fuel subsidies and higher import prices, is expected to result in an estimated inflation rate of 15 percent in 2006, up from 11.8 percent in 2005.
. The banking system consists of the Central Bank of Yemen, 15 commercial banks (nine private domestic banks, four of which are Islamic banks; four private foreign banks; and two state-owned banks), and two specialized state-owned development banks. The Central Bank of Yemen controls monetary policy and oversees the transfer of currencies abroad. It is the lender of last resort
, exercises supervisory authority over commercial banks, and serves as a banker to the government. Since end 2005 and up to the end of 2010, Tadhamon International Islamic Bank has maintained the top spot between all banks in Yemen (Commercial and Islamic) in terms of total assets, capital and trade business. The largest commercial bank, the Credit and Agricultural Cooperative Bank, which is state-owned, and the Yemen Bank for Reconstruction and Development, which is majority state-owned, are currently being restructured with the goal of eventual privatization. Because of fiscal difficulties in both banks, in 2004 Yemen’s government adopted a plan to merge them; the new publicly owned Development Bank will have a minimum capital of US$50 million. Till end April 2011 this step has yet to materialize.
The large volume of non-performing loans, low capitalization, and weak enforcement of regulatory standards hamper Yemen’s banking sector as a whole. Numerous banks are technically insolvent. Because many debtors are in default, Yemen’s banks limit their lending activities to a select group of consumers and businesses; as a result, the entire banking system holds less than 60 percent of the money supply. The bulk of the economy operates with cash. Legislation adopted in 2000 gave the Central Bank the authority to enforce tougher lending requirements, and in mid-2005 the Central Bank promulgated several new capital requirements for commercial banks aimed at curtailing currency speculation and protecting deposits.
and Aden have been completed, and contracts have been signed for future projects. In 2004 Yemen’s diesel-run power plants generated 4.1 billion kilowatt-hours of electricity, a level of production that is insufficient to maintain a consistent supply of electricity. Although demand for electricity increased 20 percent between 2000 and 2004, it is estimated that only 40 percent of the total population has access to electricity from the national power grid, and supply is intermittent. To meet this demand, the government plans to increase the country’s power generating capacity to 1,400 megawatts by 2002.
in its invasion of Kuwait
, thereby alienating Saudi Arabia and Kuwait, which both had provided critical financial assistance to Yemen. In addition to withdrawing this aid, Saudi Arabia expelled almost 1 million Yemeni workers. The resultant fall in expatriate remittances had a disastrous impact on Yemen’s governmental budget. The civil war of 1994 further drained the economy, and in 1995 Yemen sought the aid of multilateral agencies. In 1996 the International Monetary Fund
(IMF) granted Yemen a US$190 million stand-by credit facility, and the following year it approved two funding facilities that increased the country’s credit by approximately US$500 million. The funding was contingent on Yemen’s adoption of stringent economic reforms, a requirement that the country had limited success in fulfilling. As a result, the IMF suspended lending to Yemen from late 1999 until February 2001. The extension of the two funding facilities, particularly the poverty reduction and growth facility (PRGF), through October 2001 was again contingent on Yemen’s commitment to economic reform. Because of Yemen’s failure to comply sufficiently with the terms imposed by the IMF, since 2002 the IMF has withheld US$300 million in concessional financing. Discussions over the renewal of the PRGF are ongoing. In 2000 Kuwait and Saudi Arabia resumed financial aid to Yemen.
In October 2002, bilateral and multilateral lenders led by the World Bank agreed to give Yemen a four-year economic support package worth US$2.3 billion, 20 percent in grants and 80 percent in concessional loans. This funding is almost eight times the amount of financial support Yemen received under the IMF’s PRGF. However, in December 2005 the World Bank announced that because of the government’s continued inability to effect significant economic reforms and stem corruption, funding would be reduced by more than one-third, from US$420 million to US$240 million for the period July 2005–July 2008. In May 2006, the World Bank adopted a new Country Assistance Strategy (CAS) for Yemen for the period FY 2006 to FY 2009, providing a blueprint for fostering the country’s fiscal and human development improvement. The bank pledged to contribute approximately US$400 million in International Development Association (IDA) credits over the CAS time frame. At present, Yemen owes approximately US$264 million to Japan
, one of its largest donors. In December 2005, the Japanese government
pledged to write off US$17 million of the debt. That same month, Germany
pledged to increase its annual aid to Yemen to US$83.6 million over the next two years; funding will go primarily to education and water improvement projects. In November 2006, the United Kingdom
announced that aid to Yemen would increase 400 percent, to US$222 million through 2011.
Yemen is a member of the Arab Fund for Economic and Social Development
, which since 1974 has contributed to the financing of economic and social development in Arab states
and countries through loans and guarantees. In March 2004, the Arab League
provided US$136 million to Yemen to finance infrastructure improvements. At a mid-November 2006 meeting in London, a group of bilateral and multilateral donors pledged US$4.7 billion over four years (2007–10) to fund economic development in Yemen. The goal of the meeting, which was jointly chaired by the World Bank and the government of Yemen, was to provide sufficient economic aid to Yemen to enable it to qualify for future Gulf Cooperation Council (GCC) membership. More than 55 percent of the aid, which is primarily in the form of grants, will come from the GCC. Yemen was granted observer status at the World Trade Organization
(WTO) in 1999, and its application for full membership was under negotiation as of December 2006.
, Yemen imports more than 75 percent of its main dietary staple—wheat. The principal source of Yemen’s imports in 2005 was the United Arab Emirates
(13.4 percent of total imports); the bulk of these imports are actually re-exports from the United States and Kuwait. Yemen received 10.6 percent of its total imports from Saudi Arabia and 9 percent from China.
