The Second Yemeni Economic Conference
Sana'a  18 - 20 April, 1998

Abstract 12:

External debt has been one of the most pressing problems facing the Yemeni economy. Yemen, until recently, has been considered amongst the group of the most heavily indebted developing countries. In 1996, it’s total debt exceeded 160% of the gross national product (GNP), while debt service reached around 14% of the GDP.

This paper looks at the deterioration in Yemen’s external indebtedness before and after the declaration of the Republic of Yemen, which inherited the burden of the two former parts of Yemen. The debt burden increased during 1990-94 as a consequence of unfavorable external developments as well as from deteriorating economic conditions resulting from internal political instability which reached the climax in the war of summer 1994.

However, right after achieving a stable political situation internally, efforts were directed towards solving many economic, financial, and monetary imbalances, including the external debt problem. The Government’s Economic, Financial and Monetary Reform Program represented the corner-stone in this direction and towards achieving structural adjustment in the various fields. However, the program required external support which has been forthcoming since 1996 through an agreement with the International Monetary Fund on a Stand-By Arrangement (SBA) Program. This program in itself was a first step towards a medium-term reform program to be supported within new arrangements for Enhanced Structural Adjustment Facility (ESAF).

This later agreement has been an important prelude for Yemen to go to its creditors and settle its foreign debt in the Paris Club through either debt forgiveness or rescheduling.

Thus, during 1996 and 1997 and through the Paris Club, Yemen was able to achieve remarkable success in accomplishing reduction of its external debt. The Russian debt which represented the largest burden making up almost 64% of the total external debt, has been reduced from $ 5.8 billion to only around $ 400 million. This outcome resulting from foreign debt settlement, being itself a direct result of implementing the Economic Reform Program, would evidently have direct positive impact on the economy in general, and in particular regarding the improvement of the Yemeni balance of payments.

 

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