São Paulo – The International Monetary Fund (IMF) announced this Tuesday (2nd) that a US$ 552.9 million loan to Yemen has been approved. The instalments should be made available every six months for the next three years and per review of the Fund’s technicians. The first instalment, worth US$ 73.8 million, has already been made available.
In a press release, the Fund advises Yemeni authorities to use the loan to ensure economic stability and foster inclusive growth and job creation in the country. Roughly 54% of Yemen’s population lives in poverty and 45% of the young people are unemployed.
According to the IMF, Yemen’s economy grew in the last year, but the country still has many challenges ahead. In 2013, The Gross Domestic Product (GDP) growth of the non-oil sector was 4%, while oil sector’s GDP grew by 13.2% and the country’s GDP grew by 4.8%. These figures, however, do not reflect Yemeni reality. Earlier this year, oil output was hindered by opposing militia attacks to oil production facilities.
The IMF says the country has progressed in its political transition, but economic recovery remains insufficient to reduce unemployment, create jobs and assist the poorest. “The authorities have launched an ambitious economic program to meet these challenges and durably reduce Yemen’s high unemployment and widespread poverty,” the Fund’s press release reads. According to the press release, the loan’s arrangement was designed to address balance of payments needs and maintain economic stability while protecting the most vulnerable groups.
In order for the recovery plan to work, the IMF advises the Yemeni authorities to reduce fuel subsidies by the implementation of a system of income transfers to the poor, reducing the budget deficit and improving tax compliance. These measures, the Fund says, will free budgetary resources for infrastructure and social spending.
Instability
The loan was announced on the same day Yemen’s president, Abd-Rabbu Mansour Hadi, dismissed his government and suggested the creation of a joint national government cabinet. According to information released by the news agency Reuters, the initiative’s goal is to appease protests from the Houthis, a rebellious Shia Muslim group sparking armed combats in the northern region of the country for years.
At least one of the measures announced by the president foils IMF’s advice. According to Reuters, Hadi partially satisfied the rebellious group’s demand and promised to reduce gasoline and diesel prices by 30%, a reversal of the decision of cutting fuel subsidies. The news agency added that removing the subsidies is an unpopular measure, though their maintenance bleeds public reserves.
The IMF criticizes fuel subsidies not only in Yemen, but also in the Arab world in general. The institution believes the practice is expensive and does not reach the ones in need of government support, as both rich and poor people have access to subsidized fuel. The Fund advises governments to replace subsidies with income transfer programs to the neediest.
*Translated by Rodrigo Mendonça
