1

Spring 2010

Inside this Issue: Summary;

Recent Economic

Developments;

Macroeconomic

Developments;

Structural Reforms and

Policies Outlook;

Economic and Sector

Dialogue;

New Laws, Decrees,

and Events;

World Bank

Operations;

Key Indicators.

The World Bank

Group.

Sana’a Office

For more information about

this update, please contact the

World Bank office in Sana’a by

this email:

YQER@worldbank.org

Yemen Quarterly Economic Review

Yemen Quarterly Economic Review is a quarterly report produced by the

World Bank Country Office in Sana'a. It consists of several sections

covering major political, social and economic developments. It also

provides information on ongoing World Bank operations in Yemen, key

indicators in Yemen, and a list of conferences and donor activities.

SUMMARY

Yemeni political and security situation deteriorated in 2009.

Tension in the north with the Al-Houthies escalated into an open

war in later 2009 (the 6th war over the last 6 years) and drew Saudi

Arabia into the conflict. In late February 2010, a cease-fire

agreement was reached, and the expectation is that both sides will

work to forge a peaceful settlement of the underlying conflict. The

conflict resulted in a massive humanitarian crisis, with displacing

at least 250,000 people, according to UN sources. Calls for

independence in the South have become more vocal and violent in

2009. The emergence of an Al-Qaeda branch in Yemen was

highlighted through the failed attempt to explode an airliner in

Detroit on Christmas Day 2009.

Rising conflict in Yemen raised international concerns and led to

a joint search for options to support Yemen and overcome

conflict. A foreign ministers’ conference in London on January 27

underlined the joint efforts of the Yemen government and its

development partners to look in the options on how to tackle

Yemen’s problems, which impacts adversely economic

performance and the fight against poverty.

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A ‚Friends of Yemen‛ group was formed holding its first meeting in February 27-28 in

Riyadh, Saudi Arabia. A further meeting was held in Abu Dhabi in late March. More are

likely to follow. The series of meetings aim to improve donor’s coordination and make aid

more effective. Of the some $5.7 billion pledged in international aid during the CG meeting

in 2006, only 10 percent could be disbursed so far.

Economic performance has worsened in 2009, reflecting the deteriorated security conditions

and the fall of oil revenues -- which almost halved in 2009 -- remittances and tourism (see also

Chapter VIII Key Economic Indicators). Growth in the non-hydrocarbon sector, the main

source of employment, dipped from 4.8 percent to 4.1 percent. The fiscal deficit increased

from 3 percent of GDP to 10 percent. The current account deteriorated to 11 percent of GDP

(from about 5 percent in 2008). Inflation, however, moderated to 3.6 percent (from 19 percent

in 2008) as global prices softened, albeit recent months have shown again a rising rate.

Savings have declined dramatically in 2009 to 3 percent of GDP (from 11 percent in 2008),

underlining the stressed economy. The government has initiated discussions with the IMF on

possible support for an economic reform program to re-balance the macroeconomy.

While growth will be higher in 2010, the overall economic prospects for Yemen remain weak. Overall growth is forecasted to double to about 7.8 percent of GDP, largely reflecting the

coming on stream of the new Liquefied Natural Gas (LNG) plant (see also the picture on the

front-page). Yemen’s trade balance will benefit from the favorable market conditions for its

hydrocarbon sector forecasted to lead to a reduction in the current account deficit to about 4

percent of GDP. Growth in the non-oil sector, however, will remain relatively flat at about 4.4

percent. The 2010 budget assumes a deficit of 7.5 percent of GDP. It is possible that the

ongoing negotiations with the IMF for a 3-year support program result in a lower fiscal deficit

in 2010. The firming up of oil prices in 2010 and the full operation of the LNG plant could

help improve hydrocarbon revenues and add to lowering the fiscal deficit. Inflation is

estimated to rise modestly in 2010, as global commodity prices firm up. To address recent

build-up of domestic debt and the pressure on the exchange rate, the government made it

more attractive to hold balances in Rial by increasing the deposit interest since February from

10 percent to now 20 percent (March 29th), underlining the government’s resolve to redress

macroeconomic policies. Regain fiscal sustainability while oil revenues are declining,

however, requires fiscal adjustment, external assistance to ease adjustment, and a more

favorable investment climate to accelerate non-hydrocarbon growth and non-hydrocarbon

revenues.

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I . R E C E N T P O L I T I C A L A N D S O C I A L D E V E L O P M E N T S

A ceasefire agreement was reached end February 2010 with Al-Houthies after one of the

most intensive rounds of fighting since the beginning of the conflict in mid-2004. The

government had launched a military offensive in August 2009 and was later joined by

neighboring Saudi Arabia. The sixth round of conflict, lasting over six months, resulted in a

displacement of some 250,000 people, large losses in lives, and significant destruction of

equipment, infrastructure, and public facilities, adding to the government’s fiscal burden.

The acceptance of the government’s six-point ceasefire agreement is creating hope and

expectation for a lasting peace. To that effect, four committees were formed, including

representatives of the government and Al-Houthies, to oversee the implementation of the six

ceasefire conditions and build further steps towards a lasting peace.

Deliverance of human relief aid for effected and displaced people in and around Sa’ada

governorate still encounters obstacles and reconstruction is still dawdling. The UN

estimates the number of displaced locals at 250,000 people. Other estimates go up to one

million. Delivery of aid is hindered due to security obstacles, destruction of infrastructure

(roads, facilities, etc.) and landmines. A Sa’ada Reconstruction Fund was established in

February 2009, taking into account also earlier series of conflicts and destruction. The Fund

builds on operations that begun before this last round of armed conflict. Its activities covered

then humanitarian aid distribution, cash compensations, and some reconstruction. It is

unclear at this moment what the effect of this last round of conflict has been on the earlier

reconstruction outcome, neither is a revised estimate of new reconstruction needs available at

this time.

Progress on implementing the pledges made at the London Consultative Group meeting in

2006 has been slow. These pledges stood at about $5.7 billion (including an additional

pledges made after the CG meeting) with about 55 percent in the form of grants and the rest

in concessional loans. The share of GCCs in these pledges amounts to about 47 percent (or

$2.7 billion). Good progress has been made in the allocation of these pledges with about 83

percent already appropriated to specific Public Investment Program (PIP) projects. However,

the disbursement of the pledged resources continues to be slow with only $548 million (less

than 10 percent) by the end of 2009. The slow progress partly reflects the normal lag in the

implementation of projects, but the authorities also indicated that complex implementation

procedures added to the slow progress made (See also

http://www.yemencg.org/riyadh_meeting2010.asp?lang=en). It is expected that disbursements will

pick up significantly because of the recent donor conferences.

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Despite efforts to close the gender gap, Yemen continues to trail behind. Yemen ranked

last in the 2009 World Economic Forum (WEF) list of countries assessing the closure of the

gender gap. The rankings are designed to create a greater awareness among a global

audience of the challenges posed by the gender gap and the opportunities created by

reducing the gap. The list indicates the level of economic, health, political and education

inequalities between men and women in 134 countries. The list also indicates Yemen’s

modest progress in improving women’s health and education, and points to the still large gap

in relation to political and economic equalities. Women occupy now more than 22 percent of

the educational capacity, and a little less in the other component of the civil servant system.

Regarding political representation, women have currently only one of the 301 seats in the

Parliament, having lost gains made in the early 90-ties. In an effort to broaden again female

political participation, the Government announced in the run up to the 2009 postponed

election its plans to allocate 15 percent of the available seats in the Parliament to women.

However, this proposal is contested in the present Parliament. With regard to long-term

efforts, the government pursues its strategy to improve girls’ education.

The GOY is taking new steps to improve the functioning of the labor market and address

employment problems. Yemen’s labor market suffers from the absence of reliable data on

employment information, particularly on occupational supply and demand, skill gaps,

employment opportunities and recruiters’ needs and requirements. For labor seeking local

employment, the high information cost is restricting the mobility and efficiency of job search.