In 2005 Yemen’s exports totaled US$6.4 billion. Exports are expected to increase to reach a record US$8.6 billion in 2006 as a result of strong oil revenues. Petroleum is Yemen’s main export, accounting for 92 percent of total exports in 2004 and 87 percent in 2005. Yemen’s non-oil exports are primarily agricultural products, mainly fish and fish products, vegetables, and fruit. In 2005 Asia was the most important market for Yemen’s exports, primarily China
(37.3 percent of total exports), Thailand
, and Japan
. Chile
was also a primary export market (19.6 percent of total exports).
Yemen’s import and export values have increased and decreased dramatically in the past 10 years owing to shifts in global oil prices. As a result, the country’s trade balance has fluctuated significantly from a deficit of almost US$800 million in 1998 to a surplus of US$1 billion in 2000. Rising oil prices resulted in a surplus of US$817 million in 2004 and a surplus of US$1.7 billion in 2005.
In recent years, Yemen has reported increasing non-merchandise deficits. These deficits have, however, been offset by record export earnings, which have resulted in large enough trade surpluses to keep the current account in surplus—US$175.7 million in 2003, US$524.6 million in 2004, and US$633.1 million (about 4 percent of gross domestic product) in 2005.
inherited an unsustainable debt burden amounting to roughly 106 percent of gross domestic product. Debt rescheduling by the Paris Club creditor countries in the 1990s coupled with assistance from the World Bank’s International Development Agency resulted in a drop in Yemen’s debt stock to US$5.4 billion (an estimated 39 percent of gross domestic product) by year-end 2004. According to the Central Bank of Yemen, Yemen’s debt stock was US$5.2 billion (an estimated 33 percent of gross domestic product) by year-end 2005. According to the U.S. government, Yemen’s reserves of foreign exchange and gold were US$6.1 billion in 2005.
, net direct investment was at its peak as foreign investors tapped Yemeni oil reserves
, but since 1995 net direct investment flows have been negative because cost recovery for foreign oil companies has exceeded new direct investment. A five-year US$3 billion liquid natural gas (LNG) construction project involving a consortium of foreign companies is planned following government approval in August 2005. Such a project raises the prospect of increased foreign investment
in the future as LNG facilities are built.
North Yemen
North Yemen is a term currently used to designate the Yemen Arab Republic , its predecessor, the Mutawakkilite Kingdom of Yemen , and their predecessors that exercised sovereignty over the territory that is now the north-western part of the state of Yemen in southern Arabia.Neither state ever...
had vastly different but equally struggling underdeveloped economic system
Economic system
An economic system is the combination of the various agencies, entities that provide the economic structure that defines the social community. These agencies are joined by lines of trade and exchange along which goods, money etc. are continuously flowing. An example of such a system for a closed...
s. Since unification, the economy has been forced to sustain the consequences of Yemen’s support for Iraq
Iraq
Iraq ; officially the Republic of Iraq is a country in Western Asia spanning most of the northwestern end of the Zagros mountain range, the eastern part of the Syrian Desert and the northern part of the Arabian Desert....
during the 1990–91 Persian Gulf War: Saudi Arabia
Saudi Arabia
The Kingdom of Saudi Arabia , commonly known in British English as Saudi Arabia and in Arabic as as-Sa‘ūdiyyah , is the largest state in Western Asia by land area, constituting the bulk of the Arabian Peninsula, and the second-largest in the Arab World...
expelled almost 1 million Yemeni workers, and both Saudi Arabia and Kuwait
Kuwait
The State of Kuwait is a sovereign Arab state situated in the north-east of the Arabian Peninsula in Western Asia. It is bordered by Saudi Arabia to the south at Khafji, and Iraq to the north at Basra. It lies on the north-western shore of the Persian Gulf. The name Kuwait is derived from the...
significantly reduced economic aid to Yemen. The 1994 civil war further drained Yemen’s economy. As a consequence, for the past 10 years Yemen has relied heavily on aid from multilateral agencies to sustain its economy. In return, it has pledged to implement significant economic reforms. In 1997 the International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
(IMF) approved two programs to increase Yemen’s credit significantly: the enhanced structural adjustment facility (now known as the poverty reduction and growth facility, or PRGF) and the extended funding facility (EFF). In the ensuing years, Yemen’s government attempted to implement recommended reforms—reducing the civil service payroll, eliminating diesel and other subsidies, lowering defense spending, introducing a general sales tax
Sales tax
A sales tax is a tax, usually paid by the consumer at the point of purchase, itemized separately from the base price, for certain goods and services. The tax amount is usually calculated by applying a percentage rate to the taxable price of a sale....
, and privatizing state-run industries. However, limited progress led the IMF to suspend funding between 1999 and 2001.
In late 2005, the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
, which had extended Yemen a four-year US$2.3 billion economic support package in October 2002 together with other bilateral and multilateral lenders, announced that as a consequence of Yemen’s failure to implement significant reforms it would reduce financial aid by one-third over the period July 2005 through July 2008. A key component of the US$2.3 billion package—US$300 million in concessional financing—has been withheld pending renewal of Yemen’s PRGF with the IMF, which is currently under negotiation. However, in May 2006 the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
adopted an assistance strategy for Yemen under which it will provide approximately US$400 million in International Development Association
International Development Association
The International Development Association , is the part of the World Bank that helps the world’s poorest countries. It complements the World Bank's other lending arm — the International Bank for Reconstruction and Development — which serves middle-income countries with capital investment and...
