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

Abstract 5:

Economic Growth in the Republic of Yemen in Light of the Economic Reform Program

Dr. Seif Mahyoub Al-Asali
Associate Professor
Dept. of Economics
Sana’a University

This research paper begins by comparing between economic development indicators during the economic reform program with those existing prior to the program. The Economic Reform Program (1995-2000) was prepared by the World Bank and the International Monetary Fund with the main objective of improving economic growth. The Reform Program has implemented tight monetary and fiscal policies as well as liberalizing the exchange rate, which from the program’s point of view could lead to higher economic growth, reduction in the budget deficit and improvement in the balance of payments.

However, some indicators have only achieved partial progress such as the reduction in the budget deficit. Moreover, this reduction has not been accomplished by increasing revenues but rather through freezing spending, and in particular capital expenditure. As a consequence, the performance of public services has been effected negatively, creating some doubts on some of the preliminary announced results of the program.

In advancing the above argument, the paper adopts the following procedure:

Theoretical analysis based on Harrod and Solo’s growth models.

Analyzing growth rates of GDP, saving and investment during the period 1992-96.

Examining components of economic growth in Yemen in accordance with the previous theoretical analysis.

Specifying policies (monetary, fiscal, investment and external) necessary for the achievement of economic growth.

 

Applying growth models (Harrod and Solo) show that the economy has, during the past five years, achieved negative growth rates, in contrast to what has been officially disclosed, and much lower than the growth targets. Hence, despite the success in attaining economic stability, the economic reform program has failed to reach its main objective of achieving positive growth. This explains that economic policies incorporated in the program were not potent enough to enhance savings and investments.

In retrospect, there is a need to reconsider all policies and to replace these impotent with more effective ones that are capable of achieving real and positive economic growth rates. Also, by replacing traditional policies with nontraditional ones, emphasis should be directed towards establishing a conducive environment for savings and investment. Hence, it is vital to reform the banking and the finance systems, the judiciary system and to encourage the role of market institutions. Without such steps the economy’s growth will remain very slow.