Employers on the other hand, lack sufficient information on skills and talent produced by the

educational and vocational institutions. Currently, the Ministry of Labour and Social Affairs

in partnership with the UNPD and the International Organization for Labour (ILO), is

preparing a strategy to improve the functioning and information capacity of the Yemeni

Labour Market. The strategy will initially focus on strengthening jobs information and

opportunities in the government and the public sector. Furthermore, Yemen is now

increasing its efforts to qualify its labor force for the GCC labor markets following recent

welcoming gestures for Yemeni labor. In May 2009, the Cabinet approved a plan prepared by

the Ministry of Planning and International Cooperation (MoPIC). The plan aims to improve

the country’s educational and vocational qualification standards to meet the demand of the

GCC labor market.

More government efforts are required to face climate change. The fourth Assessment Report

of Intergovernmental projects are more than global average warming for Yemen. Although

there is no complete agreement on the size of the future impact on Yemen, most climate

change models indicate increased intensity and frequency of extreme events for

Yemen. Moreover, Yemen has weak institutional capacity and fragmentation of institutional

responsibility for climate related data collection and management, and little cooperation

between agencies. The GOY in response to the need for institutional strengthening and

capacity building on climate related issues has established an inter-ministerial committee on

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climate change, chaired by MOPIC. This high-level committee has selected the Environmental

Protection Authority (EPA) as its secretariat in November 2009.

The second half of 2009 was marked by a steady, but slow, improvement in crude oil prices.

Despite the recovery, prices in 2009 remained below their 2008 historical record. Brent

crude oil averaged about $62per bbl for the year, about 36 percent below its level in the

previous year. Meanwhile, Yemen’s oil output continued to shrink reaching about

274 thousands bbls/day (net), about 7 percent below the previous year.

The Yemen LNG Plant was inaugurated in November 2009 with a first shipment of 1.49

million cubic meters of LNG. The Ministry of Finance estimates to obtain some $233 million

in revenues from the LNG and gas export in 2010. Once the production capacity reaches its

targets (two production trains equal 6.7 mmtpa) in the course of 2010, the annual revenue

flow is expected to amount to about $370 million. However, government net revenues from

LNG sales will not reach their full level for the next first 6 - 7 years, as cost recovery by the

companies will weigh in to compensate for the initial investment.

Table 1. Oil Production, Trade and Consumption (Million bbls., unless otherwise indicated)

2007 2008 2009

Crude oil output ( gross) 116.7 109.4 103.6

Crude Oil output ( net ) 113.3 107.8 100

State’s share inc. royalties 72.7 71.4 60.3

Companies share incl. cost oil 40.6 36.1 39.8

Export of crude oil1 83.1 78.1 70.8

Of Which: Government Share 1 44.5 30.9

Sales of crude to domestic

refineries 33.5 37.8 32.1

Domestic refinery consumption

of crude oil 27 25 25.9

1-Sum of companies’ shares and government share in export.

Source: Ministry of Oil and Minerals – Yemen.

I I . M A C R O E C O N O M I C D E V E L O P M E N T S

Figure 1. Yemen Crude Oil: Monthly Prices and

Production

Source: EIA

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Non-hydrocarbon economic activity

weakened in 2009. Growth in the non-

hydrocarbon sector, the main source of

employment, deteriorated to about 4

percent compared to 4.8 percent a year

ago. The fiscal deficit widened to a

record 10 percent of GDP, reflecting the

slow progress in fiscal and subsidy

reforms. The current account has also

deteriorated to about 11 percent of

GDP. Inflation, however, declined significantly with the slowdown in international

commodity prices causing the average rate to fall to less than 4 percent.

Box 1. Yemen LNG Project: A Background

The YLNG Project is the largest single investment ever made in Yemen at about

$4.5 billion. Construction started in October 2005 with equity financing from

French Total (39.62%), Hunt Oil (17.22%), S. Korean companies (21.83%), and

Yemeni public corporations (21.73%). The project consists of a 320 kilometers

pipeline to transport gas from the Marib field (Block 18) in central Yemen to the

two-train LNG plant in the port of Balhaf at the southern coast of the country.

Production capacity equals 6.7 million metric tons per annum. The project has

started its operations at half capacity in late 2009. Full capacity is expected to be

reached by April/May 2010. Fiscal revenues from this project are derived from

two sources: (i) directly from taxation, bounces and royalty, and (ii) indirectly,

from the profit share agreement of the consortium signed with state owned

agencies (YGC, GASSP). Current estimates of the overall revenue potential over

the estimated lifespan of the 20-years Sales and Purchase Agreement (SPA) for the

LNG production and export (current knowledge) oscillate between $8 billion

(government) and $20 billion (industry). Markets in the United States, Mexico and

in East Asia (such as Korea, China and India) are the main destination of Yemeni

LNG.

Table 2. Yemen main economic indicators (2007-09)

Source: GoY; staff calculations.

2007 2008 2009

Real GDP growth (in %) 3.3 3.6 3.9

of which :

Growth of hydrocarbon sector -13.1 -8.1 1.6

Growth of non-hydrocarbon sector 5.3 4.8 4.1

Currnet account balance (in % of GDP) -7.0 -4.6 -6.2

Fiscal balance (in % of GDP) -5.8 -3.2 -10.2

Inflation (in %) 7.9 19.0 3.7

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Fiscal adjustment did not progress in

2009. The deficit, estimated at 10

percent of GDP, underlines the loss in

oil revenues and the slow adjustment

of expenditures. Compared to the

2009 budget, revenue outturn in 2009

was lower for both hydrocarbon and

non-hydrocarbon revenues.

Preliminary data suggest that the

deficit was to a large degree financed

by domestic borrowing, including

directly from the Central Bank of

Yemen (CBY), placement of longer

term bonds at a lower interest rate

(than on bonds held before) with the

public pension funds, and overall a

sizeable expansion of the stock of Treasury-bills. The net impact has been an increase in

public debt by 10 percent of GDP, significant crowding out of private sector credit, and

downward pressure on the Rial.

The 2010 budget projects a small reduction in the deficit to 7.7 percent of GDP. The Budget

estimates were built on an oil price assumption of $55 per bbl. More recent projections for

2010 assume higher revenue reflecting a revised oil price assumption of $78 per barrel in

2010. Yet, the declining production level and the overall size of energy subsidies do not allow

for a significant net gain for the 2010 budget. These calls for a reform of the energy subsidy

system in Yemen, as a fiscal deficit of this magnitude is not sustainable, is likely to put

pressure on the inflation rate as well as the exchange rate, and ultimately undermine the

prospects for macroeconomic stability and growth.

Table 3. Summary of Fiscal Accounts 2007-09 (In percent of GDP)

1 preliminary data.

Source: GoY, staff calculations.

2007 2008 2009 1

Total revenue and grants: 33.2 36.7 25.0

of which :

Hydrocarbon revenue 22.0 27.8 14.6

of which :

Crude oil exports 11.8 15.9 7.8

LNG exports 0.0 0.0 0.0

Tax revenue 7.3 6.8 9.0

Capital Revenues and Grants 0.4 0.3 1.5

Total expenditure & net lend. 40.3 41.2 34.6

Current expenditure 31.4 34.5 28.7

of which :

Wages and salaries 10.9 10.0 11.0

Subsidies 9.5 14.0 8.2

Capital expenditure 7.2 5.9 6.5

Overall balance -5.8 -3.2 -10.2

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Figure 2. Overall Fiscal Deficit: 2006-10

(In percent of GDP)

Source: GoY and Staff Calculations.

Inflation pressure eased in 2009, but the unresolved fiscal tensions are threatening to

undermine the gains. Inflation has edged up towards the end of 2009 due largely to rising

fiscal deficit, higher domestic financing through the CBY, and the gradual recovery of

international commodity prices. While the rate averaged 3.7 percent in 2009, significantly

below the record 19 percent observed in 2008, inflation is on the rise again since later 2009.

