Yemen’s debt at a glance

Business correspondent Faisal Darem breaks down a recent report by the Central Bank of Yemen, detailing the nature of the country’s debt burden

External Yemeni debt increased to $6.29 billion by the end of December 2009, compared to $5.894 billion at the end of December 2008. Yemen’s reserve of foreign currency, consequently, decreased by $1.157 billion over the fiscal year, leaving around $7 billion in 2009, according to an official report issued by the Central Bank of Yemen (CBY).

The report mentioned loans from member states of the Paris Club that exceed $1.7 billion. [The Paris Club is an informal group of financial officials from nineteen of the world’s richest countries, that provides financial services such as debt restructuring, debt relief, and debt cancellation to indebted countries and their creditors.] Of the total debt to the Paris Club countries, $1.212 billion is owed to Russia, $270 million to Japan and the remaining debt is distributed among the US, France, Italy, Spain, Denmark, the Netherlands and Germany.

The Central Bank reported that the debt owed to countries outside of the Paris Club has reached $933 million. This growing figure includes a debt of $372 million owed to Saudi Arabia, $137 million to the Kuwait Fund, and $237 million to China. The remainder of the debt is owed to Korea, Algeria, Poland and the Iraqi Fund.

The Central Bank also reported on the Yemeni debts owed to international development institutions, which stand at $3.154 billion. Yemen owes $2.179 billion to the International Development Authority, $669 million to the Arab Development Fund and $125 million to the International Fund for Agricultural Development. The remainder of the debt is divided among the OPEC Fund, the Islamic Development Bank, the International Monetary Fund, and the European Union.

Professor Mohammed al-Maitami, an economist at Sana’a University, views the current debt levels positively, citing improvements in Yemen’s standing over the last decade. He said that the amount Yemen currently owes other countries equals some 40 percent of its gross domestic product (GDP), whereas the money that Yemen owed foreign countries in 1996 was equal to 200 percent of the country’s GDP. This decrease is a result of the financial policies that the Central Bank of Yemen has rigorously applied, al-Maitami explained.

Al-Maitami said that Yemen’s foreign debt is not a burden because interest levels are very low, with long-term grace periods. However, he expressed concerns about the balance of payments, particularly in relation to Yemen’s diminishing foreign exchange reserves. This is due to the decrease in international oil prices, as well as the significant decline in oil production, from 450 thousand barrels per day in 2002 to 270 thousand in 2009. The decrease of reserves will lead to inflation and economic instability, leading to a decline in investment rates, said al-Maitami.

“We are in error if the government depends on the reserves of oil to protect the value of the rial, especially when we know that Yemen’s oil production declines from day to day,” said al-Maitami. “The government must work on expanding the reach of Yemeni exported products. This in turn will earn hard currency for our country,” he continued. “It must facilitate procedures for investment, create a strong environment to attract investors to Yemen, encourage the productivity of the private sector and remove all obstacles so the private sector can embrace its roles and responsibilities within the economy.”

For his part, Ahmed Dameem, deputy governor of the Central Bank of Yemen, said that debt is still within safe limits and that the bank is committed to paying off the debts as stipulated.