Yemen Economic Update

Transcription

1 . Yemen Economic Update Inside this Issue March 2001 Issue 4 Political and Economic Developments Flash Indicators Yemen Compares: Human Development What s New The World Bank Group Sana a Office Social and Economic Development Unit Middle East and North Africa Region Prepared by Nadir Mohammed and Mohammed Al-Sabbry The Yemen Economic Update is a quarterly report that consists of four sections. The first section highlights key political, major economic and policy developments. The second section provides flash indicators for key economic variables that are available on a monthly or quarterly basis by the Government of Yemen. The third section uses different data sources to compare one aspect of Yemen to: (i) other countries in the MENA region; and/or (ii) countries with similar GDP per capita and population. The final section summarizes new legislation, publications, data, conferences, and donor activities. Political and Economic Developments Political Developments The elections for local councils and the constitutional Xxxx. referendum dominated the Yemeni political scene for the last few months. Economic The Developments Yemeni voters went to the polls on February 20 th to elect 7,000 members Xxx. from 23,000 candidates for the local and governorate councils and to vote Yes or No for the new constitutional amendments. The results were largely in line with expectations, with the ruling General People Congress (GPC) snatching the lion share of the seats in the local district and governorate councils. Islah came in the second place, followed by the independent candidates who are basically affiliated with other political parties mostly with GPC and Islah. The Yemen Socialist Party (YSP) came in the fourth place, mostly gaining its seats in the southern governorates of Abyn, Al- Dhale and Shabwah, but surprisingly not in Aden. There were considerable official efforts to increase voters participation in the face of general public lack of interest and loss of trust in the election process. Prior to the elections, a strong public campaign was launched by the public local media urging people to participate in the local elections and the constitutional referendum. The President also paid a visit to the consultative council of Islah party urging them to participate and promised to resolve pending issues with regard to the duplication in the electors lists. Further, the President and many governments officials, including cabinet members, toured the country during the campaign, particularly to high populous governorates such as Hodiadah, Taiz, and Ibb. During the tour, a number of new foundation stones for public projects inaugurated. A Yemeni veiled lady, carrying her baby, casts her vote in one of local election Though the elections were for low-key positions and have been overshadowed by the constitutional amendments, few people were killed and many injured during the campaign and during casting and counting of votes. This took place despite greater presence of security personnel and 6 policemen were killed in a district west of Sana a city. Economic Developments A new set of revised national accounts was released in the first quarter of The revised figures show an acceleration in real GDP growth in 2000 to 5.1 percent up from 3.7 percent in the previous year. The growth was mainly driven by high oil prices during the year. For more information about information in this Update, contact Mohammed Al-Sabbry (malsabbry@worldbank.org), World Bank Office, Sana a.

2 Three major sectors, that stagnated in 1999, also recovered strongly in 2000: agriculture (3.7%), manufacturing (6.1%) and construction (8.1%). Due to improved performance of manufacturing, construction and oil sectors, the rate of growth of the industrial output in 2000 reached 7.3% in comparison to 4.8% in the previous year. The mining and quarrying sub-sector (mainly oil) grew by 7.2% in New economic plans to provide a road-map to the Yemen s economic development in the short- and medium-terms are currently under preparation. These include the Second Five Year Plan and the Vision 2025 (both expected to be approved in June 2001), and the Poverty Reduction Strategy Paper (PRSP) which is expected to be finalized in the last quarter of Inflation rate increased in 2000, reversing the trend of declining inflation rates which started in Inflation rate increased to 10.9% in 2000 up from 8% in the previous year. The inability of the Central Bank to mop up the large amount of excess liquidity caused by high oil prices has been among the reasons for inflationary pressures. Recent monthly data point to slight reduction in inflation rates during October 2000 and January The recent declines are attributed to the decline in the prices of Qat and other food commodities and the seasonal halt in the purchase of non-food items after the month of Ramadan. With the recommendation of the General Investment Authority, the Council of Ministers approved the new amendments of the investment law. If approved by the Parliament, the amendments will give investors the right to register their projects without prior permission and would allow them to possess land for their projects and residence. This change is hoped to attract foreign direct investments into Yemen by providing foreign investors equal business opportunities as local investors. Other laws such as civil law and estate law will also be amended to facilitate land and estate possession by foreign investors. Within two days intervals, the President inaugurated two new Global Systems for Mobiles (GSM) to rival TeleYemen, a joint venture between the state and UKbased Cable & Wireless. The two new companies are SabaFon, a venture of Egypt's Orascom Telecom, and SpaceTel, joint venture between Lebanon's Investcom and Oman's Al-Zubeir Group. Orascom expects to attract 20,000 subscribers to its Yemen network within three-four months and a total of 60,000 after a year. SpaceTel plans to invest $70m this year in a network with capacity for 100,000 subscribers. According to the International Telecommunications Union (ITU), there were 27,700 mobile phone subscribers in Yemen at the end of 1999, equating to 0.16 handsets per 100 inhabitants. The Central Bank of Yemen continues to allow a modest depreciation of the Yemeni rail against the US dollar. The decrease of commercial interest rate on June 2000 from 15 percent to 13 percent has so far no visible impact on attracting loan demand. The Privatization Loan agreement and the General Sale Tax (GST) law were sequentially discussed by the Parliament in early February. Both of them attracted considerable debate in the local media and inside the Parliament. The Privatization Loan Agreement was postponed and the GST Law was approved but not in its original form