Figure 3. Annual Inflation Rate in Yemen, 2006 - 2009

(In percent)

Source: GoY.

Given the decline in export revenes, the current account deficit has widened from about 5

percent of GDP in 2008 to about 11 percent in 2009. Pressure on the balance of payments

was high during the 2009 year owing to the loss of some oil revenues, the continued strong

demand for imports, the decline of remittances and the slowing down in FDI. During 2009,

foreign exchange reserves were used by the Central Bank of Yemen (CBY) to stabilize the

path of the exchange rate, using some of its reserve cushion. Pressure on the exchange rate

seems to have ceded in the last few months as oil prices rose and prospects for balanced

-

-

-

-

-

-

-

-

-

Overall fiscal balance Primary non-oil fiscal balance

All-items Food and Non-Alcoholic Beverages

9

macroeconomic policies improved. The Rial depreciated from US$1/YR 200.06 in December

2008 to US$1/YR208 in December 2009 and around US$1/YR222 as of March 2010.

Table 4. Current Account Balance

(In billion of US$)

Source: GoY, Staff calculations.

In February 2010, the monetary authorities increased the benchmark interest rate on Rial

deposits by 200 basis points to 12 percent. By late March the interest rate for deposits

reached 20 percent. This rise in interest rates seems to have been motivated by the desire to

make local currency holdings more attractive and curb dollarization. Currently, Yemen’s

interest rates remain among the highest in the region.

I I I . S T R U C T U R A L R E F O R M S A N D P O L I C I E S

Yemen Education Country Status Report (ECSR) was finalized in July 2009. The CSR is a

comprehensive document developed in collaboration with the Government of Yemen (inter-

ministerial team was led by the MOPIC and included all 3 education ministries, MOLA,

MOCSI and MOF) and its Development Partners. The report shows that Yemen has

impressively expanded education, halving the illiteracy rate from 90 percent to 45 percent.

However, it would be wrong to see this increase in education provision purely in abstract

quantitative terms. Beyond the numbers lie questions about whether Yemen could have

achieved greater increases using the same resources over the same period, whether the

balance of expansion among the different levels of education has been the most appropriate,

and whether more qualitative improvements could have been achieved using the same

resources. The report suggests two broad directions for addressing these questions. The first

being more public investment is needed in basic education and secondly more public

resources are needed for quality improvement and less for quantitative expansion at the post-

basic education levels.

The GOY approves a new Higher Education Law. In June 2009, the Cabinet approved the

draft law and directed all the line ministries to complete all the necessary constitutional

measures for issuing and implementing the new law. The new law aims to improve the

2004 2005 2006 2007 2008 2009 1

Exports of goods 4.7 6.4 7.3 7.1 9.0 5.9

Of which: petroleum 4.3 5.9 6.7 5.9 7.9 4.5

Imports of goods 3.9 4.7 -5.9 7.5 -9.3 -8.1

Services balance -0.7 -0.9 -1.3 -1.1 -1.1 -0.8

Current account balance 0.2 0.6 0.2 -1.5 -1.3 -2.7

Current account (as percent of GDP) 1.6 3.9 1.1 -7.0 -4.6 -10.71 Preliminary data.

10

quality of education in Yemen and the relations between public, private and foreign

education, with the view to make education more relevant for the needs of the labor market.

The law also envisages improving the quality and accountability of the private higher

education institutions, whose reputation has suffered in the past because of perceived lower

curriculum standards.

The PFM reform strategy has entered its second phase. With the first phase of PFM reforms

completed, the second phase was initiated in late 2009. The reforms include: (i) general

budget reforms affecting budget preparation, execution and information systems (AFMIS),

(ii) enhancing controls and financial accountability (AFMIS), (iii) strengthening procurement,

and (iv) enhancing the technical capacity. The total cost of the second phase is $16.5 million,

financed by the World Bank and the Government of Yemen.

Yemen introduced a series of urgent reform measures under the Top 10-Priority Plan. In

late 2009, Yemen’s President signaled the start of an aggressive and quick reform plan in an

effort to accelerate reforms and to improve Yemen’s image. The plan contains the following

reform priorities:

1. Comprehensive program to attract talent into civil service ‚top 100‛

2. Urgent political solutions to allow Yemeni labor into Gulf Council Countries (GCC)

3. Implementing a first phase of reducing fuel subsidies without raising prices

4. Fast track initiative for oil exploration

5. Urgent solutions to land problems

6. Re-involve presidential apparatus in reform process

7. A ‚positive‛ action plan for Aden and coastal areas

8. Strengthen government authority and the rule of law

9. Urgent solutions to the water issues

10. Improve Yemen’s image abroad

The Parliament continues to review the new Investment Law. In an effort to encourage

more investment and promote the private sector growth, a new law is currently being

reviewed by the Parliament. This new law aims to improve tax revenues by streamlining tax

and customs incentives and reducing tax exemptions. The law will be introduced in

conjunction with an income tax law designed to lower corporate income tax rates from 35% to

25% (and 15% for investments that create significant new job opportunities). Furthermore,

the law includes reforms for the investment regulatory body and establishment of a new

independent authority for investment (Yemen Invest). This new authority will primarily

target foreign investors, and will be supervised by the Prime Minister. The new agency will

provide material and logistical support for prospective investments in the country.

Preliminary 2009 data from the General Investment Authority (GIA) show that FDI to Yemen

registered modest growth. The number of registered investment in 2009 has fallen from 131

11

projects compared with 360 in 2007; number of new jobs has also declined in 2009 to 10,226

Jobs from 13,143 jobs. Investment capital has shrunk slightly compared to 2008 with 389 and

309 YR billion respectively. Many factors contributed to the lower performance of investment

in 2009, but mainly the deteriorated security situation in the country and the global and

regional financial crisis are perceived to be key.

Figure 4. Investment in Yemen, 2007 to 2009

Source : General Investment Authority.

According to the latest Doing Business Report (2010), Yemen has witnessed some

improvements in the business environment in 2009. The overall ease of doing business

ranking has improved moderately from 103 to 99, mainly due to improvements in obtaining

credit. Yemen’s regional ranking achieved 9th place amongst the 19 surveyed countries in the

Middle East and North Africa. The main factors that continue to negatively affect businesses

in Yemen are related to paying taxes, financing, trading across borders, and legal protection

of investors rights (see table), the report suggests.

Table 5. Yemen’s Ranking in the Doing Business Survey (2010)

Ease of Doing Business Doing Business

2010 Rank

Doing Business

2009 Rank Change in Rank

Ease of Doing Business - Overall 99 103 4

Starting a Business 53 53 0 Dealing with Construction Permits 51 47

6

-4 Employing Workers 74 66 -8 Registering Property 50 47 -3

Enforcing Contracts 35 36 1 Closing a Business 89 90 1 Protecting Investors 132 127 -5 Paying Taxes 148 141 -7 Trading Across Borders 120 127 7 Getting Credit 150 174 24

Source: Doing Business 2010.

Yemen has shown a slight improvement in the 2010 World Bank Logistics Performance

Index (LPI). According to the latest LPI, Yemen ranked 101 globally (out of 155 countries)

against 113 in 2007, and 6 in MENA (out of 11 countries surveyed). The index measures the

country’s performance in the areas of customs, infrastructure, international shipments,

No. of Registration Investment Capital - Billion YR Job Creation - Hundreds

12

tracking and facilitation, and timelines. The country was particularly weak in its performance

in the areas of domestic logistics costs and ease of arranging international shipments. In

addition to that, Yemen saw its highest ranking in the area of customs processing and

timeliness, which reflects the efforts to improve trade facilitation through the implementation

of ASYCUDA PLUS (an automated information system for customs data) in 2007. ASYCUDA

PLUS is now being used in all major seaports and airports, thus covering most of the Yemeni

imports. The ASYCUDA system is accessible by other agencies like the tax authority, CSO,

and the Central Bank and to some three hundred commercial companies. The custom

inspection of containers has also been improved by the introduction of x-ray scanners, which

have now been installed at six main customs checkpoints, in addition to two mobile x-ray

scanners. Furthermore, the government has submitted new modernized customs legislation

to the Parliament to replace the current 1990 legislation.