(IDA) credits over the period FY 2006 to FY 2009. In November 2006, at a meeting of Yemen’s development partners, a total of US$4.7 billion in grants and concessional loans was pledged for the period 2007–10. At present, despite possessing significant oil
Oil
An oil is any substance that is liquid at ambient temperatures and does not mix with water but may mix with other oils and organic solvents. This general definition includes vegetable oils, volatile essential oils, petrochemical oils, and synthetic oils....
and gas
Gas
Gas is one of the three classical states of matter . Near absolute zero, a substance exists as a solid. As heat is added to this substance it melts into a liquid at its melting point , boils into a gas at its boiling point, and if heated high enough would enter a plasma state in which the electrons...
resources and a considerable amount of agriculturally productive land, Yemen remains one of the poorest of the world’s low-income countries; more than 45 percent of the population lives in poverty
Poverty
Poverty is the lack of a certain amount of material possessions or money. Absolute poverty or destitution is inability to afford basic human needs, which commonly includes clean and fresh water, nutrition, health care, education, clothing and shelter. About 1.7 billion people are estimated to live...
. The influx of an average 1,000 Somali refugees per month into Yemen looking for work is an added drain on the economy, which already must cope with a 20 to 40 percent rate of unemployment. Yemen remains under significant pressure to implement economic reforms or face the loss of badly needed international financial support.
At unification, both the Yemen Arab Republic
Yemen Arab Republic
The Yemen Arab Republic , also known as North Yemen or Yemen , was a country from 1962 to 1990 in the western part of what is now Yemen...
and the People's Democratic Republic of Yemen were struggling underdeveloped economies. In the north, disruptions of civil war (1962–1970) and frequent periods of drought had dealt severe blows to a previously prosperous agricultural sector. Coffee
Coffee
Coffee is a brewed beverage with a dark,init brooo acidic flavor prepared from the roasted seeds of the coffee plant, colloquially called coffee beans. The beans are found in coffee cherries, which grow on trees cultivated in over 70 countries, primarily in equatorial Latin America, Southeast Asia,...
production, formerly the north's main export and principal form of foreign exchange
Foreign exchange reserves
Foreign-exchange reserves in a strict sense are 'only' the foreign currency deposits and bonds held by central banks and monetary authorities. However, the term in popular usage commonly includes foreign exchange and gold, Special Drawing Rights and International Monetary Fund reserve positions...
, declined as the cultivation of khat
Khat
Khat, qat, gat or Waquish Spoken from true Yemeni, is a flowering plant native to tropical East Africa and the Arabian Peninsula....
increased. Low domestic industrial output and a lack of raw materials made the YAR dependent on a wide variety of imports.
Macro-economic trend
This is a chart of trend of gross domestic product of Yemen (since reunification) at market prices estimated by the International Monetary Fund with figures in millions of Yemeni Rials.| Year | Gross Domestic Product | US Dollar Exchange | Inflation Index (2000=100) |
|---|---|---|---|
| 1990 | 125,562 | 11.70 Yemeni Rials | 5.10 |
| 1995 | 516,643 | 40.49 Yemeni Rials | 51 |
| 2000 | 1,539,386 | 161.00 Yemeni Rials | 100 |
| 2005 | 2,907,636 | 191.37 Yemeni Rials | 175 |
For purchasing power parity comparisons, the US Dollar is exchanged at 150.11 Yemeni Rials only. Mean wages were $1.06 per manhour in 2009.
Remittances from Yemenis working abroad and foreign aid paid for perennial trade deficits. Substantial Yemeni communities exist in many countries of the world, including Yemen's immediate neighbors on the Arabian Peninsula
Arabian Peninsula
The Arabian Peninsula is a land mass situated north-east of Africa. Also known as Arabia or the Arabian subcontinent, it is the world's largest peninsula and covers 3,237,500 km2...
, Indonesia
Indonesia
Indonesia , officially the Republic of Indonesia , is a country in Southeast Asia and Oceania. Indonesia is an archipelago comprising approximately 13,000 islands. It has 33 provinces with over 238 million people, and is the world's fourth most populous country. Indonesia is a republic, with an...
, India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
, East Africa
East Africa
East Africa or Eastern Africa is the easterly region of the African continent, variably defined by geography or geopolitics. In the UN scheme of geographic regions, 19 territories constitute Eastern Africa:...
, the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
, and the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
. Beginning in the mid-1950s, the Soviet Union
Soviet Union
The Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....
and People's Republic of China
People's Republic of China
China , officially the People's Republic of China , is the most populous country in the world, with over 1.3 billion citizens. Located in East Asia, the country covers approximately 9.6 million square kilometres...
provided large-scale assistance to the YAR. This aid included funding of substantial construction projects, scholarships, and considerable military assistance.
Integration issues
In the south, pre-independence economic activity was overwhelmingly concentrated in the port city of AdenAden
Aden is a seaport city in Yemen, located by the eastern approach to the Red Sea , some 170 kilometres east of Bab-el-Mandeb. Its population is approximately 800,000. Aden's ancient, natural harbour lies in the crater of an extinct volcano which now forms a peninsula, joined to the mainland by a...
. The seaborne transit trade, which the port relied upon, collapsed with the closure of the Suez Canal
Suez Canal
The Suez Canal , also known by the nickname "The Highway to India", is an artificial sea-level waterway in Egypt, connecting the Mediterranean Sea and the Red Sea. Opened in November 1869 after 10 years of construction work, it allows water transportation between Europe and Asia without navigation...
and Britain
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
's withdrawal from Aden
Aden
Aden is a seaport city in Yemen, located by the eastern approach to the Red Sea , some 170 kilometres east of Bab-el-Mandeb. Its population is approximately 800,000. Aden's ancient, natural harbour lies in the crater of an extinct volcano which now forms a peninsula, joined to the mainland by a...
in 1967. Only extensive Soviet aid, remittances from south Yemenis working abroad, and revenues from the Aden refinery (built in the 1950s) kept the PDRY's centrally planned Marxist economy afloat. With the dissolution of the Soviet Union
History of the Soviet Union (1985-1991)
The history of the Soviet Union from 1982 through 1991, spans the period from Leonid Brezhnev's death and funeral until the dissolution of the Soviet Union. Due to the years of Soviet military buildup at the expense of domestic development, economic growth stagnated...
and a cessation of Soviet aid, the south's economy basically collapsed.