3 Production and Prices Flash Indicators GDP: A new set of revised national accounts was released by the Central Statistical Office in March This new set revised old national accounts sets which were previously released in September 2000 and October The major revisions included increased value added estimates for construction, wholesale and retail trade, financial institutions and real-estate and a reduction in the value added estimates of government services and private non-profit services. The table below provides the new real growth rates for the supply and the expenditure sides of the Yemen economy. The real GDP growth increased by 5.1 percent in 2000 and was mainly driven by higher oil prices, but non-oil sectors also contributed to GDP growth (particularly agriculture and manufacturing). On the expenditure side, the year 2000 witnessed dramatic increase in domestic investment and savings and a reduction in consumption, particularly in private consumption. GROWTH RATES FOR THE SUPPLY AND EXPENDITURE SIDES OF THE ECONOMY Real GDP 10.9% 5.9% 8.1% 4.9% 3.7% 5.1% Non-oil GDP 9.4% 4.6% 8.2% 5.3% 2.9% 4.7% Agriculture 6.9% 1.9% 8.8% 13.7% 0.2% 3.7% Manufacturing 23.7% 0.6% 1.1% 3.8% 0.7% 6.1% Industry 21.2% 10.5% 7.6% 2.7% 4.8% 7.0% Services 7.4% 5.0% 8.1% 2.4% 4.8% 4.7% Total Consumption 14.9% -47.4% 4.0% 47.1% 8.5% -1.0% Private Consumption 21.1% -48.7% 3.7% 45.7% 9.7% -4.2% Domestic Investment 17.8% 31.0% 29.7% 6.8% -8.7% 14.3% Domestic Savings 41.4% % 14.1% -51.1% -15.6% 36.5% Source: CSO and WB staff calculation Inflation: The monthly average inflation rate continued its slight drop from percent in October 2000, to in November and further to 10.2 percent in January. Reasons of this recent declines include reduction in prices of qat prices and other food commodities including fruit and vegetables. The weight of qat expenditure represents 15 percent of total food commodities expenditure. Further, the shopping for non-food commodities, including clothes, is historically halted after the month of Ramadhan and the Eid. ANNUAL AND MONTHLY AVERAGE INFLATION RATE (PERCENT CHANGE) Jan-00 Feb-00 Mar-00 Apr-00 May-00 Jun-00 Jul-00 Aug-00 Sep-00 Oct-00 Nov-00 Dec-00 Source: Central Bank of Yemen Jan-01