Box 2. Logistical Performance Index

The Logistics Performance Index is based on a worldwide survey of operators on the ground

(global freight forwarders and express carriers), providing feedback on the logistics

‚friendliness‛ of the countries in which they operate and those with which they trade. They

combine in-depth knowledge of the countries in which they operate with informed

qualitative assessments of other countries with which they trade, and experience of global

logistics environment. Feedback from operators is supplemented with quantitative data on

the performance of key components of the logistics chain in the country of work, data

collected for nearly 130 countries.

The LPI consists therefore of both qualitative and quantitative measures and helps build

profiles of logistics friendliness for these countries. It measures performance along the

logistics supply chain within a country and offers two different perspectives: International

and Domestic.

International LPI provides qualitative evaluations of a country in six areas by its trading

partners - logistics professionals working outside the country. Primary data for the LPI 2010

index are available for 155 countries.

Domestic LPI provides both qualitative and quantitative assessments of a country by logistics

professionals working inside it. It includes detailed information on the logistics environment,

core logistics processes, institutions, and performance time and cost data. Additional data is

available for nearly 130 countries.

The power generation situation in Yemen has gradually improved since October 2009. This

largely followed the completion of (and gradual integration) of the new 341 MKW power

station in Marib. The second phase of this project (Marib II) is expected to add 400-MKW in

2012. Meanwhile, the government approved a new strategy for the energy sector in August

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2009. The Strategy, prepared by the Electricity and Energy Ministry, includes an action plan

for the period of 2010-2012 with suggested investments of around US$2.9 billion. The action

plan aims to add up to 1500 MKW in electricity generation capacity, in addition to

implementing 24 energy related projects at an additional total cost of 1.85 billion USD, and

with an implementation horizon until 2025.

Fuel prices witnessed an increase in February 2010. Recent price adjustments cover diesel

fuel (from YR 35 to 39 (11.33%)), regular gasoline (from YR 60 to 65 (8.33%)), kerosene (from

YR35 to 40 (12%)), and LPG gas cylinders. The current increase is expected to result in fiscal

saving of about US$ 120 million, or 0.4 percent of GDP. Despite the recent price increase,

domestic fuel prices are still about 60 percent below international prices. Energy subsidies

amounted in 2009 to about 20 percent of the overall public expenditures, and fuel subsidies

up to 8 percent of GDP in 2009.

Table 6. Domestic Prices of Fuel and Electricity and Recent Reform Measures

(Prices in YR/l, unless indicated otherwise)

Item Price in early

2009

Action taken since early 2009

Diesel for

transport and

other uses

35 In February 2009, prices for large industrial users (more

than 4500 liters/day) were liberalized. In Feb. 2010,

pump prices increased by 4 YR/liter.

LPG 500 (YR/cyl.) Price of LPG cylinder raised to YR750 early 2010.

Kerosene 35 In February 2010, price increased to 40 YR/L

Gasoline-

regular

60 Price increased to 65 YR/L in February 2010.

Gasoline-

Unleaded

80 Unleaded 90-octane gasoline (imported) was introduced

in Feb. 2009 at 80 YR/Liter. Price has consistently

increased since then reaching 135 YR/Liter in Feb. 2010

Electricity 17 (YR/Kwh) No change. Price to business users (excluding small

businesses) was increased to 30 YR/kwh in Dec 2008.

Source: GOY.

The Parliament approved a new anti-money laundering and anti-financing terrorism law

in 29 Dec 2009. The law was drafted in accordance with standard United Nation proposed

legislation and best practices against financing terrorism and money laundering. The new law

meant to help authorities step up their efforts in combating money laundering, and

enhancing the related security procedures in place.

Yemen’s food security has worsened in recent years due to increased dependency on

imports. According to the Global Hunger Index of 2009, the situation in Yemen continues to

be considered alarming despite the modest improvement in ranking to 74 as compared to 80 a

year ago. Yemen has been greatly affected by the rise of global food prices in 2008 because of

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its high dependency on food imports. A recent WFP rapid assessment of food security in the

poorest Yemeni governorates found that 24 percent of households have poor food

consumption along with 35 percent that were on borderline.

Box 3. Malnutrition in Yemen

Yemen has one of the highest malnutrition rates in the world. Data from the Family Health

Survey (FHS) of 2003 indicate that 53.1% of children under 5 are stunted, 45.6 per cent are

underweight, and 12.4 per cent are wasted. The HBS 2005/2006 shows slight increases, with

55.7 percent stunted, 35.6 percent underweight, and 13.2 percent wasted. The FHS shows that

a quarter of women of reproductive age are malnourished. The rate of malnutrition among

pregnant and lactating women was high; 27 percent of pregnant and 35 percent of lactating

women were malnourished. Maternal mortality of 365 per 100,000 live births is amongst the

highest in the world. Mortality of children under five is at 102 per 1,000 births. Inadequate

access to food, inadequate maternal and childcare practices, poor access to water and

sanitation and health services contribute to malnutrition in Yemen. It is also presumed that

chewing Qat has a negative impact on pregnancy and nutritional status of infants (low birth

weight in infants is 32 percent.

V . O U T L O O K

Enhancing political stability requires governance reforms. Despite the recent truce in

Sa’ada, the situation is still very fragile. Peace requires progress in addressing the

fundamental causes of conflict and a review of governance structures. In the South,

secessionist sentiment continues to rise in face of the slow progress in improving economic

conditions and unease about the equity and transparency of government actions. The

presence of Al-Qaida is making the overall security situation more complex. The ability of the

government to address resentment has been narrowed with the deteriorating fiscal space.

Yemen's economic conditions are expected to witness modest improvement in 2010.

Overall growth could increase to about 8 percent, reflecting the new LNG plant full operation

in 2010. Growth in the non-oil sector, however, will remain relatively modest at about 4.4

percent, and will remain modest, if the government’s fiscal deficit financing continues to

crowd out the private sector. Improved oil export prices in 2010 and new revenues from LNG

exports could help sustain fiscal revenues. However, a broadening of the tax base and

especially a switch in expenditures, away from energy subsidies, is required to restore the

fiscal balance in a sustainable way and create conditions for long-term growth. Yemen’s trade

balance is an expected to benefit from increased hydrocarbon exports in 2010. Meanwhile,

inflation is likely to rise in 2010, if the level of public borrowing from CBY continues, and

given the gradual recovery of the world economy, which is assumed to positively affect

international commodity prices.

15

In light of these challenges, the Yemeni Government is expressing interest in undertaking

concrete economic reforms. Given the very difficult economic situation, compounded by the

political tensions, the Government is currently pursuing ways to strengthen its reform

program, helped by an arrangement with the IMF, and with support from its traditional

development partners, including the World Bank. New reforms are likely to focus on

improving fiscal operations, financial sector reform, private sector growth and governance,

and anti-corruption. To capture adequately the corresponding structural economic and social

reforms required over the medium term, and to guide an inclusive dialogue with all

stakeholders, the Government is preparing a new socio-economic development plan, which

will be an implemented from 2011 to 2015.