Since unification, the government has worked to integrate two relatively disparate economic systems. However, severe shocks, including the return in 1990 of approximately 850,000 Yemenis from the Persian Gulf
Persian Gulf
The Persian Gulf, in Southwest Asia, is an extension of the Indian Ocean located between Iran and the Arabian Peninsula.The Persian Gulf was the focus of the 1980–1988 Iran-Iraq War, in which each side attacked the other's oil tankers...
states, a subsequent major reduction of aid flows, and internal political disputes culminating in the 1994 civil war, hampered economic growth.
Agriculture and fishing
AgricultureAgriculture
Agriculture is the cultivation of animals, plants, fungi and other life forms for food, fiber, and other products used to sustain life. Agriculture was the key implement in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the...
is the mainstay of Yemen’s economy, generating more than 20 percent of gross domestic product
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
(GDP) since 1990 (20.4 percent in 2005 according to the Central Bank of Yemen) and employing more than half (54.2 percent in 2003) of the working population. However, a U.S. government
Federal government of the United States
The federal government of the United States is the national government of the constitutional republic of fifty states that is the United States of America. The federal government comprises three distinct branches of government: a legislative, an executive and a judiciary. These branches and...
estimate suggests that the sector accounted for only 13.5 percent of GDP in 2005. Numerous environmental problems hamper growth in this sector—soil erosion, sand dune encroachment, and deforestation
Deforestation
Deforestation is the removal of a forest or stand of trees where the land is thereafter converted to a nonforest use. Examples of deforestation include conversion of forestland to farms, ranches, or urban use....
—but the greatest problem by far is the scarcity of water. As a result of low levels of rainfall, agriculture in Yemen relies heavily on the extraction of groundwater, a resource that is being depleted. Yemen’s water tables are falling by approximately two meters a year, and it is estimated that Sanaa’s groundwater supplies could be exhausted by 2008. The use of irrigation
Irrigation
Irrigation may be defined as the science of artificial application of water to the land or soil. It is used to assist in the growing of agricultural crops, maintenance of landscapes, and revegetation of disturbed soils in dry areas and during periods of inadequate rainfall...
has made fruit and vegetables Yemen’s primary cash crops. With the rise in the output of irrigated crops, the production of traditional rain-fed crops such as cereals has declined. According to the Central Bank of Yemen, in 2005 the production of khat
Khat
Khat, qat, gat or Waquish Spoken from true Yemeni, is a flowering plant native to tropical East Africa and the Arabian Peninsula....
, a mildly narcotic and heavily cultivated plant that produces natural stimulants when its leaves are chewed, rose 6.7 percent and accounted for 5.8 percent of GDP; its usage in Yemen is widespread. According to the World Bank
World Bank Group
The World Bank Group is a family of five international organizations that makes leveraged loans, generally to poor countries.The Bank came into formal existence on 27 December 1945 following international ratification of the Bretton Woods agreements, which emerged from the United Nations Monetary...
and other economists, cultivation of this plant plays a dominant role in Yemen’s agricultural economy, constituting 10 percent of GDP and employing an estimated 150,000 persons while consuming an estimated 30 percent of irrigation water and displacing land areas that could otherwise be used for exportable coffee, fruits, and vegetables.
Although Yemen’s extensive territorial waters and marine resources have the potential to produce 840,000 tons of fish each year, the fishing industry is relatively underdeveloped and consists largely of individual fishermen in small boats. In recent years, the government has lifted restrictions on fish exports, and production has reached one-quarter of capacity, yielding revenues valued at US$260 million in 2005. Fish and fish products constitute only 1.7 percent of Yemen’s GDP but are the second largest export. In December 2005, the World Bank approved a US$25 million credit for a Fisheries Management and Conservation Project to be launched in all coastal governorates along the Red Sea
Red Sea
The Red Sea is a seawater inlet of the Indian Ocean, lying between Africa and Asia. The connection to the ocean is in the south through the Bab el Mandeb strait and the Gulf of Aden. In the north, there is the Sinai Peninsula, the Gulf of Aqaba, and the Gulf of Suez...
and the Gulf of Aden
Gulf of Aden
The Gulf of Aden is located in the Arabian Sea between Yemen, on the south coast of the Arabian Peninsula, and Somalia in the Horn of Africa. In the northwest, it connects with the Red Sea through the Bab-el-Mandeb strait, which is about 20 miles wide....
. This project is expected to improve fish landing and auction facilities, provide ice plants for fish preservation, and enable Yemen’s Ministry of Fisheries to undertake more effective research, resource management planning, and regulatory activities.
Oil and gas
Yemen is a small oil producer and does not belong to the Organization of the Petroleum Exporting Countries (OPEC). Unlike many regional oil producers, Yemen relies heavily on foreign oil companies that have production-sharing agreements with the government. Income from oil production constitutes 70 to 75 percent of government revenue and about 90 percent of exports. Yemen contains proven crude oil reserves of more than 4 Goilbbl, although these reserves are not expected to last more than 9 years, and output from the country’s older fields is falling, a concern since oil provides around 90% of the country's exports. The World BankWorld Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
predicts that Yemen's oil and gas revenues will plummet during 2009 and 2010, and fall to zero by 2017 as supplies run out, and UK's Royal Institute for International Affairs warns that instability there could expand a zone of lawlessness from northern Kenya to Saudi Arabia, while describing Yemen's democracy as "fragile" and pointing to armed conflicts with Islamists and tribal insurgents. Thus western and other diplomats and leaders are concerned to preserve Yemen's stability and to avert adverse outcomes. According to statistics published by the Energy Information Administration, crude oil output averaged 413300 oilbbl/d in 2005, a reduction from 423700 oilbbl/d in 2004. For the first eight months of 2006, crude oil output was flat, averaging 412500 oilbbl/d.
