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

Abstract 3 :

Assessing the Monetary and Financial Aspects of the Economic Reform Program

Dr. Abdulaziz Al-Saqqaf (draft2)
Professor of Finance
Dept. of Economics
Sana’a University

Over the last three years the Republic of Yemen has been implementing a comprehensive reform program. The program’s hypothetical duration exceeds 12 years, spanning over the period 1995-2007. This period is divided into three stages: the stabilization stage, the restructuring stage, and then the economic growth stage.

This paper looks into the pre-economic reform stage through examining measures of implementing monetary and financial policies, the hard conditions encountered by the economy, the merging of the Yemeni economy with those of the Gulf States, and in particular the Saudi economy, and the resulting economic distortions especially in the cost of factors of production. The paper has also allocated a considerable part to discuss the economic situation during 1994-95, which represents the climax of economic deterioration in Yemen in terms of inflation rates, unemployment, and negative economic growth.

However, in the framework of the Economic Reform Program, the paper addressed the objectives of the program and what has been achieved during 1995-98 in reducing the budget deficit and inflation rates, and the success obtained from writing off a large portion of Yemen’s foreign debt in the Paris Club. Also, further progress has been made in the foreign exchange reserves situation and the domestic savings, as well as in stabilizing the exchange rate and reducing the balance of payments deficit.

The forthcoming period, however, has not been excluded from the analysis. While pointing to the successes of the program during the last three years, the paper asserts that previous accomplishments have been mainly due to the IMF and World Bank’s financial assistance (in the form of soft loans), and that the success of the program in its financial and monetary aspects depends in essence on the implementation of structural, administrative, judiciary, and other related aspects of the reform program. Although the later facets are more difficult to implement, Yemen could have suffered greatly should there have been no Comprehensive Reform Program.