V . E C O N O M I C A N D S E C T O R D I A L O U G E

Climate Change: The World Bank’s new CAS (2010-2013) supports Yemen to cope with

climate change impacts — the support includes improving institutional capacity of relevant

agencies and their capacity for climate related data collection and processing, adaptive

management capacity such as early warning and seasonal forecasting with long lead time,

and implementation of low-/no-regret adaptations, given the uncertainty around climate

change models for the region and lack of adequate knowledge of historical climate trends. As

such, the Bank is supporting the GOY in evaluating the impacts of climate change on its

sector policies, through a number of linked studies/ projects, including the ‘Adaptation to

climate change using agro-biodiversity project’, the ‘Climate change impacts assessment in

agriculture and water sectors study’, and the ‘Pilot program for climate resilience—PPCR’.

The soon to be completed study on climate change impact assessment in agriculture and

water sectors has especially analyzed the vulnerability of these two critical sectors to climate

change. The study findings are also expected to inform the fourth five year economic

development plan (currently under preparation), which is expected to deal with issues

related to climate change.

Health: The World Bank is providing support to the MOPHP-led health sector reform

strategy, which is comprehensive and aims for the longer term objectives (MGDs). However,

there are immediate and pressing health needs to which the Bank is responding by

supporting the delivery of priority public health programs, particularly for poor population

groups with no or poor access to health facilities. Support is being provided through two

Bank-financed projects: (i) the Schistosomiasis Control Project (SCP), designed to decrease the

high prevalence and intensity of infection of schistosomiasis; and (ii) the Yemen Health and

Population Project (HPP), which will contribute to the acceleration of the achievement of

MDG 4 & 5 (reduction in childhood mortality and improvement of maternal health) through

16

support for key initiatives targeted to improve access to and utilization of maternal, neonatal

and child health (MNCH) services in selected governorates with poor MNCH indicators.1

Basic Education Development: Key highlights achieved to date under an on-going world

Bank supported project include construction of 175 new schools offering 1,309 new

classrooms, and rehabilitation of 1,251 classrooms, and training of more than 90,000 teachers,

and over 16,000 headmasters and deputy head masters. The projects also aim to address the

issue of widening access for girls and retention of girls, especially inrural areas, where less

than 30 percent of girls enroll. In 216 schools in Lahej and 100 schools in Hodeida the project

is offering conditional cash transfers for girls from the most underprivileged rural households

to provide for incentives to have girls attend school. Yemen is also part of the Fast Track

Initiative Catalytic Fund Grant (FTI CF) and finalized Phase III of the FTI scheme in

September 2009. FTI focus is on widening access to primary education in line with the

Millennium Development Goal on universal primary education. Having successfully

implemented Phase I and Phase II of the scheme, despite initial concerns of limited absorptive

capacity, contribution for Phase III was doubled from $US10 million to $US20 million. The

new FTI project will target remote areas of the country, where no other IDA project, or

government intervention or other development partner financed project has gone before.

The higher education sector is expanding, but its quality and relevance lingers at low levels.

The primary and secondary education Gross Enrollment Ratios (GER) reached 87 percent and

46 percent, respectively, in 2006/7, following steady increases in enrollments. Extensive

gender inequalities are present, exacerbated by high rates of early marriage. Student learning

achievement ranked the lowest in MENA participating countries in the Trends in

International Mathematics and Science Study 2007 (TIMSS 2007). There are currently 8

established public universities and 13 private universities, which in 2006/07 enrolled 230,000

students (of which approximately 80 percent in public universities). Enrollments in higher

education have grown rapidly in recent years due to the establishment of new private

universities and the introduction of fee-paying parallel programs offered by public

universities to students who do not qualify to enter regular programs. Inheriting the legacy of

low quality at the primary and secondary education levels, higher education institutions in

general offer low standard of education services, and do not equip their students with

relevant employment skills. Student learning achievements are not high. In addition,

enrollments are disproportionately concentrated in social science streams with little relevance

to either local or regional labor markets.

Yemen Second Vocational Training Project: A World Bank supported project became

effective on October 5, 2009. The project components are: (i) building public sector capacity in

planning, monitoring and evaluation; (ii) piloting the introduction of employment-responsive

approaches to program design and delivery in existing public training centers; and (iii)

supporting reform of the Skills Development Fund under private sector leadership. 1 The $25 million Schistosomiasis Control Project was signed in December 2009 and the $28 million Health and Population Project is expected to be

signed in January 2011.

17

Social Fund for Development: The Bank prepares for the 4th phase for its support to the

Social Fund for Development (SFD). Building on the successful first three phases, the new

project aims to enhance poor and vulnerable communities’ access to social and economic

services; continues to build capacity for civil society institutions, supports selected local

governments and related institutions building, and supports income generating activities for

a number of economically active poor and vulnerable communities. The Bank is playing a

leading role in coordinating the support for the SFD. Currently there are 12 donors.

In response to the food crises, the Bank has recently (mid 2009) approved an emergency

additional financing grant (financed by the Global Food Price Crisis Response TF) amounting

to US$10 million, for the benefit to the Yemen Third Social Fund for Development Project.

The grant supported the implementation of a cash-for-works program by the Social Fund for

Development. 16,820 household could benefit this emergency financing to mitigate the

impact of the food price crises.

Social Protection Strategy: The Government is keen on having a good understanding of

poverty and vulnerability issues in Yemen and the best possible use of existing resources and

institutions. Based on the Government request, the Bank concluded in 2009 its advisory work

to MoPIC on new social protection strategy. Bank support to the Cash transfer program and

the workfare program are following from the Social Protection strategy. The Ministry of

Planning and International Cooperation is leading the follow-up work with the participation

of relevant sectors.

Support to the Reform of Social Welfare Fund (SWF): The Bank is providing technical

assistance as well as guidance to ongoing efforts reforming the cash-transfer program, and

make it more effective (targeted). The Bank support focuses on improving SWF targeting and

supporting the development of an effective monitoring and evaluation system, in line with

the revised Law on Social Welfare of 2008. These activities are well coordinated with ongoing

EU support to the SWF.

Public Finance: Public Financial Management Reforms. Following the Government’s Public

Expenditure & Financial Accountability Assessment (PEFA) of 2008, the Ministry of Finance,

assisted by other parts of the government, made and is making a concerted effort to address

the weaknesses identified in the PFM systems. The PEFA-based Reform Action Plan for

Public Financial Management (PFM) was drafted and implementation support was sought

among development partners. The World Bank has decided to support this important reform

project, which ultimately will affect Yemen in a very broad sense, through improved

performance in the area of public financial management along its six critical dimensions of:

(1) budget credibility; (2) comprehensiveness and transparency; (3) policy-based budgeting;

(4) predictability and control in budget execution; (5) accounting, recording and reporting;

and (6) external scrutiny and audit.

18

Investment Climate: In response to a request from the Yemeni Government, the World Bank

will conduct an enterprise survey to update and extend its understanding of the Yemeni

investment climate, following the Investment Climate Assessment (ICA) of 2005. The current

work will utilize an enterprise survey to update an understanding of the performance of the

private sector and its current costs and challenges, as well as the impact of recent policy and

institutional reforms. The aim is to finalize the report towards the end of the year.

Mining Sector - Mineral Sector Review: Piloted by the World Bank, the Mineral Sector

Review report was prepared to evaluate the potential contribution of the mineral sector to the

economy, identify critical factors that may constrain its growth, and suggest measures that

could support growth in the sector. The report was finalized in November 2009, and

distributed to the Yemen Geological Survey & Mineral Resources Board and other concerned

Ministries. It is currently being used to develop the Government’s mining strategy.

Mining Policy Reforms: A Mining Law was drafted with support from the World Bank. The

law has been approved by the Cabinet and is currently awaiting approval by the Parliament.

Future reforms will involve the redesigning of the administrative procedures, mining law

regulations, and involving raising awareness on mining issues and sector needs among

parliamentarians.

