During the past few years, the Yemeni economy encountered a series of successive crises and urgent challenges, namely, political instability and insecurity that resulted in economic and social instability.
Last year (2014), the economy experienced a new shock, consequent to the unprecedented deterioration in the political and security landscape. This led to unfavorable repercussions for the development indicators and worsened the living standards of the Yemeni people. Following is an overview of economic developments with emphasis on analysis of economic growth and inflation indicators as well as the situation of the State’s general budget in 2014. In conclusion, a package of policies and measures are suggested.
Economic Growth
Given the preliminary data, real GDP growth is expected to decline by almost – 12.9% in 2014. This is attributed to several factors, mainly, the crisis of oil products in the first half of 2014, which lasted for four months; the armed conflict during the second half of 2014 in Sana’a; implications of the critical situation of the budget; decline in the public investment expenditure by about 26.3%, as well as the low confidence of local and foreign private investment. As a result, per capita GDP decreased from $1,343 in 2013 to $ 1,261 in 2014.
In this respect, it is expected that poverty and deprivation shall become even more pronounced during the current year (2015) if the political factions do not reach an agreement to overcome the current crisis in Yemen.
Growth in real GDP (percent)
Source: Central Statistical Organization (CSO), Statistical Yearbook 2013. The 2014 data represent estimates of economic projections as suggested by the Technical Committee.
With respect to the inflation levels, the inflation data indicate the discrepancy in the overall rate of CPI inflation from one month to another during the period from January – June 2014, with the highest rate (10 percent) in August and the lowest (5.8 percent) in May. The inflation rate reached its peak in August because of elimination of fuel subsidies. The increase in inflation levels had an adverse impact on the purchasing power, as well as the livelihoods of the poor.
State’s General Budget for 2014
The preliminary actual data reveal a remarkable decline in the net deficit of the budget to 4.8 percent in 2014 against about 8.7 percent of the GDP in 2013. This is attributed to an increase in the public revenues on the one hand, and implementation of a package of austere fiscal measures and reduced investment expenditures on the other.
Public revenue
Public revenues increased by about 5.35 percent in 2014. That was a result of the increase in the value of local sales of fuel and of the government’s share of LNG export earnings by 107.1 percent in addition to donors’ direct support of the budget in the form of grants and foreign loans that grew by 114.9 percent compared to 2013, which represented almost 13.5 percent of the total revenues.
On the other hand, crude oil export earnings declined from about $ 2.7 billion in 2013 to $ 1.8 billion in 2014, a decline of 33 percent in 2014. This is attributed to the continuous decline in crude oil production from 100.1 million barrels in 2010 to 65.3 million barrels in 2013 to 56.8 million barrels in 2014, partially as a result of deliberately sabotaging crude oil transport pipelines. Furthermore, world prices of crude oil declined progressively from $105 a barrel in June 2014 to $ 59.3 a barrel in December 2014 thus exacerbating the reduction in export earnings.
Public expenditures
Public expenditures experienced a decline of about 6.5 percent in 2014. Preliminary data indicates a decrease in current expenditures by 3.8 percent in 2014 due to the decline in the fuel subsidy bill by almost 17.8 percent ; a reduction in spending on maintenance, goods and services all of which decreased by about 25 percent compared to 2013. Compensation of employees and public debt interest payments, however, continued to increase.
Capital and investment expenses, declined by 26.3 percent in 2014 in order to contain the budgetary deficit within safe limits, where only 33.2 percent of the total capital expenses allocated in the 2014 budget were spent. Foreign finance helped cover 54 percent of actual spending on investment. This negatively impacted the budget’s contribution to economic growth, job generation and poverty alleviation.
Amid the substantial declines in crude oil production price, and the suspension of most donors’ support, capital expenses as well as recurrent expenses will face difficulty to be covered in the current budget (2015).
Suggested policies and measures
Realize political and security stability through the following steps:
•Achieve political and security stability, strengthen the rule of law, and complete the peaceful transition in security and power. •Adopt the necessary steps to ensure the cessation of all forms of violence and violations of the law; and work to end all armed conflict. •Implement legislation that regulates the possession and carrying of arms.
Enhance the role of the private sector and create an environment conducive to private investment focusing on the need to:
•Address the barriers that face stumbling projects and develop the Aden area. •Strengthen small and medium scale enterprises to widen opportunities for sustainable economic growth as well as poverty alleviation.
Improve infrastructure and focus on promoting economic sectors that show a growth potential:
•Optimize the role of the fisheries sector in the Yemeni economy and intensify research and exploration efforts for oil and gas. •Provide adequate electric power to satisfy the current and future demand on electricity in a sustainable manner.