4 Government Finance Revenues and expenditures: This issue of the Update focuses on the difference between approved budgets (allocations) and the actual budget (expenditure) in 1998 and Since Yemen fiscal revenues are heavily dependent on oil revenues, the actual revenues and spending patterns depend heavily on fluctuations in the oil market prices. The figures below show that Yemen s total fiscal revenues and total expenditures in 1998 were well behind projected figures. The 1998 was a year of budget stringency as the government cut down on investment and on non-wage recurrent expenditures. In 1999, the differences between the budget allocations and outcomes was smaller than 1998 due to the recovery in oil prices during the second half of the year. ESTIMATE AND ACTUAL REVENUES (BILLIO NS YR) ESTIMATE AND ACTUAL EXPENDITURE (BILLIONS YR) Estimates Actual Estimates Actual Source: The Parliament Report on Final Account External Sector Exports, imports and trade balance: CSO recently released preliminary data on Yemen external trade for Comparing export data for 2000 with previous years, oil exports ranged between 91 to 97 percents of total exports earnings. The figure below shows total exports earnings in 2000 were twice oil export revenues in 1999 and three times the revenues in This is obviously due to the windfall of oil revenues since late of 1999 and it demonstrates the vulnerability of foreign exchange earnings in Yemen to fluctuations in oil prices. OIL AND NON-OIL EXPORTS (% OF TOTAL EXPORTS ) TOTAL EARNING EXPORTS As % of total exports Oil 95% 91% 94% 97% Non-oil 5% 9% 6% 3% Of which food 3% 4% 3% 2% non-food 2% 5% 3% 1% Source: CSO and CBY and WB staff calculation

5 Monetary Data Money supply: Broad money grew by 25 percent in 2000 compared with 14 percent in 1999 and 12 percent in This increase was associated with a dramatic increase in quasi money from 12 percent in 1999 to 32 percent in In 2001, growth of quasi money increased further to 34 percent in January but it decided by the same rate in February. The foreign currency deposits represented 64 percent of total quasi money supply. It grew by 16 percent in 1999 and by 31 percent in The fluctuation of the exchange rate over the last few months has contributed to the increase of foreign deposits in comparison with other quasi deposits in local currency. GROWTH RATES IN MONEY SUPPLY VARIABLES 40% 35% 30% 25% 20% 15% 10% 5% 0% FY98 FY99 FY00 Broad Money Narrow Money Quasi Money Foreign Currency Other Quasi Source: Central Bank of Yemen, WB staff calculations. Interest Rates: (reported monthly). The saving deposits rate remained unchanged at 13 percent throughout the first quarter of The spread between high and low interest rates on commercial loans remained five percentage points during the same period. The yield on three-month T-bills continued to increase gradually from to percent in December 2001, reaching percent by end February The rediscount rate for T-bills was percent by the end of February COMMERCIAL INTEREST RATES AND T-BILL YIELDS Nov-99 Dec-99 Jan-00 Feb-00 Jun-00 Sep-00 Dec-00 Jan-01 Feb-01 T-Bill 3-month Yield Lending rate (low) Lending rate (high) Savings Deposit Rate T-Bill Rediscount Rate Source: Central Bank of Yemen

6 Memorandum Items Exchange Rate: Against dollar, the nominal exchange rate continued its very gradual depreciation with the exchange rate moving from a monthly average of in December 2000 to by March NOMINAL EXCHANGE RATE, PERIOD AVERAGE Rials per US Dollar Nov-99 Dec-99 Jan-00 Feb-00 Mar-00 Apr-00 May-00 Jun-00 Jul-00 Aug-00 Sep-00 Oct-00 Nov-00 Dec-00 Jan-01 Feb-01 Mar-01 Source: Central Bank of Yemen. Foreign Reserves: The Yemen s foreign reserves reached 3 billion by the end of February 2001 covering 12 months of imports. Most of addition to international reserves came from the windfall of oil revenue. This was coupled with record surpluses in the country s current account and national budget. The Government also paid back most of its domestic debt. FOREIGN RESERVES, PERIOD END (left scale: reserves; right scale: reserves as months of imports) Dec-99 Jan-00 Feb-00 Mar-00 Apr-00 May-00 Jun-00 Jul-00 Aug-00 Sep-00 Oct-00 Nov-00 Dec-00 Jan-01 Feb-01-1 Reserves Months of imports (Right Scale) Source: Central Bank of Yemen