Qat: Following conferences and workshops supported by the World Bank (Qat Dialogue),

that government is working since Fall 2009 to implement an Integrated Qat Demand

Reduction program that was developed and agreed with key stakeholders. The agreed

program involves: i) a program to raise public awareness and education on the harmful

effects of Qat, ii) the extension of Qat crop replacement, based on successful existing

initiatives, iii) research on key topics, including health impacts, economic and social issues of

Qat consumption, production and trading – which will be used to design policies and actions

to reduce Qat demand and provide for substitutes for livelihood activities, iv) measures to

reduce overuse of pesticides and develop alternative pest control agents, in cooperation with

the WHO and GEF, and v) mainstream efforts to reduce Qat in projects financed by the World

Bank and other partner organization.

V I . N E W & N O T E W O R T H Y L A W S , D E C R E E S , A N D A G R E E M E N T S

F O R T H E P E R I O D A P R I L 1 , 2 0 0 9 – M A R C H 3 0 , 2 0 1 0

The Cabinet

Approved credit agreement signed between the government of Yemen and Export-Import

Bank of Korea for the amount of USD 15.3 million as a contribution towards funding of

Yemeni-Korean Hi-Tech Institute;

19

Endorsed the report on preliminary outcomes of inventory and documentation of

endowments lands and properties submitted by the Ministry of Endowments and

Guidance;

Endorsed memo by the Minister of Transport regarding construction of Saada airport;

Approved draft republican decree regarding setting up a higher ministerial committee

concerned with preparation of Fourth Social and Economic Development Plan 2011 –

2015;

Approved draft by-law regarding marine monitoring and inspection system proposed by

the Ministry of Fisheries;

Approved the agreement signed between Yemen and Islamic Development Bank for the

amount of US$ 21.3 million for purchasing silos equipment for Al-Saleef Port;

Approved additional loan agreement between Yemen and OPEC Fund for International

Development in the amount of US$ 18 million for Phase III of Social Fund for

Development;

Approved amendment to the loan agreement signed between Yemen and IFAD on April 6

for rural infrastructure project, where total amount of loan after amendment reached US$

10.4 million;

Approved the vision presented by the Ministry of Planning and International Cooperation

over receiving Yemeni workers in the markets of GCC in a response of GCC pledges to

welcome Yemeni workers;

Discussed implementation matrix for foreign-funded investment projects in higher

education, scientific research, technical education and vocational training;

Approved draft national strategy for Solid Waste Management;

Endorsed draft internal by-laws of the National Committee for Banning Chemical,

Biological and Toxic Weapons;

Reviewed the report by the Minister of Civil Service and Insurance regarding addressing

the situation of surplus employees whose contracts with private companies had expired;

Approved recommendations of the fifth annual joint review of implementation of the

National Basic Education Development Strategy;

Approved draft amendments to National Organizations and Foundations (NGO) Law No.

1/2001;

Referred to the ministerial committee policies program for rural water and sanitation

sector reform proposed by the Minister of Water and Environment;

Reviewed the memo by SNACC Chairman regarding some duplicate disbursements from

budgets of some organizations;

AQuthorized the Ministry of Oil and Minerals in coordination with the partners of the

Yemeni Liquefied Natural Gas project to seek for new markets to export Yemeni gas;

Approved strategic plan for electricity sector for 2010-2012 aiming at generating 1,500

MGW of power via carrying out 46 projects at the cost of US$ 2.9 billion and a plan for

sector development until 2025 via implementing 24 additional projects by the government

and private sector at a cost of US$ 1.8 billion;

20

Approved draft executive by-laws for Consumer Protection Law;

Discussed message of the President regarding identifying priorities for the government

during the coming period, including: finding solutions for unemployment, expanding

anti-poverty efforts, and ensuring competent government administration;

Addressed ensuring presence of Yemeni labour force in the Gulf labour market;

Studied the necessity of expanding oil and gas explorations;

Urged to find solution for land disputes of public-owned lands which will enhance

citizen's confidence in the state;

Listened to the report by the Minister of Industry and Trade on the outcomes of the field

visit to the market to inspect the validity of food commodities;

Approved draft decree proposed by the Minister of Water and Environment regarding

setting up of Higher Committee for Climate Change;

Endorsed report by the Minister of Planning and International Cooperation regarding

progress of Foreign Trade Statistics Development project;

Approved draft Seaports Law proposed by the Minister of Transport;

Approved draft organizational by-laws of the General Authority for Oceanography and

Marine Life Research;

Approved draft organizational by-laws of the General Authority for Environment

Protection;

Approved memo by the Minister of Transport regarding Yemen's accession to agreement

of the International Organization for Mobile Satellite Communications amended in 2008;

Approved draft state general budget at local and central levels and budgets of

autonomous economic units and funds as follows: total revenues YR 1.5 trillion, total

expenditure YR 2.1 trillion, net deficit 7.7% of GDP estimated at YR 6.3 trillion;

Approved report on main indicators for Third Five-Year Development Plan for Poverty

Alleviation presented by the Ministry of Planning and International Cooperation;

Approved the memo by Minister of Social Affairs and Labour regarding ratification by

Yemen of a number of Arab and international agreements in the field of labour;

Approved its draft work plan for 2010;

approved draft Republican Decree concerning establishment of Shabwa University;

Approved to amend Cabinet Decree 168/2008 regarding cargo transportation agreement

between Arab countries;

Approved draft memo by the Minister of Agriculture and Irrigation regarding

restructuring Public Authority for Agricultural Services;

Approved Yemen's accession represented by the Minister of Electricity to the International

Agency for Renewable Energy;

Approved necessary plans and alternatives for the implementation of railway project by

either the government or investors according to the feasibility studies;

Approved draft decree proposed by the Deputy Minister for Defense and Security Affairs

regarding restructuring Public Authority for Development of Yemeni Islands;

Approved draft executive by-laws for the Law 16/2007 on Foreign Trade;

21

Approved the report by the Minister of Planning and International Cooperation regarding

the progress of the project for development of National Accounts for 2004 - 2009;

Reviewed the presentation by the Minister of Communications and Information

Technology regarding international calls smuggling and measures to combat it;

Approved carrying out a comprehensive measles immunization campaign in the

governorate of Sa'ada and a number of districts in Amran, Hajja and Al-Jawf;

Approved new draft law regarding Mines and Quarries presented by the Ministry of Oil

and Minerals;

Approved draft internal by-laws for the Higher Council for Roads presented by the

Minister of Public Works and Roads and directed to complete constitutional procedures to

issue it;

Approved draft Republican Decree regarding setting up Fisheries Information Center

proposed by the Minister of Fisheries and directed to completed constitutional procedures

to issue it;

Approved a draft law regarding the regulation of industry and referred it to the

Parliament for discussion and completion of constitutional procedures;

Approved draft law regarding the danger of producing, keeping and using chemical

weapons presented by the Ministry of Foreign affairs;

Urged speedy completion of the necessary procedures for constructing strategic gas tanks

to overcome gas shortage in the country;

Appraised highly the outcomes of London conference on Yemen and appreciated the

positive attitudes of participating countries;

Banned import of imitation handicraft products for one year as a step to protect local

handicraft products;

Approved further customs on 71 non-basic goods at 5%-15% including cars, motorcycles,

electronics, furniture, beauty products, etc.