Following a minor discovery in 1982 in the south, an American company found an oil basin near Ma'rib
Ma'rib
Ma'rib or Marib is the capital town of the Ma'rib Governorate, Yemen and was the capital of the Sabaean kingdom, which some scholars believe to be the ancient Sheba of biblical fame. It is located at , approximately 120 kilometers east of Yemen's modern capital, Sana'a...
in 1984. A total of 27,000 m³ (170,000 barrels) of oil per day were produced there in 1995. A small oil refinery began operations near Ma'rib in 1986. A Soviet discovery in the southern governorate of Shabwah has proven only marginally successful even when taken over by a different group. A Western consortium began exporting oil from Masila in the Hadhramaut
Hadhramaut
Hadhramaut, Hadhramout, Hadramawt or Ḥaḍramūt is the formerly independent Qu'aiti state and sultanate encompassing a historical region of the south Arabian Peninsula along the Gulf of Aden in the Arabian Sea, extending eastwards from Yemen to the borders of the Dhofar region of Oman...
in 1993, and production there reached 67,000 m³ (420,000 barrels) per day in 1999. More than a dozen other companies have been unsuccessful in finding commercial quantities of oil. There are new finds in the Jannah (formerly known as the Joint Oil Exploration Area) and east Shabwah blocks. Yemen's oil exports in 1995 earned about US$1 billion.
Marib oil contains associated natural gas
Natural gas
Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...
. In September 1995, the Yemeni Government signed an agreement that designated Total
Total S.A.
Total S.A. is a French multinational oil company and one of the six "Supermajor" oil companies in the world.Its businesses cover the entire oil and gas chain, from crude oil and natural gas exploration and production to power generation, transportation, refining, petroleum product marketing, and...
of France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
to be the lead company for a project for the export of liquefied natural gas (LNG). In 1997, Yemen Gas Company joined with various privately held companies to establish Yemen LNG
Yemen LNG
Yemen LNG is the first 'natural gas liquefaction project in Yemen. The LNG plant is located in Balhaf.-History:...
(YLNG). In August 2005 the government gave final approval to three LNG supply agreements, enabling YLNG to award a US$2 billion contract to an international consortium to build the country’s first liquefaction plant at Balhat on the Arabian Sea
Arabian Sea
The Arabian Sea is a region of the Indian Ocean bounded on the east by India, on the north by Pakistan and Iran, on the west by the Arabian Peninsula, on the south, approximately, by a line between Cape Guardafui in northeastern Somalia and Kanyakumari in India...
coast. The project is a $3.7 billion investment over 25 years, producing approximately 6.7 million tons of LNG annually, with shipments likely to go to the United States and South Korea. Production of LNG began in October 2009. The Yemen government expects the LNG project to add US$350 million to its budget and enable it to develop a petrochemicals industry.
Industry and manufacturing
The U.S. government estimates that Yemen’s industrial sector constitutes 47.2 percent of gross domestic product. Together with services, construction, and commerce, industry accounts for less than 25 percent of the labor force. The largest contributor to the manufacturing sector’s output is oil refining, which generates roughly 40 percent of total revenue. The remainder of this sector consists of the production of consumer goods and construction materials. Manufacturing constituted approximately 9.5 percent of Yemen’s gross domestic product in 2005. In 2000 Yemen had almost 34,000 industrial establishments with a total of slightly fewer than 115,000 workers; the majority of the establishments were small businesses (one to four employees). Almost half of all industrial establishments are involved in processing food products and beverages; the production of flourFlour
Flour is a powder which is made by grinding cereal grains, other seeds or roots . It is the main ingredient of bread, which is a staple food for many cultures, making the availability of adequate supplies of flour a major economic and political issue at various times throughout history...
and cooking oil
Cooking oil
Cooking oil is purified fat of plant origin, which is usually liquid at room temperature ....
has increased in recent years. Approximately 10 percent of the establishments are classified as manufacturing mixed metal products such as water-storage tanks, doors, and windows.
Services and tourism
Economists have reported that Yemen’s services sector constituted 51.7 percent of gross domestic product (GDP) in 2002 and 52.2 percent of GDP in 2003. The U.S. government estimates that the services sector accounted for 39.7 percent of gross domestic product in 2004 and 39.3 percent in 2005.Yemen’s tourism industry is hampered by limited infrastructure as well as serious security concerns. The country’s hotels and restaurants are below international standards, and air and road transportation is largely inadequate. Kidnappings of foreign tourists remain a threat, especially outside the main cities, and, coupled with terrorist bombings at the Port of Aden in 2000 and 2002, present a significant deterrent to tourism. As recently as September 2006, tribesmen in the Shabwa province, east of Sanaa, kidnapped four French tourists on their way to Aden. They were freed two weeks later. In October 2006, the U.S. Department of State reiterated previous warnings to U.S. citizens, strongly urging them to consider carefully the risks of traveling to Yemen. Britain’s Foreign Office has issued a similar advisory. Recent statistics for tourist arrivals in Yemen are not available, but in 2004 the number rose to 274,000 from 155,000 in 2003.
