Press Release: IMF Approves Combined ESAF/EFF Financing for the Republic of Yemen

October 31, 1997

The International Monetary Fund (IMF) has approved a loan and credit package for the Republic of Yemen over the next three years totaling the equivalent of SDR 370.6 million (about US$512 million) to support the government’s economic program for 1997-2000. Of this amount, SDR 264.8 million (about US$366 million) is available in loans under the Enhanced Structural Adjustment Facility (ESAF)1, and an SDR 105.9 million credit (about US$146 million) is available under the Extended Fund Facility (EFF)2.


The Republic of Yemen started to undertake macroeconomic and structural reforms in early 1995 after an extended period of civil strife that had seen a marked deterioration in economic conditions. Supported by an IMF stand-by credit approved in March 1996, reforms included substantial fiscal adjustment, freeing of interest rates, the establishment of significantly positive real rates, significant adjustments in administered prices, exchange system unification, adoption of a free market floating exchange rate, tariff reform, extensive trade liberalization, privatization, and actions to protect vulnerable social groups. The economy responded favorably to these measures, with real non-oil GDP recovering by 7 percent in 1995 and expanding by 3 percent in 1996. The budget deficit was reduced from 17 percent of GDP in 1994 to 2.3 percent of GDP in 1996. With this tightened fiscal stance supported by firm monetary policies, the core inflation rate (which excludes the effect of increases in administered prices) fell from 66 percent in 1994 to 12 percent in 1996. The overall deficit in the balance of payments declined from 15 percent of GDP in 1994 to 7 percent in 1996.

Medium-Term Strategy and the 1997/98 Program

Yemen’s medium-term strategy for 1997-2000 aims to achieve real non-oil GDP growth of 6 percent a year on average; a core inflation rate of at most 5 percent a year on average; a reduction in the external current account deficit to an average 2 percent of GDP; and the maintenance of sufficient foreign exchange reserves to cover 4.5 months of imports. To these ends, the government will further strengthen its demand management stance as well as its structural reform efforts. The overall cash budget deficit will be limited to about 2 percent of GDP on average. The program will aim at significant improvements in social indicators through substantially higher budgetary allocations for education and health as well as strengthened social safety net arrangements.

Within this medium-term framework, the program for calendar year 1997 aims at achieving non-oil GDP growth of 5.5 percent; core inflation of at most 5 percent; limiting the overall cash budget deficit to 2.5 percent of GDP; containing the external current account deficit to less than 2 percent of GDP; and maintaining sufficient foreign exchange reserves to cover 4.5 months of imports. The 1998 program targets growth of 6 percent; a budget deficit of 2.2 percent; and inflation and external sector outcomes similar to those envisaged for 1997. To attain these objectives, the authorities will continue to maintain a tight fiscal stance, and appropriately supportive monetary policies directed at ensuring positive real interest rates.

Structural Reforms

Structural reforms will focus on: expenditure reorientation toward the social sectors and public investment in infrastructure; direct and indirect tax reforms; the elimination of subsidies; civil service, pension fund, customs administration, and budget management reforms; financial sector reforms focused on indirect monetary control, the quality of the banking system, and prudential supervision; a rapidly moving and broad privatization program; as well as measures to enhance the competitive environment.

Addressing Social Needs

The government intends to accelerate its efforts to broaden the social safety net and expand health and education services. In the education sector, the overall goals are to increase primary and secondary enrollment and improve the quality of education. For the health sector, the goals are to significantly increase the access of the population--particularly rural and low-income groups--to health services, and improve the quality of care.

The Challenge Ahead

Yemen is pursuing an ambitious reform agenda, implementation of which will challenge the nation. As the country will confront large external financing gaps over the medium term,financial assistance from the international community will be important in order to help ensure the success of the authorities’ reform efforts.

Yemen's membership in the IMF dates from May 22, 1990; its quota3 is SDR 176.5 million (about US$244 million); and its outstanding use of IMF credit currently totals SDR 132 million (about US$182 million).

Republic of Yemen: Selected Economic Indicators






(Percent change)

Real GDP






Real non-oil GDP






Core inflation






(Percent of GDP)

Overall fiscal balance (cash basis; deficit-)






External current account balance (deficit-)






Overall balance of payments (deficit-)






(Months of imports)

Central Bank gross foreign assets






Sources: Yemen authorities, and IMF staff estimates and projections.

* Provisional.

** Program.

1 The ESAF is a concessional IMF facility for assisting eligible members that are undertaking economic reform programs to strengthen their balance of payments and improve their growth prospects. ESAF loans carry an interest rate of 0.5 percent a year and are repayable over 10 years, with a 5½-year grace period.

2 The EFF is an IMF financing facility that supports medium-term programs that seek to overcome balance of payments difficulties stemming from macroeconomic imbalances and structural problems. The repayment terms are 10 years with a 4½- year grace period.

3 A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of SDRs.


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