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Yemen
>> Regional Overview >> Yemen Overview
Summary Tables
Program Summary
Previous Years' Activities
2001Last updated: 55
Introduction
In May 1990, the Republic of Yemen was formed through the unification of the former Yemen Arab Republic in the north and the People's Democratic Republic in the south. Yemeni leaders then declared a democratic society with a multiparty political system, free press, and a broadening of individual freedoms. Shortly thereafter, the Gulf crisis erupted, resulting in the severing of Saudi and Kuwaiti aid and severe reductions in aid from western donors, including the United States. Also, 700,000 Yemenis who had been working in the Gulf were repatriated to Yemen. Despite these developments, Yemen proceeded with its democratization process and conducted a free, fair, and representative election in April 1993. However, the economic effects caused by the Gulf crisis, combined with government mismanagement, sharply heightened Yemen's economic plight and decreased its capacity to provide services to its citizens. Internal dissatisfaction resulted in political infighting and a two-month civil war in mid-1994. At the war's end, Yemen was once again united as a democratic nation, but its economy was shattered. However, Yemen continued its process of democratization. Improving Yemen's economic and political development will ultimately will have a positive influence in this important region of the world, and will serve the U.S. strategic interest of maintaining stability while supporting indigenous democratic efforts.
In 1995, the Government of Yemen (GOY) began to implement ambitious macroeconomic stabilization and structural adjustment programs with primary support and guidance provided by the World Bank and International Monetary Fund, assisted by a broad range of international donors. The objectives of these programs were to reduce fiscal imbalances and the resulting inflation while promoting a basis for economic growth. In 1997, the GOY began to implement medium-term economic reform programs. The objectives of these programs were to establish a permanent basis for accelerated and sustainable non-oil sector growth, reduce unemployment, improve the country's social indicators, strengthen the social safety net, maintain financial stability, and achieve external stability. The reform measures helped improve economic performance. The annual real Gross Domestic Product (GDP) growth rate averaged 4.4% from 1995 to 1999 and rose to 6.5% in 2000. (The real non-oil GDP growth rate for 2000 was 3.8% and the real oil GDP growth rate was 16.9%.) The fiscal deficit declined to an average of 3.3% of GDP for 1995-1999 despite the wide-ranging fluctuations in world oil prices, and in 2000 Yemen posted a substantial budget surplus of 9.4% of GDP. This large surplus resulted from a surge in revenue stemming from a 60% rise in world oil prices. Inflation (consumer price index) declined to single digit levels at 6% by 1997 and 8% in 1999-but reached 10.9% in 2000. Considerable improvements have been seen in the current account. The exchange rate stabilized after October 1995 in the range of Yemen Rials (YR) 124-128 to the dollar, but increased to YR 162 in 2000.
Development Challenge
Despite the success that the GOY is achieving in its stabilization program, major economic and development challenges remain. The Republic of Yemen is among the 25 poorest and least developed countries in the world. Poverty in Yemen doubled between 1992 and 1998, with the number of households below the "food poverty line" rising from 9% to 17%. By including a broader range of minimum human requirements in the poverty line measure, the percentage of households living in poverty rose from 19% to 33% over the same period. Poverty is becoming more widespread among Yemen's 18.3 million people. Yemen's real GDP per capita is around US$300. Yemen's illiteracy and infant mortality rates are among the highest in the world. Illiteracy is particularly high among women and girls-with 72% of females and 44% of males illiterate-although Yemeni women benefit from universal suffrage. Average life expectancy is 53 years. Persistent poverty in Yemen has contributed to its fertility rate of 6.4 children per mother, one of the highest in the world, and a resulting population growth rate of 3% per year. Extremely weak social and economic services and institutions have left Yemen's population underserved in these areas.
Water scarcity poses a severe challenge to the economic growth and development of Yemen, which has fewer water resources than any other country in the region. The water crisis is characterized by a depletion of groundwater, so that economic activity may become unsustainable in some areas. The country's most dependable source of fresh water is its net precipitation. Per capita water supply is about 2% of the world average and 85% below the amount needed for domestic use. Although agriculture depends mostly on rainfall, ground water has reached a state of over-exploitation. Competition exists between users of water resources. Some cities are unable to negotiate the transfer of water from rural areas. In addition to low access to safe water, Yemenis have limited access to sanitation. Just under half of the rural population have access to safe water while only 19% of the rural population have access to adequate sanitation.
While Yemen's stature as a young democracy grows and some of its macroeconomic indicators improve, the economy remains weak. While the GDP growth rate exceeded 6% in 2000, forecasts for the short term suggest that growth will slow in 2001, due to the slowdown in the U.S. economy and the general slowing of the world economy that is likely to impact oil demand and reduce crude oil prices.
Significant economic and sectoral reforms are needed to transform the Yemeni economy. The weakness of the business environment and the quality of assets diminish the interest of potential investors. The government's reluctance to implement reforms-in particular, privatization and civil service reform-stems largely from concerns over job losses, particularly with unemployment recorded at over 20% in 1999. Despite these problems, it is expected that the reform program to which Yemen, the IMF and the World Bank agreed in 1995 will continue to form the central framework of Yemen's economic policy. It is also expected that the GOY will implement selected reform elements in the short term, such as tax and customs reform. Future international assistance could be compromised, however, if the IMF interrupts cooperation with Yemen. International support is essential to fund a host of development projects vital to longer-term economic growth and development.
Other Donors
The United States is not one of Yemen's principal donors. The World Bank is the largest donor, followed by the Netherlands, Japan, and Germany. The Bank's focal areas are: 1) public sector management, including civil service reform, budget reform and privatization; 2) attracting diversified private investment; 3) water management; and 4) poverty-oriented social sector improvements, particularly basic education for girls. The latter two foci receive the overwhelming majority of donor support. All major donors recognize and reflect in their programs the importance of water management, health, and education (particularly girls' education). The World Bank is almost alone in helping improve Yemen's public sector management.
FY 2002 Program
USAID has completed the preliminary design of its new Yemen program, to be initially funded using FY 2001 money, with implementation carrying over to FY 2002. USAID will program $2 million of the total $4 million available (FY 2001 funds) for health and education activities, in support of integrated community development at the district level. The remaining $2 million will fund a scholarship program administered by the U.S. Department of State's Bureau for Educational and Cultural Affairs. USAID will work with the Department of State to program the $5 million planned for FY 2002. It is expected that some of the FY 2002 funds will be programmed to strengthen and extend the health and education activities designed and initiated during FY 2001.
Given the small size of the proposed U.S. Government program, USAID will seek to enhance the impact of its proposed interventions through effective coordination with other donors.
In addition to the Asia and Near East Bureau's program, USAID's Global Bureau implements a number of activities, including: elections assistance, strengthening the rule of law, advocacy for women's rights; and promoting the voluntary use of contraception.
Activity Data Sheets
- 271-XXX Broad-Based Economic Growth
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Last Updated on: May 29, 2002 |
