Country Report Yemen January 2009

Outlook for 2009-10

• Political cohesion in 2009-10 could be put at risk by the deteriorating state finances, ongoing activity by Islamist militants and potential outbreaks of tribal and separatist violence in both the north and the south of the country.
• The next parliamentary election is scheduled to be held in April 2009, but the risk of a postponement is high given a threat by the opposition to boycott the poll in protest at the alleged unfairness of 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 close to 15% 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's first LNG plant comes on stream.
• Average inflation in 2009 is expected to decline rapidly, to 5.6%, owing to the forecast sharp drop in global commodity prices. The Central Bank of Yemen has also revised its historical inflation data, after uncovering a formulaic error.
• 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.
• We have revised up our current-account deficit forecast, to an average of 13.4% of GDP in 2009-10, in line with a lowering of our oil price projection.

Monthly review

• The security situation has deteriorated with, among other things, more Westerners kidnapped and the Egyptian consulate attacked by an angry mob. In December the US embassy issued two warnings about terrorist acts.
• A UN body has reported a rise in illegal migration and weapons smuggling between Somalia and Yemen and in piracy in the Gulf of Aden.
• The government has declared that it will cut its budget for 2009 by 50%, after oil prices fell to below US$40/barrel in December. Nearly all departments will be affected, although welfare programmes will be maintained.
• The Central Statistical Organisation has rebased its consumer price index (CPI), after admitting to a flaw in its calculations.
• New official CPI data have revealed that inflation was higher than previously thought in the first half of 2008, but that it began to ease in the second half of the year.
• Foreign-exchange reserves have continued to rise, reaching around US$8.3bn in September, but are likely to fall back in line with declining oil prices.

Source: Country Report

This report covers the following industry codes:
SIC Code: 82;47;49;1;10;70;15;39
NAICS Code: 61;48;22;11;212;72;23;31

This report covers the following industry codes:
SIC Code: 82;47;49;1;10;70;15;39
NAICS Code: 61;48;22;11;212;72;23;31