News Brief No. 99/34

News Brief: IMF Executive Board Completes Yemen Review and Approves Next Credit Tranche

June 28, 1999

Mr. Shigemitsu Sugisaki, Deputy Managing Director of the International Fund (IMF), made the following statement: "I am pleased to announce that the Executive Board of the IMF today approved the completion of Yemen's first review under the second annual ESAF arrangement and third review under the EFF arrangement. As a result, Yemen may now borrow an additional SDR 37 million (about US$50 million). This will bring the total IMF support under both arrangements, approved in 1997, to SDR 153 million.

"Directors commended the authorities for maintaining macroeconomic stability and pushing ahead with the reform program in the first quarter of 1999 under adverse external circumstances. Oil export receipts and domestic oil revenues in early 1999 fell short of expectations. However, with the improved outlook for oil prices and a tight expenditure stance, the fiscal deficit for the year is expected to decline to 3%  of GDP. The exchange rate has moved in line with market conditions, with the Central Bank maintaining adequate levels of foreign reserves. Inflation continued its downward trend, falling to 7% year-on-year in May; it is expected to be kept under 10% for the remainder of the year.

"Directors praised the authorities for accelerating the pace of structural reforms and noted the progress made on tax reforms, the liberalization of wheat and wheat flour marketing ahead of schedule, the reduction in implicit subsidies for certain petroleum products, and the steps taken to reform the judicial system and the financial system. The structural improvements along with continued macroeconomic stability are expected to accelerate non-oil GDP growth to 4% in 1999.

"Directors urged the authorities to preserve the gains achieved thus far by adhering to a prudent mix of fiscal and financial policies for the remainder of 1999, especially in light of the vulnerability of the budget to oil market volatility. Timely implementation of structural reforms is essential to reaping the benefits of economic reform and building a foundation for sustained growth over the medium term. In this regard, Directors stressed the need to pursue the reform of the income tax system, prepare for the early implementation of a value added tax, streamline the civil service, strengthen administrative capacity, and improve transparency in policy making and reporting," Sugisaki said.