Labor
According to the U.S. government, the agriculture and herding sector employs the majority of Yemen’s working population (54.2 percent in 2003). Industry, together with services, construction, and commerce, accounts for less than 25 percent of the labor force.According to the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
, Yemen’s civil service is characterized by a large, poorly paid work force and inadequate salary differential between high and low skilled jobs to attract and retain qualified workers. In 2004 the government increased civil service salaries by 20 to 40 percent in order to alleviate the impact of anticipated economic reforms that were never implemented. The result was a 20 percent rise in wage costs; civil service wages constituted 7 percent of gross domestic product in 2004. The 2005 budget reduced economic subsidies but in exchange required the government to make various concessions, including increasing civil service wages another 10 to 15 percent by 2007 as part of a national wage strategy.
The economic assistance package the International Monetary Fund (IMF) pledged to Yemen is contingent on the implementation of civil service reform, which the government has resisted because of the country’s estimated 20 to 40 percent unemployment rate. In 2004 the government claimed to have reduced the civil service labor force through retirements and layoffs, but it appears that the large salary increases have lessened the impact of any reforms. The IMF has stated that civil service salaries as a component of gross domestic product should be reduced 1 to 2 percent, a level that can only be achieved with continued reductions in the size of the civil service. It is unclear whether the national wage strategy, which may succeed in streamlining the system and removing irregularities, will in fact be able to reduce employment costs.
Currency, exchange rate, and inflation
Yemen’s currency is the Yemeni riyal (YR), which was floated on the open market in July 1996. Periodic intervention by the Central Bank of Yemen has enabled the riyal to gradually depreciate approximately 4 percent per year since 1999. Its valued averaged YR191.5 per US$1 in 2005, and has averaged YR197.5 in 2006. In late November 2006, the exchange rate was about YR198 per US$1.During the years immediately following unification (1990–96), Yemen experienced a very high average rate of inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
—40 percent. Economic reforms brought this rate down to only 5.4 percent in 1997, but high oil prices and cuts in the fuel subsidy in recent years have had a negative impact on the inflation rate, which has generally been on the rise despite some fluctuations. In 2004 efforts by the Central Bank of Yemen to tighten the money supply were offset by a weakening U.S. dollar
United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....
, to which the Yemeni riyal is linked in a managed float, and by rising global commodity prices, resulting in an inflation rate of 12.5 percent. In July 2005, the government succumbed to public opposition and lowered the new general sales tax
Sales tax
A sales tax is a tax, usually paid by the consumer at the point of purchase, itemized separately from the base price, for certain goods and services. The tax amount is usually calculated by applying a percentage rate to the taxable price of a sale....
from 10 to 5 percent. This tax, coupled with reductions in government fuel subsidies and higher import prices, is expected to result in an estimated inflation rate of 15 percent in 2006, up from 11.8 percent in 2005.
Banking and finance
According to economists, Yemen’s financial services sector is underdeveloped and dominated by the banking system. Yemen has no public stock exchangeStock exchange
A stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and...
. The banking system consists of the Central Bank of Yemen, 15 commercial banks (nine private domestic banks, four of which are Islamic banks; four private foreign banks; and two state-owned banks), and two specialized state-owned development banks. The Central Bank of Yemen controls monetary policy and oversees the transfer of currencies abroad. It is the lender of last resort
Lender of last resort
A lender of last resort is an institution willing to extend credit when no one else will. The term refers especially to a reserve financial institution, most often the central bank of a country, intended to avoid bankruptcy of banks or other institutions deemed systemically important or 'too big to...
, exercises supervisory authority over commercial banks, and serves as a banker to the government. Since end 2005 and up to the end of 2010, Tadhamon International Islamic Bank has maintained the top spot between all banks in Yemen (Commercial and Islamic) in terms of total assets, capital and trade business. The largest commercial bank, the Credit and Agricultural Cooperative Bank, which is state-owned, and the Yemen Bank for Reconstruction and Development, which is majority state-owned, are currently being restructured with the goal of eventual privatization. Because of fiscal difficulties in both banks, in 2004 Yemen’s government adopted a plan to merge them; the new publicly owned Development Bank will have a minimum capital of US$50 million. Till end April 2011 this step has yet to materialize.
The large volume of non-performing loans, low capitalization, and weak enforcement of regulatory standards hamper Yemen’s banking sector as a whole. Numerous banks are technically insolvent. Because many debtors are in default, Yemen’s banks limit their lending activities to a select group of consumers and businesses; as a result, the entire banking system holds less than 60 percent of the money supply. The bulk of the economy operates with cash. Legislation adopted in 2000 gave the Central Bank the authority to enforce tougher lending requirements, and in mid-2005 the Central Bank promulgated several new capital requirements for commercial banks aimed at curtailing currency speculation and protecting deposits.
Energy
Yemen’s state-owned Public Electricity Corporation(PEC) operates an estimated 80 percent of the country’s electricity generating capacity (810–900 megawatts) as well as the national power grid. Over the past 10 years, the government has considered various means of alleviating the country’s significant electricity shortage, including restructuring the PCE, integrating the power sector through small-scale privatization of power stations, creating independent power projects (IPPs), and introducing gas-generated power plants to free up oil supplies for export. However, because of inadequate infrastructure, large-scale IPPs and privatization proposals have failed to materialize, although several smaller-scale projects in Al MukallaAl Mukalla
Al Mukalla is a main sea port and the capital city of the Hadramaut coastal region in Yemen in the southern part of Arabia on the Gulf of Aden close to the Arabian Sea...
and Aden have been completed, and contracts have been signed for future projects. In 2004 Yemen’s diesel-run power plants generated 4.1 billion kilowatt-hours of electricity, a level of production that is insufficient to maintain a consistent supply of electricity. Although demand for electricity increased 20 percent between 2000 and 2004, it is estimated that only 40 percent of the total population has access to electricity from the national power grid, and supply is intermittent. To meet this demand, the government plans to increase the country’s power generating capacity to 1,400 megawatts by 2002.
