The International Monetary Fund approved a $370 million loan for Yemen to support a three-year plan aimed at cutting the budget deficit and reducing poverty.
The Washington-based lender made an initial disbursement of $53 million available immediately, according to a statement posted on its website yesterday.
Yemen’s government aims to rein in the fiscal deficit to 3.5 percent of gross domestic product while generating annual economic growth of 5 percent, the IMF said. The government is set to introduce a general sales tax and abolish exemptions on tax and customs duties to boost revenue. Tax evasion in Yemen is estimated at 80 percent, according to the Yemen Times newspaper.
“Yemen is confronted with a range of difficult economic challenges related to its heavy dependence on declining oil revenues, widespread poverty, and water shortages,” Naoyuki Shinohara, the fund’s deputy managing director, said in the statement. “The global financial crisis has aggravated these challenges through a reduction in world oil prices, resulting in mounting macroeconomic imbalances.”
Growth may accelerate to 8 percent this year from 3.9 percent last year, with non-oil output increasing 4.4 percent, according to IMF forecasts. The inflation rate may rise to 9.8 percent, the IMF said.
The central bank has spent hundreds of millions of dollars to support the rial, which this week fell to a record low of 236.5 per dollar according to Bloomberg data.
Oil Running Out
Yemen, which relies on oil revenue for 70 percent of its budget, expects reserves to run out over the next decade. Crude production may drop to 260,000 barrels a day this year from 440,000 barrels a day in 2001, according to U.S. Energy Department data. The country has turned to liquefied natural gas as a potential alternative export to oil.
Attacks by a branch of al-Qaeda based in Yemen, including an attempt to blow up a U.S. airliner in Detroit on Dec. 25, prompted Western countries to organize an aid conference hosted by the U.K. in January, at which donors promised to increase economic assistance.