São Paulo – Last Wednesday (4th) the International Monetary Fund (IMF) approved a loan of approximately US$ 93.75 million to Yemen. The full amount is already available for disbursement. The loan was granted so that the country can meet short-term payment obligations. According to the IMF, the sum is equivalent to 25% of the quota to which Yemen is entitled in the IMF. Another long-term loan, granted in 2010, has been cancelled.
According to the institution, economic activity in Yemen fell sharply last year as a result of the political crisis which plagues the country, with repercussions in the social area as well. The Fund claims that the business environment has “deteriorated,” that fuel is scarce and bank financing is lacking. Furthermore, damage caused to an oil pipeline which carries one third of the country’s production caused the economic situation to worsen even further, forcing authorities to compress public investment.
The IMF claims that Yemen will need to carry out structural economic reforms to recover its ability to borrow money, attract investment and provide basic utilities to its population of roughly 23 million. According to the IMF, a structural reform would facilitate a “smooth” adjustment to declining oil production.
The IMF also claims that authorities must boost economic activity in non-hydrocarbon sectors. That would help reduce poverty and lower the high unemployment rates. In 2011, Yemen’s GDP was 2.5% lower than in 2010. This year, the GDP is expected to be 0.5% lower than in 2011.
“The Fund-supported program will help the authorities tackle pressing economic challenges while giving them time to formulate their medium-term strategy to address structural issues,” according to the IMF. The Fund also calls on donors to help the country, claiming that donations are crucial for funding social and infrastructure projects.
It focuses on maintaining macroeconomic stability, meeting basic needs, and safeguarding foreign exchange reserves. Fiscal policy will remain prudent, while spending is being redirected toward social and development needs. Monetary policy will support the recovery while keeping inflation in check.
“Financing needs are likely to remain large as the political crisis has worsened poverty and unemployment conditions and severely impacted tax revenues,” according to the statement in which the IMF announced the loan.
*Translated by Gabriel Pomerancblum
