Country Report Yemen

Outlook for 2008-09

• A severe deterioration in Yemen's security situation, driven by protests in the south, the Zaydi Shia insurgency in the north and resurgent Islamist militants, is threatening to overwhelm the government's ability to respond.
• The government will seek to liberalise and strengthen the business environment for the private sector, but progress will be slow and haphazard, given the pervasive bureaucracy and unstable security climate.
• We have revised upwards our forecast for the price of the benchmark dated Brent Blend, to an average of US$106.5/barrel over the outlook period.
• High oil and gas revenue will only partly offset a rise in the public-sector wage bill, widening the fiscal deficit from 1.8% of GDP in 2008 to 3.6% in 2009.
• Economic growth is likely to remain low in 2008, at 2.7%, depressed by falling oil output and weak consumer confidence. However, the coming on stream of the Yemen LNG plant in 2009 should lift economic growth considerably.
• The government is expected to keep in place the Yemeni riyal's de facto peg to the US dollar over most of this year, before allowing it to resume its decline from late 2008 as the dollar begins to recover and inflation starts to ease.
• We have revised our inflation forecast upwards, to 19% this year and 14% in 2009, following a sharp rise in the first quarter.
• Yemen's current account is expected to show a small deficit of around 1.5% of GDP this year, which will widen to 4.2% of GDP in 2009.

Monthly review

• Houthi rebels have expanded their activities from Saada, in the north, to reach within 12 miles of the capital, Sanaa.
• There has been a mortar attack on the oil refinery in Aden. Local al-Qaida militants claimed responsibility for the assault, which caused no damage.
• The president, Ali Abdullah Saleh, has reshuffled his cabinet, strengthening the government's domestic security command structure.
• Candidates from the ruling General People's Congress won in all but three of the local elections in Yemen's 21 governorates, helped by the decision of the opposition bloc, the Joint Meeting Parties, to stage a boycott.
• The oil ministry has taken measures to address shortages of diesel in the country, although without subsidy reform to discourage smuggling, their impact is likely to be limited.
• Growth in Yemen's foreign-currency reserves has slowed. They stood at just under 11 months of import cover at end-2007.

SOURCE: Country Report