News Column

Yemen awaits $560 million IMF loan following subsidy cuts

August 12, 2014

SANA'A, Aug. 10—Yemen is still waiting for the Board of the International Monetary Fund (IMF) to endorse a loan of $560 million after the government cut fuel subsidies on July 30, the London-based Al-Hayat Arabic newspaper on Friday quoted a government official as saying.

Removing the fuel subsidy was a condition set by the IMF for the loan agreement that Yemen began talking with the fund about last May in Jordan, according to the source quoted by Al-Hayat.

In late July the government cut the subsidy by 70 percent, meaning that the remaining 30 percent still needs to be cut for it to be a complete removal of the fuel subsidy.

On Friday Reuters quoted the minister of planning and international cooperation, Mohammad Al-Saadi, as saying that he thinks the loan will begin to be dispersed in two months time.

The Ministry of Finance and the Ministry of Planning and International Cooperation declined to provide any details on the loan agreement to the Yemen Times.

The former minister of finance, Sakhr Al-Wajeeh, told Reuters in May that the IMF loan would be disbursed over a period of three years.

"Yemen needs to re-orient public spending towards pro-growth, pro-poor outlays, and to reduce the fiscal deficit in order to contain pressures on inflation and foreign exchange reserves," the IMF said in a report published in April.

It said that "donor financing for the budget will be crucial to support economic reforms and to halt a further decline in the already low infrastructure investment." The report added that the IMF provided financial support to Yemen in 2012.

"Staff remain in close dialogue with the authorities on economic policy challenges, including those related to the move to a federal structure of the state," the report reads.

The government spent YR656 billion ($3.05 billion) in 2013 on subsidizing fuel whereas investment spending was halted completely, President Abdu Rabu Mansour Hadi said last Wednesday during a meeting with cabinet members.

Hadi explained that the government sustains an acute shortage of revenues due to repeated sabotage attacks on oil pipelines, which halt production.

Yemen oil production decreased from 400,000 barrels of oil per day in 2005 to only 134,000 in 2014, according to the president. Hadi explained that the sharp reduction of oil production led to an increase in local debts which, until June of this year, reached YR3.039 trillion ($14 billion).

The halt of oil production has also forced the government to import oil. The fuel import bill between January and June of this year was around $1.5 billion, whereas the government generated only $1.2 billion from oil and gas exports for the same period.  

The government also declared on July 9 an austerity plan to control public spending and generate revenues. The plan includes a ban on oversea trips for ministers, apart from four official trips per year travelling by economy class, and a review of state-owned companies in telecommunication, trade, and service.

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Source: Yemen Times

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