7 Yemen Compares: Human Development The United Nation Development Program published its annual Human Development Report Comparisons of human development indices are provided for 174 member countries of the United Nations. Most comparator data are from The report contains several indices including Human Development Index (HDI), the Human Poverty Index (HPI), the Gender Development Index (GDI) and the Gender Empowerment Measure (GEM). The HDI is a composite index based on three indicators associated with human life characteristics: longevity as measured by life expectancy, educational attainment measured by enrollment ratio and standard of living measured by GDP per capita. The HPI is calculated by the deprivations of those three previous indicators. The GDI calculated on the basis of the previous indicators except that it adjusts them for the disparity achievement between women and men. Finally, the GEM evaluates the relative empowerment of women and men in political and economic spheres of activity. For HDI and GDI, the higher percentage values, the better country s performance on human development. However, for HPI, the lower percentage value, the better performance a country achieved in providing public services. Excluding Yemen, almost all MENA countries scored relatively well on HDI, GDI, HPI and GEM and therefore being classified in medium human development. Yemen is the only MENA country that is classified in low human development countries while Kuwait, Qater, UAE, and Bahrain were classified as high human development countries. HUMAN DEVELOPMENT INDICATORS : MENA COUNTRIES Country Real GDP per capita 1998 (US$)* Rank HDI (%) Value Rank HPI (%) Value Rank GDI (%) Value GEM (%) UAE 17, Kuwait 25, Qatar 20, Bahrain 13, Oman 9, Saudi Arabia 10, Tunisia 5, Jordan 3, Lebanon 4, Morocco 3, Libya 6, Algeria 4, Egypt 3, Syria 2, Iran 5, Iraq 3, Yemen Source: UN Human Development Report * The UNDP uses the purchasing power parity exchange rate to convert GDP per capita of a country into US dollar

8 The level of GDP per capital has a strong impact on the indices for HDI, HPI and GDI. However, the level of the HPI index is also determined by factors other than the income level, including population access to safe water, health services, sanitation, and share of income among population. For instance, Qatar has a high GDP per capita and a lower HPI index while Jordan has a lower GDP per capital and a higher HPI index. Therefore, factors other than income per capita play an important role in determining the HPI index. In terms of GEM, there are only four countries in MENA region with an estimated GEM (Jordan, Lebanon, Egypt and Syria). With regard the HDI, Yemen ranked 143 out of 174 countries, a small improvement over its rank of 151 in Furthermore, when compared with other countries of similar population and income per capita, Yemen s HDI is relatively higher than most of these countries (even higher than some countries with higher GDP per capita). This is attributed to above averages that Yemen maintained in terms of life expectancy (58.9 years) and literacy rate (44 percent). However, Yemen has a relatively low GDI due to the visible disparity between women and men in adult literacy rate of 22:66 percent and in gross enrollment ratio of 27:70 percent. As shown in the table below, Yemen s human poverty index is considerably below the average due to poor public services where 39, 84 and 34 percent of the population have no access to safe water, health services and sanitation, respectively. HUMAN DEVELOPMENT INDICATORS : LOW INCOME COUNTRIES Country # Real GDP per capita 1998 HDI (%) GDI (%) HPI (%) (US$)* Rank Value Rank Value Rank Value Kenya Madagascar Yemen Zambia Uganda Malawi Mali Mozambique Source: World Health Report, except GNP per capita from World Development Indicators. # Criteria for selecting comparator countries is 1998 GDP per capita between USD 660 and USD 980, and population between 12 million and 24 million

9 What s New Laws and Decrees Financial Executive Bylaw for Administrative Units (Cabinet Approval, February). Executive Bylaw for the Ministry of Local Administration (Cabinet Approval, February) Establishment of Local Water and Sanitation Authorities in Hadhramout, Taiz, Ibb (Republican Decrees, February). Ratification of the Credit Agreements with Islamic Bank for Development, $9.5 million to be used for municipal water system for Hodiadah (Law No. 2, February) Association and Non-Government Organization (Law No. 1, February). Once a proposed law is approved by Cabinet, it is submitted to Parliament. After Parliamentary ratification, the President signs the bill and it becomes a law. A Republican decree by the President has the force of law. Prime Ministerial and Cabinet decrees are legally binding decisions that usually deal with administrative matters. Publications Yemeni Immigrants, Mohammed Abdulqader Bamateref. Ministry of Expatriates Affairs. Sana a, January 2000 (Arabic Language), presents historical aspects of Yemen immigration. Health Experience in the Low Development Countries: Yemen Case Studies, Dr. Abdulwali Nasher, Minister of Public Health. November Data and Statistical Information Labor Market Survey, (CSO and Ministry of Labor): The survey report projects that the local labor force size to grow to 9.2 million by The number of unemployed is expected to reach more than 1 million by that year. The fishing and agriculture sector absorbs 55.7% of the labor force, the wholesale and retail trade sector employs 10% and the public administration sector employs 9% of the labor force. Official figures from the Ministry of Interior reveals that there was a marked decrease in crimes reported in year 2000 as compared to the year The total number of crimes reported in 2000 was 10,264 while in 1999 it was 11,316. In the Capital Secretariat alone there were 3263 crimes (31.8% of total reported crimes in Yemen). The number of accidents reported was 6,771 and there were 45,858 traffic violations. In 1999 the number of crimes, accidents and breaches of traffic laws reached 48,655. Retail Price Bulletin for November-December 2000 (Central Statistics Office): This report provides retail price data, by governorate, for a wide range of goods and services. The CSO upgraded its methodology of calculating CPI for all governorates. Conferences and Workshops A workshop on The Status of Basic Education was attended by more than 100 educational specialists from Sana'a, Amran, Al-Mahweet and Al Dhalea governorates. It was organized by Basic Education Expansion Project of the Ministry of Education (26-28 February 2001)

