News Column

IMF approves a 3-year $552.9 million extended credit facility arrangement with Yemen

September 3, 2014

By Mohamed al-Basha

WASHINGTON, Sep. 02 (Saba) - The Executive Board of the International Monetary Fund (IMF) has approved a three-year Extended Credit Facility (ECF) arrangement with the Republic of Yemen for an amount equivalent to SDR 365.25 million (US$552.9 million; or 150 percent of Yemen?s quota) to help maintain macroeconomic stability and promote inclusive growth, the IMF said in a press release.

As a result of the Board?s decision, an amount equivalent to SDR 48.75 million (about US$73.8 million) is available for immediate disbursement. The remaining amount will be phased in semi-annual disbursements, subject to six reviews.

"The Yemeni authorities have made commendable efforts to support macroeconomic stability and growth. Nonetheless, political and security challenges have continued to weigh on the policy environment and economic outcomes. In particular, fiscal and external balances have weakened due to delays in key reforms and increased sabotage of oil facilities. Looking ahead, the main challenges are to improve the fiscal and external positions, as well as support inclusive growth and job creation," the IMF Deputy Managing Director, and Acting Chair Naoyuki Shinohara, said following the executive board discussion on Yemen.

"The authorities have launched an ambitious economic program to meet these challenges and durably reduce Yemen's high unemployment and widespread poverty. The authorities' program, to be supported by a three-year arrangement under the Fund's Extended Credit Facility, is designed to address balance of payments needs, close the fiscal financing gap, and maintain macroeconomic stability while protecting the most vulnerable groups," he said.

"The centerpiece of the authorities' reform package is phasing out large and inefficient fuel subsidies. A first step in this direction has already taken place and will be complemented by well targeted social transfers to the poor. Additional fiscal measures will aim at reducing the budget deficit over the medium term by reforming the civil service and improving tax compliance. These measures will also free budgetary resources for needed infrastructure and social spending.

"To preserve macroeconomic stability in the near term, the central bank needs to adjust monetary policy as needed to limit the impact of subsidies reform on inflation. It should also continue to improve its monetary framework to strengthen policy transmission and support greater exchange rate flexibility. The financial sector reforms planned by the authorities aim at strengthening bank regulation and supervision as well as at enhancing market infrastructure."

Yemen's macroeconomic situation continued to be relatively stable in 2013, and growth remained moderate. Non-hydrocarbon growth was steady at about 4 percent, while hydrocarbon growth picked up strongly, reversing part of the oil output decline in the preceding two years.

As a result, real GDP growth is estimated to have doubled to almost 5 percent. At the same time, average inflation edged up slightly to reach 11 percent (up from about 10 percent a year earlier), and the exchange rate remained stable.

Inflation moderated in the first half of 2014, but oil production declined due to sabotage activities, leading to severe fuel and electricity shortages.



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Source: Yemen News Agency

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