Seminars and Workshops

3rd Post-CG Meeting to follow up on 2006 Donors' Conference was organized by the

Ministry of Planning and International Cooperation in collaboration with the World Bank

and Gulf Cooperation Council on April 5;

A workshop on Preparing National Anti-Corruption Strategy was organized by SNACC

in cooperation with the World Bank on April 8-9;

A workshop on Climate Change and Biodiversity was organized by the Rainfed

Agriculture and Lifestock Project during May 3-5;

The first consultative meeting on Capacity Building, Employment and Social Protection

was organized between the Ministry of Social Affairs and Labour and UN agencies during

May 24-26;

22

The Regional Conference on Activating the Role of Civil Society in Education for All was

organized by the Youth Leadership Development Foundation in cooperation with Dutch

OXFAM Organization during May 25-27;

The launching of the World Development Report 2009 "Reshaping Economic Geography"

was organized by the World Bank on June 3;

A workshop on Preparing National Strategy for Food Security was organized by the

Ministry of Planning and International Cooperation on June 7;

A training course on Family Planning was organized in Al-Hodeidah by the Public Health

Office in cooperation with UNFPA during July 18-20;

A training course on Protection System and Advocacy Mechanisms in Human Rights was

organized by the National Forum for Human Rights in cooperation with Friedrich Ebert

Stiftung ;

A workshop on mechanisms of protecting children under the motto "Every Child Has the

Right to Life" was organized by Yemeni NGO Coordination Body in cooperation with EU

during September 5-7;

Cultural Development Programs Foundation organized a discussion session on women's

rights to access the parliament during September 8-9;

A workshop on standards of job description was organized by the Civil Service

Modernization Project during October 24-25;

A regional workshop on Risk Management in Tourist Sector was organized by the

Ministry of Tourism in cooperation with World Tourism Organization during November

17-19;

Training on Quality Improvement for maternal/newborn health workers was organized

by Basic Health Services Project in cooperation with USAID during November 17 -20;

A workshop for Yemeni Business Women on IFC Business Edge Program was organized

by NIIT in cooperation with SMEPS Unit at SFD on December 17;

A workshop on "Importance of Urban and Peri-Urban Agriculture for Food Security in

Yemeni Cities" was organized by the Yemeni Association for Sustainable Agricultural

Development on December 17;

A training program on capacity building for civil society organizations to "Promote the

Principles of Democracy and Human Rights Values" was organized by the National

Organization for Community Development in cooperation with Friedrich Ebert

Foundation during December 21 -25;

An expanded meeting to discuss performance of humanitarian organizations and charities

working in Sa'ada to assist IDPs took place in Sa'ada on January 3;

A workshop to discuss the National Health Strategy was organized in Lahej by the

Ministry of Health in cooperation with WHO on January 5;

A workshop on Refugee Issues was organized by the government in cooperation with

UNHCR and the Danish Refugee Council during January 8-9;

23

A workshop for review the Results of Food Security Evaluation in Yemen was organized

by the International Food Policy Research Institute and the World Food Program during

January 16-17;

A workshop on Water Use Awareness, Hygiene and Environmental Sanitation was

organized in Al-Hodeidah by the Education Office in cooperation with UNICEF during

January 19-20;

A workshop on Participation of Private Sector and Communication Strategy in the Urban

Water Sector was organized by the Urban Water Technical Secretariat in cooperation with

GTZ during March 1-2;

A workshop on Qualification and Training Social Specialists working in Childhood Center

was organized in Taiz by the Social Fund for Development during March 6-7;

A training workshop for Occupational Health and Safety Inspectors was organized by the

Ministry of Social Affairs and Labour in cooperation with International Labour

Organization during March 7-11;

A workshop on Upgrading National Strategy for Malaria Control was organized by the

National Malaria Control Program during March 14-15.

Development Cooperation

Yemen and World Food Program signed an agreement for US$ 10.8 million to finance

Food Aid Project for poor targeting more than 55,000 poor families n Al-Hodeidah,

Amran, Abyan, Hajjah, Shabwa and Al-Baidha;

Yemen and International Finance Corporation signed an agreement for US$ 25 million

towards financing Rural Electricity Project targeting 12 governorates;

Yemen and the World Bank signed an agreement in Washington for US$ 35 million to

support agricultural and roads sectors in foods-stricken governorates of Hadhramaut and

Al-Mahrah;

Japan allocated US$ 1.5 million to help Yemen cope with influx of African refugees into

the country to be channeled via UNHCR;

The European Technical Support Program allocated € 4.4 million to support Tehama

Development Authority during 2010-2012;

An agreement was signed between Yemen and GTZ for the amount of € 2 million to

support decentralization during 2009 -2010;

USAID presented food assistance for Saada IDP at the amount of US$ 2.5 million;

Germany granted € 500,000 to internally displaced people in Saada governorate;

Japan extended a grant of YR 16 million to Ba'adan health unit in Ibb under its scheme

"Grant Assistance for Grassroots Human Security Projects";

An agreement for financing Sustainable Natural Resources Management Project was

signed between Yemen and UNDP under which Yemen will contribute US$ 400,000 and

UNDP will contribute US$ 800,000 and help mobilizing additional US$ 200,000;

24

The European Commission announced € 1.5 million in humanitarian aid for IDPs in North

Yemen;

Two grant agreements were signed between Yemen and Japan: first, for US$ 6.2 million in

the framework of Japanese Aid Program for Environment and Climate Change, and

second, for US$ 890,000 for the Central Laboratory of Sana'a University;

A Memorandum of Understanding was signed between the Ministry of Education and the

British Council for reforming English curriculum and training basic education English

teachers;

The European Commission approved support program for Yemen in the amount of € 17

million towards improving Food Security;

A memo of understanding was signed between UNHCR, INTERSOS and Ministry of

Technical Education and Vocational Training under which UNHCR would provide US$

101,600 for rehabilitation of two technical training institutes;

The European Commission allocated € 10.6 million for implementation of the national

strategy of the Fisheries Sector in Yemen;

The third conference on Strategy for Combating Cancer in Yemen was organized in Aden

by the Aden University in cooperation with the National Center for Cancer Treatment

during February 16 -18;

A training course for field teams doing IDP surveys was organized in Al-Jawf by ADRA

organization in cooperation with UNHCR during February 17 -19;

A seminar of Mechanism for Receiving Foreign Funds for Development Plan was

organized by the Center of Media and Economic Studies during February 20-21;

A consultative meeting on the National Health Strategy 2010 - 2025 was organized by the

Ministry of Public Health and Population during February 24 -25;

A memo of understanding was signed between Yemen and IFAD for the grant in the

amount of US$ 35 million for fisheries projects in Yemen;

Oman granted Yemen US$ 1 million to finance establishing cultural development centers

in different locations in Yemen.

Economy/ Finance

Law No. 32/2009 was passed regarding possession of real estates for non-Yemenis

especially for investment purposes;

The Media and Economic Studies Center, Yemeni non-profit organization, established a

fund with the initial capital of YR 2 million to promote micro and small enterprises;

Higher Committee for Crude Oil Marketing approved sales of crude oil for October 2009

at the total quantity of 5 million barrels;

Foreign assets of banking sector witnessed a decrease to YR 1.7 trillion during the first half

of 2009 compared to YR 1.8 trillion during the same period of 2008;

Yemen's external debt in the end of June reached US$ 5.853 billion compared to US$ 5.894

billion in the beginning of current year;

25

Law No. 31/2009 regarding Jobs Rotation was issued;

Yemen was ranked 99 out of 183 world economies according to Doing Business 2010

report issued by IFC/World Bank;

Board of the Social Fund for Development approved its 2010 plan on the level of units and

branches with estimated budget of US$ 193.5 million;

Administrative monetary committee of the Central Bank of Yemen raised the rate of

profits on the YR deposits from 10% to 12%;

Supreme Committee for Crude Oil Marketing approved the crude oil sales for April 2010

in a quantity of 4.6 million barrels;

A Memo of Understanding was signed between Yemen and Total Oil Company regarding

oil exploration in block # 85 in Shabwa;

The government overall revenues from crude oil exports declined to US$ 3.5 billion in

2009 compared to US$ 5.9 billion. in 2008;

The Central Bank of Yemen injected US$ 100 million. into the local market to meet the

needs of commercial banks and exchange market;

Yemen's reserves of foreign currency declined to US$ 7 billion in 2009 compared to US$

8.15 billion in 2008; the volume of money supply reached YR 2.12 trillion in 2009

compared to YR 1.87 trillion in 2008; net foreign assets of the banking system reached YR

1.8 trillion in 2009 compared to YR 1.85 trillion in 2008;

Board of Yemenia approved an agreement for purchasing 10 320 airbuses at the amount of

US$ 700 million, MoU for which was signed between UAE Airbus Company and

Yemenia in November;

Yemen's production of fish reached 63,000 tons during January - September 2009

compared to 55,248 tons during the same period last year (14% increase);

National Committee for Facilitation Transportation and Trade between Yemen and UN

Economic and Social Commission for Western Asia and world countries was established.