Government budget
In 1995, in order to comply with conditions stipulated by the International Monetary Fund (IMF), Yemen began an economic reform program, one component of which is fiscal policy reform aimed at reducing deficits and expanding the revenue base. However, the government has failed to significantly reduce its primary expenditure—subsidies, especially the fuel subsidy. In January 2005, Yemen’s parliament narrowly adopted a 2005 budget that forecast a reduced budget deficit of about 3 percent of gross domestic product (GDP). The budget was predicated on the adoption of a reform package that included a broad-based, 10 percent general sales tax (GST) and a 75 percent reduction in the fuel subsidy. Strong public opposition to these reforms led the government in July 2005 to defer the 10 percent GST for 18 months, adopting instead a hybrid 5 percent GST, and to modify the fuel subsidy reduction. Nonetheless, the cost of subsidies, primarily for fuel, rose dramatically (almost 90 percent) in 2005, accounting for the largest share (almost 25 percent) of total government expenditures and approximately 9 percent of GDP. These costs, coupled with a 24 percent increase in civil service wages and salaries and a 42 percent increase in defense spending, resulted in a government budget deficit of US$350.8 million, or more than 2 percent of GDP, in 2005. The government has budgeted a sharp (41 percent) rise in overall spending for 2006, which economists estimate will result in a fiscal deficit of US$800 million, or 4.2 percent of GDP.History and overview
During the 1990–91 Persian Gulf War, Yemen supported IraqIraq
Iraq ; officially the Republic of Iraq is a country in Western Asia spanning most of the northwestern end of the Zagros mountain range, the eastern part of the Syrian Desert and the northern part of the Arabian Desert....
in its invasion of Kuwait
Gulf War
The Persian Gulf War , commonly referred to as simply the Gulf War, was a war waged by a U.N.-authorized coalition force from 34 nations led by the United States, against Iraq in response to Iraq's invasion and annexation of Kuwait.The war is also known under other names, such as the First Gulf...
, thereby alienating Saudi Arabia and Kuwait, which both had provided critical financial assistance to Yemen. In addition to withdrawing this aid, Saudi Arabia expelled almost 1 million Yemeni workers. The resultant fall in expatriate remittances had a disastrous impact on Yemen’s governmental budget. The civil war of 1994 further drained the economy, and in 1995 Yemen sought the aid of multilateral agencies. In 1996 the International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
(IMF) granted Yemen a US$190 million stand-by credit facility, and the following year it approved two funding facilities that increased the country’s credit by approximately US$500 million. The funding was contingent on Yemen’s adoption of stringent economic reforms, a requirement that the country had limited success in fulfilling. As a result, the IMF suspended lending to Yemen from late 1999 until February 2001. The extension of the two funding facilities, particularly the poverty reduction and growth facility (PRGF), through October 2001 was again contingent on Yemen’s commitment to economic reform. Because of Yemen’s failure to comply sufficiently with the terms imposed by the IMF, since 2002 the IMF has withheld US$300 million in concessional financing. Discussions over the renewal of the PRGF are ongoing. In 2000 Kuwait and Saudi Arabia resumed financial aid to Yemen.
In October 2002, bilateral and multilateral lenders led by the World Bank agreed to give Yemen a four-year economic support package worth US$2.3 billion, 20 percent in grants and 80 percent in concessional loans. This funding is almost eight times the amount of financial support Yemen received under the IMF’s PRGF. However, in December 2005 the World Bank announced that because of the government’s continued inability to effect significant economic reforms and stem corruption, funding would be reduced by more than one-third, from US$420 million to US$240 million for the period July 2005–July 2008. In May 2006, the World Bank adopted a new Country Assistance Strategy (CAS) for Yemen for the period FY 2006 to FY 2009, providing a blueprint for fostering the country’s fiscal and human development improvement. The bank pledged to contribute approximately US$400 million in International Development Association (IDA) credits over the CAS time frame. At present, Yemen owes approximately US$264 million to Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
, one of its largest donors. In December 2005, the Japanese government
Government of Japan
The government of Japan is a constitutional monarchy where the power of the Emperor is very limited. As a ceremonial figurehead, he is defined by the 1947 constitution as "the symbol of the state and of the unity of the people". Power is held chiefly by the Prime Minister of Japan and other elected...
pledged to write off US$17 million of the debt. That same month, Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
pledged to increase its annual aid to Yemen to US$83.6 million over the next two years; funding will go primarily to education and water improvement projects. In November 2006, the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
announced that aid to Yemen would increase 400 percent, to US$222 million through 2011.
Yemen is a member of the Arab Fund for Economic and Social Development
Arab Fund for Economic and Social Development
The Arab Fund for Economic and Social Development is a Kuwait-based, pan-Arab development finance institution. All member-states of the Arab League are members of the AFESD. As of 2003, it held around USD 7.3 billion in assets....
, which since 1974 has contributed to the financing of economic and social development in Arab states
Arab world
The Arab world refers to Arabic-speaking states, territories and populations in North Africa, Western Asia and elsewhere.The standard definition of the Arab world comprises the 22 states and territories of the Arab League stretching from the Atlantic Ocean in the west to the Arabian Sea in the...
and countries through loans and guarantees. In March 2004, the Arab League
Arab League
The Arab League , officially called the League of Arab States , is a regional organisation of Arab states in North and Northeast Africa, and Southwest Asia . It was formed in Cairo on 22 March 1945 with six members: Egypt, Iraq, Transjordan , Lebanon, Saudi Arabia, and Syria. Yemen joined as a...
provided US$136 million to Yemen to finance infrastructure improvements. At a mid-November 2006 meeting in London, a group of bilateral and multilateral donors pledged US$4.7 billion over four years (2007–10) to fund economic development in Yemen. The goal of the meeting, which was jointly chaired by the World Bank and the government of Yemen, was to provide sufficient economic aid to Yemen to enable it to qualify for future Gulf Cooperation Council (GCC) membership. More than 55 percent of the aid, which is primarily in the form of grants, will come from the GCC. Yemen was granted observer status at the World Trade Organization
World Trade Organization
The World Trade Organization is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade , which commenced in 1948...