10 A seminar on Financial Aspects of the State Budget was attended by 60 employees from the Public Prosecution offices in different provinces. The seminar was organized by Higher Judicial Institute. A workshop on Rational Use of Drugs was organized by the Yemeni Society for the Rational Use of Drug in cooperation with the British Embassy and British Council in Sana a and Aden Universities (20 January 2001). A meeting for Yemeni and German Women to exchange their different experience in the field of human rights and other issues was organized by Women's Research & Training Forum in cooperation with Friedrich Ebert Stiftung. A workshop on Family Planning and Population was organized by Ministry of Endowment with the corporation European Project and National Population Project (February 2001). A Conference to discuss Investment Prospects and Obstacles in Yemen and the Utilization of Human and Natural Resources was attended by 55 participants from outside Yemen as well as official and Yemeni businessmen. The Conference was organized by the Aden Chamber of Commerce and Industry along with the GTZ and the Planning Ministry (January 2001). A Training Workshop for Judge and Prosecutors was attended by 40 judges and 40 prosecutors. So far, about 460 members have been trained in Yemen and Egypt. The training was organized by the Higher Judicial Institute (January 2001). Workshops on Provision of Election Management skills took place in Taiz, Aden and Mukalla. The workshops were organized by the American Democratic Institution for the purpose of strengthening democracy in newly developing countries (January 2001). A forum on Immigration and Expatriates in Yemen was held in Mokala Hadhramout, attended by several higher officials (17-18 January). Donor Activities Fred Gerlman, the Representative of NMCP, a Dutch program has confirmed that Yemeni government would receive annual financial support from the Dutch government. This aid is estimated to be about USD$ 40 million in the form of service projects. In this year, 23 service projects will be executed. Yemen and France signed a protocol on the mechanism of spending funds of the French food aid offered to Yemen. The amount of this year's assistance is estimated at YR 140 million allocated for financing a number of agricultural development projects. A loan agreement worth 26 Million Kwaiti Dinar was signed between Yemen and the Arab Fund for Economic and Social Development (AFESD). The loan was given as a participation in the construction and paving of a road between Syhoot and Nashtoon. There will be an annual interest of 3% due in a period of 25 years as well as an extra 6 years after that. The Government of Japan extends to Yemen the Debt Relief Grant Aid amounting (Yen 363,399,000), based on the resolution made by the Trade & Development board (TDB) of the UNCTAD to adopt debt relief measures for countries which have been facing serious difficulties in servicing their debts

11 Yemen was granted DM 81.3 million to support several developmental projects in various regions of the country sanitation projects in Bajil, Beit Al-Faqih, and Sa'adah City; renovation and expansion of a number of elementary schools in Ibb and Abyan; and the expansion of the water reservoir station in Ibb. The Ministry of Transportation received 20 buses exported by Iranian Zarrin Khodrow Company. The buses have been designed for inter-city trips and their capacity a 52-passenger. The company should supply the country with a total of 150 buses, each valued at USD$ 80,000. The Public Health Ministry has received medical aid from the U.S.A. from the equipment used in the Gulf war. These equipment will be used at Al-Thawra Hospital. However, they have been kept in store until they examine the allegation that the equipment contain a dangerous level of radiation which may cause cancer and other fatal diseases. Local Election Yemen GSM Gathering