IMF Executive Board Approves a 3-Year, US$552.9 Million Extended Credit Facility Arrangement with Yemen

The Executive Board of the International Monetary Fund (IMF) today 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.

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.
Following the Executive Board discussion on Yemen, Mr. Naoyuki Shinohara, Deputy Managing Director, and Acting Chair, said:
“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 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.
“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.”

Recent Developments:
The 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.
Yemen has progressed in its political transition since the 2011 crisis. However, the economic recovery remained insufficient to reduce the high levels of unemployment and poverty. The average per capita GDP growth rate was less than 1.5 percent a year preceding the 2011 crisis and has declined since. Poverty and youth unemployment, at about 54 percent and 45 percent respectively, are among the highest in the world. Infrastructure investment has also continued to drop, and foreign direct investment remains concentrated in the hydrocarbon sector that employs a small percentage of the labor force.

Program Summary:
Faced with a rapidly deteriorating economic situation in the first half of 2014, the authorities have initiated a bold economic reform program to reverse the recent deterioration in macroeconomic conditions and to support growth, encourage job creation, and protect the poor. Notwithstanding political challenges, the authorities’ program combines a package of strong policy measures and structural reforms with external financing support.
Key elements of the Fund-supported program are to:
Strengthen fiscal adjustment and protect the poor. This is to be achieved through reforms to reduce untargeted subsidies, contain the wage bill, and enhance compliance of large tax payers. Targeted cash transfers to the poor will be increased by 50 percent following the adjustment in the fuel prices. Infrastructure investment will be gradually increased in order to boost job creation and potential growth. The government will also improve public finance management.
Maintain prudent monetary and exchange rate policies. These will aim at containing inflation, enhancing competitiveness, and avoiding exchange rate volatility while preserving foreign exchange reserves.
Reform the financial sector, improve governance, and encourage inclusive, private sector-led growth. Primary reforms aim at strengthening consolidated and cross border supervision, developing regulation to address risks specific to Islamic banking, and strengthening the Central Bank of Yemen’s powers to resolve banks. Governance reforms include improving the business environment, transparency and accountability. Additional reforms are aimed at enhancing the government implementation capacity to help mobilize donor support and improve public infrastructure investment.
The support of the international community will continue to be essential in the period ahead.


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  • Sep 02, 2014