Yemen Travel Guide
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Remittances from Yemenis working abroad and foreign aid paid for perennial trade deficits. Reports average annual growth in the range of 3–4% from 2000 through 2007. Its economic fortunes depend mostly on declining oil resources, providing around 90% of the country's exports.
The World Bank predicts that Yemen's oil and gas revenues will plummet during 2009 and 2010, and fall to zero by 2017 as supplies run out. In 2008 the UK's Royal Institute for International Affairs warned that economic collapse in Yemen could threaten stability throughout the region from northeast Africa to Saudi Arabia and, citing armed conflicts with Islamists and tribal insurgents, described Yemen's democracy as "fragile". These concerns have prompted the desires of leaders and diplomats from the West and elsewhere to preserve Yemen's economic stability.
As such, the country is trying to diversify its earnings. In 2006 Yemen began an economic reform program designed to bolster non-oil sectors of the economy and foreign investment. As a result of the program, international donors pledged about $5 billion for development projects. In addition, Yemen has made some progress on reforms over the last year that will likely encourage foreign investment. Oil revenues increased in 2007, probably a result of higher prices.
Substantial Yemeni communities exist in many countries of the world, including Yemen's immediate neighbors on the Arabian Peninsula, Indonesia, Pakistan, the Horn of Africa, the United Kingdom, Israel, and the United States, especially in the area around Detroit, Michigan, and in Lackawanna, New York. Beginning in the mid-1950s, the Soviet Union and China provided large-scale assistance. For example, the Chinese are involved with the expansion of the International Airport in Sanaa.
In the south, pre-independence economic activity was overwhelmingly concentrated in the port city of Aden. The seaborne transit trade, which the port relied upon, collapsed with the closure of the Suez Canal and Britain's withdrawal from Aden in 1967.
Since unification, the government has worked to integrate two relatively disparate economic systems. However, severe shocks, including the return in 1990 of approximately 850,000 Yemenis from the Persian Gulf states, a subsequent major reduction of aid flows, and internal political disputes culminating in the 1994 civil war hampered economic growth. As the fastest growing democracy in the Middle East, Yemen is attempting to climb into the middle human development region through ongoing political and economic reform.
Since the conclusion of the war, the government entered into agreement with the International Monetary Fund to implement a structural adjustment program. Phase one of the IMF program included major financial and monetary reforms, including floating the currency, reducing the budget deficit, and cutting subsidies. Phase two will address structural issues such as civil service reform.
In early 1995, the government of Yemen launched an economic, financial and administrative reform program with the support of the World Bank and the IMF, as well international donors. The First Five-Year Plan for the years 1996 to 2000 was introduced in 1996. The World Bank has focused on public sector management, including civil service reform, budget reform and privatization. In addition, attracting diversified private investment, water management and poverty-oriented social sector improvements has been made a priority for the implementation of the programs in Yemen. These programs had a positive impact on Yemen’s economy and led to the reduction of the budget deficit to less than 3% of GDP during the period from 1995 to 1999 and the correction of macro-financial imbalances.
In 1997, IMF and the Yemeni government began medium-term economic reform programs under the Enhanced Structural Adjustment Facility and Extended Fund Facility. This program was aimed at reducing dependence on the oil sector and establishing a market environment for real non-oil GDP growth and investment in the non-oil sector. Increasing the growth rate in the non-oil sector was one of the government's most important objectives. Programs also focused on reducing unemployment, strengthening the social safety net and increasing financial stability. To achieve these reforms, the government and IMF implemented containment of government wages, improvements in revenue collection with the introduction of reforms in tax administration, and a sharp reduction in subsidies bills through increased prices on subsidized goods. As a result, the fiscal cash deficit was reduced from 16% of GDP to 0.9% from 1994 to 1997. This was supported by aid from oil-exporting countries despite the wide-ranging fluctuations in world oil prices. The real growth rate in the non-oil sector rose by 5.6% from 1995 to 1997.
The World Bank is active in Yemen, with 22 active projects in 2004, including projects to improve governance in the public sector, water and education. In 1996 and 1997, Yemen lowered its debt burden through Paris Club agreements and restructuring U.S. foreign debt. In 2003, government reserves reached $50 billion. The government has recently done a number of regulatory reforms and Yemen now ranks 98th on the World Bank's "Ease of Doing Business" index.
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