This paper covers the relation between poverty and the Economic Reform Program in four parts. Part one defines the term linguistically and its interpretation in theology as well as the general concept of poverty. It specifically refers to “ the divine wisdom behind creating poverty and wealth”. Part one also attempts to estimate the extent of poverty through focusing on its causes, mainly economic backwardness (underdevelopment), which entails low per capita income, high unemployment, high dependency ratio, high inflation, excessive property rents compared to domestic income, and the neglect of rural development (where the majority of population reside), thus encouraging emigration to the cities and creating chaotic urbanization.
The second part produces some poverty indicators in Yemen which result from structural imbalances and weak economic structures. Low productivity of the goods producing sectors (in particular agriculture), reduces the contribution of those sectors to GDP compared to service sectors on one hand, and exposes the inability of domestic production to cover final consumption (thus resorting to imports) coupled with limited exports (in particular exports of goods).
From an economic point of view, poverty is associated with low standards of living, negative domestic savings, wide income inequality -as the majority of the labor force engage in agriculture activity generating low and decreasing share of domestic income-, and low share of wages and salaries in national income compared to property rent. Property rent is ever increasing because of inflationary factors, privatization, and low and rigid wage bill in the public budget. Moreover, poverty level is much higher thus more serious in rural regions.
Part three discusses the three main elements of the Economic Reform Program. The first is achieving macroeconomic stabilization through the control of inflation resulting from expansionary money supply to finance budget deficits. The Government would increase revenues by adjusting prices of some goods and services, reducing public spending, unifying exchange rate, freeing interest rates and liberalizing the financial sector.
The second element in the program stresses the importance of establishing a social safety net in order to protect the poor from any harm as a consequence of reform measures and policies such as the elimination of flour and wheat subsidy. The Government intends to improve social services to be financed through donors and resources freed from subsidy allocation, as well as initiate public work programs to create new employment opportunities.
Restructuring is the third element of the reform program. It aims at developing the private sector through trade liberalization, improving customs management, changing rigorous investment licensing procedures into mere registration and eliminating the black list, liberalizing interest rates and floating the currency, improving the performance of the public sector by enforcing market mechanism in their operations, and enhancing and expediting the privatization program.
Part four addresses the negative effects of the reform program on the poor such as:
Price increases including prices of wheat and flour.
Freezing new employment and labor redundancy that leads to higher unemployment, specially in rural regions.
Floating the currency causing higher import prices as well as increasing production costs for import dependent domestic output.
Reducing the role of the state gives the private sector an opportunity to exaggerate its profit margin to the detriment of consumers, and specially the poor.
Part four also examines the adequacy of poverty eradication programs in order to reach the following conclusions:
Overall, poverty eradication measures in the Reform Program represent a temporary tranquilizer rather than a medium or long term structural solution. Hence, poverty impact could exacerbate and become more acute.
While the Reform Program attempts to control inflation resulting from expansionary monetary policy, it, at the same time, fuels inflation as a result of other administrative measures.
The Reform Program directs more attention to urban poverty at the expense of majority rural population.
The social safety net excludes unemployment benefit which represents an important element in poverty eradication.
And, finally, while the Reform Program intends to protect the poor and eradicates poverty, it on the other hand adopts measures that lead to more poverty reflected in higher unemployment and greater income inequality.
