Sanaa approaches monetary fund for credit facilities

28 January 2010

Yemen faces financial crisis and security threats

The Yemeni government will start talks with the Washington-based International Monetary Fund (IMF) over new credit facilities in the first quarter of 2010, as the Arab world’s poorest country tries to stem a cash crisis while dealing with a series of security threats.

According to an IMF report on 27 January, the fund and government agreed during consultation meetings in December that they would start discussing the new facility, most likely to be based on the IMF’s Extended Credit Facility programme.

Yemen’s foreign currency reserves fell by more than $1bn, or 14 per cent, to $7bn between November 2008 and November 2009, as government revenues from oil and gas exports fell following lower commodity prices and output while imports continued to rise. The reserves are enough to cover just eight months of imports, a record low.

The fall in income has also hit the state’s budget, which the IMF forecasts will be in deficit by up to 8 per cent for the financial year to 31 March 2010. Sanaa made $1.7bn from oil exports during the first 11 months of 2009, compared to $4.28bn in 2008.

The government faces a series of security threats from Al-Qaeda operatives in the east of the country, a secessionist movement in the formerly communist south, and a de facto civil war with Houthi tribesmen in the north (MEED 18:12:09). The war in the north is costing Sanaa up to $10m a day.

Yemen has become the focus of rising international interest in recent months, at first because Saudi Arabia became involved in the Houthi conflict. In December, the alleged perpetrator of a bombing attempt on a US airline was reported to have been trained by Al-Qaeda operatives in Yemen.

David Miliband, the UK’s foreign secretary, held a two-hour summit of world leaders on Yemen in London on 26 January to discuss the international community’s response to the country’s fragile state. He also announced a new organisation ‘Friends of Yemen’ consisting of international governments and Yemeni representatives. Yemen is in danger of falling into a state of crisis, he said.

The GCC announced at the summit that it would hold its own meeting on Yemen in Riyadh on 27 and 28 February.

The London meeting was part of a wider attempt to develop a unified approach to the country’s problems, says Ginny Hill, an associate fellow at UK thinktank Chatham House.

“Participants at the London meeting agreed on a comprehensive statement that addresses social, economic and political issues, as well as hard security challenges,” she says. “The creation of an international contact group creates a framework for sustained high-level engagement. [They] indicated their intended direction of travel but there are still substantial challenges to be faced during the process of implementation.”

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