Total Company is launching experimental work at gas power station in Hadharamaut

with initial generating capacity of 25 MW to reach 50 MW;

AES Arabia Ltd, Saudi firm, won a contract for setting water treatment facilities for

industrial waste water used in pumping operations during oil production in Yemen.

Gender News

The Women's Forum for Research and Training has issued a book "To Claim Rights to

Seek Justice..." - the first book in Arabic for female defenders of human rights and their

protection mechanisms;

Sisters' Arab Forum organized a workshop on "Mechanisms of Legal Protection to

Eliminate Violence Against Women and Children" with support from the Netherlands

Embassy during January 2-4;

26

A training course on Gender Analysis and Introduction of Gender in Policies and

Development Plans was organized by the National Women's Committee with support

from the Netherlands Embassy during January 16-17;

A workshop on Data Collection Under the Leadership of Children was organized by the

Democracy School and SOUL Organization during February 3-4;

A workshop on Development of Training Programs on Protection from HIV/AIDS

Transmission from Mother to Child was organized by the National AIDS Protection

Program in cooperation with WHO and the Global Fund to Fight AIDS, Tuberculosis and

Malaria during February 6-7;

A training course on Good Management and Performance as organized by the Islamic

Relief in cooperation with the European Union during February 6-8;

A workshop on Reviewing Immigration Policies in Yemen was organized by the Ministry

of Expatriate Affairs in cooperation with the European Union during February 9-10;

A workshop on Ratification of Conformity Car and Tires Certificates was organized by

Yemeni Standardization Authority in cooperation with GCC Standardization

Organization during February 9-11;

3rd National Conference of the Yemeni Women Union took place during March 2 - 4 on

the occasion of the 20th anniversary of Yemeni Women Movement and the International

Women's Day;

The Higher Council for Women approved 2010 action plan for the National Women

Committee including integration of gender into central and local government policies and

programs and the state budget;

Yemeni delegation headed by the Minister of Human Rights participated in the

International Summit for Women's Rights in Ankara during March 8-10;

A symposium on Political and Economic Empowerment of Yemeni Women was

organized by the National Society for Development, Life Maker Forum and Medical

Development Foundation on March 7.

27

V I I . W O R L D B A N K G R O U P O P E R A T I O N S I N Y E M E N

As of March 16, 2010, The World Bank is financing 22 projects in Yemen, with a total

commitment of USD 1010 millions, and of which USD 523.3 millions are disbursed. Most

of the lending operations are investment projects covering vital sectors like Water, Urban

Developments, Education, Agriculture and Rural Development, Transportation, and

energy (See Figure 5 and Table 7).

Figure 5. Composition of World Bank Portfolio by Sector

(In percent of total

*Source: World Bank

Agriculture

2%

Agriculture &

Rural Dev

10%

Ed ucation

12%

Energy

7%

F inancial &

Private Sector

5%

Hea lth

3%

Pub lic Sector

Go vernance

4%

S o cail Protection

4% T ransportation

8%

U rb an

Development

19%

Water

25%

28

Table 7. Yemen Current Portfolio

(As of March 16, 2010)

*Source: World Bank.

Project Sector Closing DateFinancing (in

US$ million)

The share of

financing by

sectors (% )

Total

Disbursment

(in US$

million)

Disbursement

in %

Rainfed Agriculture and Livestock Agriculture 6/30/2012 20.0 1.9 5.6 28%

Sana'a Basin Water Management 6/30/2010 24.0 23.2 97%

Groundwater @ Soil Conversation 10/31/2011 55.0 41.5 75%

Fisheries Resource Management &

Conservation9/30/2011 25.0 6.5 26%

Basic Education Development Program 6/30/2012 65.0 49.6 76%

Second Vocational Training 5/31/2013 15.0 0.5 3%

Second Education Project 1/31/2015 20.0 0.1 0%

Education for All-Fast Track Initiative

Catalytic Fund III 9/30/2012 20.0 8.4 42%

Power Sector 12/31/2011 50.0 2.5 5%

Rural Energy Access 6/30/2015 25.0 0.0 0%

Institutional Reform (DPL) Financial & Private Sector 6/30/2010 50.9 5.0 27.0 53%

GPOBA W3 - Health-Safe Motherhood 6/30/2012 6.2 0.1 2%

Schistosomiasis Control 6/30/2016 25.0 0.0 0%

Civil Service Modernization Public Sector Governance 6/30/2010 44.0 4.3 28.1 64%

Emergency Social Safety Net Enhancement Social Protection 6/30/2011 44.0 4.3 0.0 0%

Second Rural Access Transportation 11/30/2013 80.0 7.8 28.4 36%

Port Cities Development 6/30/2010 23.4 23.4 100%

Taiz Municip Dev & Flood Protec

(including AF)5/15/2013 100.2 67.5 67%

Third Public Works 6/30/2011 74.8 59.0 79%

Rural Water Supply & Sanitation 12/31/2010 40.0 38.7 97%

Urban Wtr Supply & Sanitation APL 12/31/2010 130.0 112.1 89%

Water Sector Support 8/31/2014 90.0 1.0 1%

Total 1027.6 523.3 52%

Water

Agriculture & Rural

Development

Education

Energy

Health

Urban Development

7.3

3.0

19.3

25.3

10.1

11.7

29

V I I I . K E Y I N D I C A T O R S

Table 8. Yemen: Key Economic Indicators

*Source: GoY; staff calculations.

prel.

2006 2007 2008 2009

(In percent, unless otherwise indicated)

National income and prices

Real GDP 3.2 3.3 3.6 3.9

Hydrocarbon -8.3 -13.1 -8.1 1.6

Non-Hydrocarbon sectors 4.7 5.3 4.8 4.1

CPI (period average) 10.8 7.9 19.0 3.7

Crude oil production (In thousand barrels per day) 357.0 310.0 284.0 274.0

Average oil export price (US$ per barrel) 62.8 72.3 95.5 60.3

(In percent of GDP)

Central government finances

Revenue 38.6 33.2 36.7 25.0

Of which oil: 28.9 22.6 27.8 14.6

Expenditure 37.4 40.3 41.2 34.6

Current 28.2 31.4 34.5 28.7

of which: wages and salaries 9.9 10.9 10.0 11.0

subsidies 8.2 9.5 14.0 8.2

Capital 7.3 7.2 5.9 6.5

Overall fiscal balance -0.7 -5.8 -3.2 -10.2

Primary non-oil fiscal balance (cash) -42.0 -37.8 -41.0 -28.2

Reserves

Gross official reserves (billions of U.S. dollars-end period) 6.8 7.0 7.3 6.2

In months of imports of goods & non-factor services 10.2 8.0 9.3 7.5

External Debt

External debt (in billion of U.S. dollars) 5.6 6.1 6.3 6.7

External debt (in percent of GDP) 28.7 26.9 21.9 24.2

Exchange rates

Exchange rate ( per US$, period average) 197.1 199.0 199.8 202.9

Memo Items

GDP in billion Rial 3,760 4,309 5,376 5,098

GDP in billion US$ 19.1 21.7 26.9 25.1

Population (in millions) 21.7 22.4 23.1 23.7

Crude birth rate (per 1,000) 38.5 38.3 … …

Immunization, DPT (% of children under 12 months) 85.0 87.0 … …

Incidence of tuberculosis (per 100,000 people) 79.1 76.5 … …

Surface area (sq. km) 527,970 527,970 … …

Population density (people per sq. km of land area) 41.2 42.4 … …