(WTO) in 1999, and its application for full membership was under negotiation as of December 2006.
Foreign trade
Imports totaled an estimated US$4.7 billion in 2005 and are projected to increase to US$5 billion in 2006 and to US$5.4 billion in 2007. Yemen is a net importer of all major categories of products except fuels. Principal imports are machinery and transport equipment, food and livestock, and processed materials. According to the United NationsUnited Nations
The United Nations is an international organization whose stated aims are facilitating cooperation in international law, international security, economic development, social progress, human rights, and achievement of world peace...
, Yemen imports more than 75 percent of its main dietary staple—wheat. The principal source of Yemen’s imports in 2005 was the United Arab Emirates
United Arab Emirates
The United Arab Emirates, abbreviated as the UAE, or shortened to "the Emirates", is a state situated in the southeast of the Arabian Peninsula in Western Asia on the Persian Gulf, bordering Oman, and Saudi Arabia, and sharing sea borders with Iraq, Kuwait, Bahrain, Qatar, and Iran.The UAE is a...
(13.4 percent of total imports); the bulk of these imports are actually re-exports from the United States and Kuwait. Yemen received 10.6 percent of its total imports from Saudi Arabia and 9 percent from China.
In 2005 Yemen’s exports totaled US$6.4 billion. Exports are expected to increase to reach a record US$8.6 billion in 2006 as a result of strong oil revenues. Petroleum is Yemen’s main export, accounting for 92 percent of total exports in 2004 and 87 percent in 2005. Yemen’s non-oil exports are primarily agricultural products, mainly fish and fish products, vegetables, and fruit. In 2005 Asia was the most important market for Yemen’s exports, primarily China
China
Chinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...
(37.3 percent of total exports), Thailand
Thailand
Thailand , officially the Kingdom of Thailand , formerly known as Siam , is a country located at the centre of the Indochina peninsula and Southeast Asia. It is bordered to the north by Burma and Laos, to the east by Laos and Cambodia, to the south by the Gulf of Thailand and Malaysia, and to the...
, and Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
. Chile
Chile
Chile ,officially the Republic of Chile , is a country in South America occupying a long, narrow coastal strip between the Andes mountains to the east and the Pacific Ocean to the west. It borders Peru to the north, Bolivia to the northeast, Argentina to the east, and the Drake Passage in the far...
was also a primary export market (19.6 percent of total exports).
Yemen’s import and export values have increased and decreased dramatically in the past 10 years owing to shifts in global oil prices. As a result, the country’s trade balance has fluctuated significantly from a deficit of almost US$800 million in 1998 to a surplus of US$1 billion in 2000. Rising oil prices resulted in a surplus of US$817 million in 2004 and a surplus of US$1.7 billion in 2005.
In recent years, Yemen has reported increasing non-merchandise deficits. These deficits have, however, been offset by record export earnings, which have resulted in large enough trade surpluses to keep the current account in surplus—US$175.7 million in 2003, US$524.6 million in 2004, and US$633.1 million (about 4 percent of gross domestic product) in 2005.
External debt
In 1990 the newly unified Republic of YemenYemen
The Republic of Yemen , commonly known as Yemen , is a country located in the Middle East, occupying the southwestern to southern end of the Arabian Peninsula. It is bordered by Saudi Arabia to the north, the Red Sea to the west, and Oman to the east....
inherited an unsustainable debt burden amounting to roughly 106 percent of gross domestic product. Debt rescheduling by the Paris Club creditor countries in the 1990s coupled with assistance from the World Bank’s International Development Agency resulted in a drop in Yemen’s debt stock to US$5.4 billion (an estimated 39 percent of gross domestic product) by year-end 2004. According to the Central Bank of Yemen, Yemen’s debt stock was US$5.2 billion (an estimated 33 percent of gross domestic product) by year-end 2005. According to the U.S. government, Yemen’s reserves of foreign exchange and gold were US$6.1 billion in 2005.
Foreign investment
Yemen does not have a stock exchange, therefore limiting inward portfolio investment. Portfolio investment abroad is also very limited, with the result that portfolio flows are largely unrecorded by authorities. In the early 1990s1990s
File:1990s decade montage.png|From left, clockwise: The Hubble Space Telescope floats in space after it was taken up in 1990; American F-16s and F-15s fly over burning oil fields and the USA Lexie in Operation Desert Storm, also known as the 1991 Gulf War; The signing of the Oslo Accords on...
, net direct investment was at its peak as foreign investors tapped Yemeni oil reserves
Oil reserves
The total estimated amount of oil in an oil reservoir, including both producible and non-producible oil, is called oil in place. However, because of reservoir characteristics and limitations in petroleum extraction technologies, only a fraction of this oil can be brought to the surface, and it is...
, but since 1995 net direct investment flows have been negative because cost recovery for foreign oil companies has exceeded new direct investment. A five-year US$3 billion liquid natural gas (LNG) construction project involving a consortium of foreign companies is planned following government approval in August 2005. Such a project raises the prospect of increased foreign investment
Foreign direct investment
Foreign direct investment or foreign investment refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.. It is the sum of equity capital,other long-term capital, and short-term capital as shown in...
in the future as LNG facilities are built.