Yemen's road to economic turmoil

Source: Gulfnews
By Jumana Al Tamimi,08\03\2011

Economic and political reforms need to go hand in hand to address the country's poverty and joblessness.

Economic growth is weak. Inflation is high.

The employment scenario is grave, with the jobless rate on the rise. There are no projects that could possibly provide a start to tens of thousands of jobless people. The budget deficit is big, too.

All these issues have become catalysts for massive demonstrations against government policies in many of Yemen's major cities, protests that have since acquired strong political overtones, with demands for a change in the regime gaining currency.

Yemen, the Arabian peninsula's poorest country, has a per capita income of $2,600 (Dh9,548) and per capita GDP growth was a mere 0.9 per cent between 2004 and 2008, according to the 2010 Legatum Prosperity Index.

A World Gallup Poll in 2009 reported that a high proportion of people could not afford food and shelter for their families — only 53 per cent were happy with their standard of living.

Not surprisingly, the country has been witnessing protests against deteriorating economic conditions over the last few years.

While the number of people taking part in mass protests in Yemen is significantly lower than in Tunisia and Egypt because of its relatively tiny middle class, mass protests in all the Arab countries share one aspect in common.

And that, according to Abdul Gani Al Iryani, a Yemeni development consultant with various institutions including the World Bank, is: "It reinstates the people's confidence in themselves and in their ability to change."

Hopelessness triggered it all, says a former government official.

"The economic situation is at the heart of the [current] crisis [in Yemen]," said Saif Al Assali, Yemen's former finance minister, in an interview with Gulf News.

"People have lost hope in any improvement in their standards of living and their future.

[But] the general political atmosphere in the region has helped the Yemenis to go to the streets in such a way and call for a change," he added in reference to the protests around the region

Al Iryani believes economic reforms have remained a cover for the regime's self-interest all these years. "It became an inevitable necessity for the regime to stay in power," he told Gulf News in an interview.

Political hurdles

However, he reckons, the reasons for not introducing the necessary economic measures were political and underline the need for political reforms.

Saif Al Assali complained that "fleets of corruption established in government and other influential centres" fought him when he tried to introduce reforms.

Regional political developments over the past decades further complicated the already-weak Yemeni economy.

The 1990-1991 Gulf war was one which led to the return of nearly one million Yemeni workers from the Gulf countries, mainly Saudi Arabia, and that meant a huge loss in terms of their remittances.

The other factor was Yemen's civil war of 1994 that drained the economy. In 1997, the Yemeni government was forced to go to the International Monetary Fund (IMF), with which it reached an agreement to increase Yemen's credit and put it on the path of economic reforms.

Under the agreement, the government introduced a slew of unpopular measures such as a reduction in civil service payrolls, elimination of diesel and other subsidies and the introduction of a general sales tax.

Short-lived aid schemes

However, because of the limited progress in implementing economic reforms and Yemen's "failure" to comply sufficiently with the terms imposed by the IMF, the fund suspended its funding of the reforms.

The World Bank extended a four-year $2.3 billion economic support package to Yemen in 2002 but this aid initiative met the same fate as the IMF project.

As a consequence of Yemen's failure to implement significant reforms, the World Bank announced it would reduce financial aid by one-third over the period starting from July 2005 to July 2008.

In late 2006, a meeting of Yemen's development partners pledged $4.7 billion in grants and concessional loans from 2007 to 2010.

Today, the country still faces considerable pressure to implement economic reforms or face the consequences of losing international financial support. And with the recent protests, calls to introduce political reforms have intensified.

Several important economic indicators, provided by experts and economists, betray a bleak scenario for the country. According to official figures, unemployment in the country of 23 million hovers around 35 per cent.

Unofficially, it is much higher.

Nearly half of Yemen's children suffer from malnutrition, close to 40 per cent of the population exists under the absolute poverty line, the budget deficit is around 11 per cent, inflation has reached 20 per cent and is likely to rise further, the country's reserves are diminishing, and the local currency suffers from instability.

"What is more dangerous is that there are no plans on the ground, neither ideas nor projects that show a movement in the right direction," Al Assali said.

"Even if we think now of introducing economic reforms, they need one or two years to bear fruit, assuming there is sincerity in our work."

So far, separate offers pitched by the government and the protesters to defuse the tension on the streets have not been accepted by the other side.

These proposals include the framing of a new constitution and forming a new government.

With politics taking precedence over economics amid the ongoing turmoil, an economic package did not even merit consideration.

But even if there was a plan aimed at alleviating the suffering of the people, economists differ in their expectations and outlook.

Having observed it closely over the past few years, Al Assali has no hope for the current government. "It can't keep its promises and can't do anything because it has used all its chances. It can't be sincere in its promises.

If it was able to do something, it would have done so in the past five years," Al Assali said. Improving living conditions requires "changing faces, because soiled hands won't work".

To add to the government's insincerity, corruption is a major factor in the crisis whether one looks at it economically or politically, Al Iryani said. Any economic offer now "will be too little too late," he said.

Politics is being looked upon as the agent of economic change.

Now, what is required is "devolution of power in a meaningful way and creating constitutional safeguards that would prevent the concentration of power at the centre", Al Iryani said, adding that not all the protesters would be ready to accept such an exit given the belief that there is no substitute for a regime change.

The theme of protests in many Arab countries, including Tunisia and Egypt, was regime change.

However protests in Yemen differ from demonstrations in other countries, including Algeria and Libya. "In Yemen, the middle class is very small, that is if it exists," according to Al Iryani. "It is a matter of degree, not a matter of quality."

The prominent Yemeni economist added that poverty is a result of the government's policies, which were designed to help the regime to keep its grip on the people. But the same policies led to economic stagnation and "lack of direct foreign investments", he said.

Foreign investment is the way out, Al Iryani believes. It would "lead to the emerging of a middle class that is independent economically and financially from the state, and this constitutes a threat to the total control", he said.

Even if the current regime survives the ongoing unrest, it cannot continue ruling with its erstwhile attitude, according to Al Iryani. A comprehensive package of political, social and economic reforms is needed, he says.

"Now, there is a need to distribute power in a meaningful way and create a constitutional safeguard that would prevent the concentration of power at the centre," he said.