Country Report Yemen December 2008

Outlook for 2009-10

• Political cohesion in 2009-10 could be put at risk by deteriorating security conditions, with ongoing activity by Islamist militants and potential outbreaks of violence in both the north and the south of the country.
• A parliamentary election is set for April 2009, but the chance of a postponement is rising given a threat by the opposition to boycott the poll in protest at alleged unfairness in the electoral process.
• Yemen's fiscal outlook has deteriorated, owing to a lowering of the Economist Intelligence Unit's oil price forecast. We expect the fiscal deficit to average 12.2% of GDP in 2009-10, forcing Yemen to seek more foreign donor support.
• Yemen's economic growth is likely to be held back by falling oil prices and weak government consumption. However, average real GDP growth should still rise to 5.2% in 2009-10, as Yemen LNG comes on stream.
• The authorities will allow the Yemeni riyal to depreciate more rapidly against the strengthening US dollar in 2009-10, as inflation starts to ease and oil prices fall.
• Average inflation in 2009 is expected to decline rapidly, to 7.7%, owing to the sharp drop in global commodity prices forecast for next year.
• We have revised up our current-account deficit forecast, to an average of 11.3% of GDP in 2009-10, in line with a lowering of our oil price projection and the deteriorating outlook for workers' remittances.

Monthly review

• At the government's behest, parliament has postponed the municipal polls for four years, raising speculation that the government will apply a similar delay to the legislative election scheduled for April 2009.
• A southern secessionist body, the Provisional Council for the Liberation of the South, has been created, under the leadership of a southern dissident who had been imprisoned earlier this year.
• The government has presented the 2009 budget to parliament. The document projects a deficit of 7.4% of GDP, based on an oil price of US$55/barrel and a modest 9% increase in total expenditure (compared with the 2008 budget).
• Inflation eased but remained high in the second quarter of 2008, at 19.3%, as foodstuffs prices rose strongly. However, inflation is likely to have declined in subsequent months, as global commodity prices fell sharply.
• The first gas has flowed from the Marib field to the export facility in Balhaf, marking the coming on stream of the country's first LNG project. Exports are planned to commence in May 2009, around five months behind schedule.

This report covers the following industry codes:
SIC Code: 60;70;15
NAICS Code: 52;72;23