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Middle East and Central Asia > Yemen, Republic of

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Cover IMF Working Papers
Are Banks Really Lazy? Evidence from Middle East and North Africa
Mr. Simon T Gray
,
Mr. Philippe D Karam
, and
Ms. Rima A Turk
We investigate whether low loan-to-deposit (LTD) ratios and high levels of reserve balances at the central bank (or holdings of government securities) are a reflection of policy-driven factors compared to commonly cited reasons of reluctance to lend or sometimes weak investment demand in uncertain environments. We examine changes to central bank (CB) balance sheet structures as well as commercial banks’ flow of funds over the period 2007–2012. First, Middle East and North Africa (MENA) CBs play an active role in view of their size that is very large with respect to their economies compared to CBs in advanced economies. Second, under exchange rate targeting, most MENA CB balance sheets are asset-driven, holding foreign exchange (FX) reserves to support the exchange rate policy and resulting in lower loan-to-deposit (LTD) ratios in the case of unsterilized increases in FX. Third, CB policy decisions seem to be accompanied by an increase in commercial bank reserve money balances, with ensuing reduction in the LTD. Finally, if governments meet their financing needs from the banking system—whether from commercial banks or by monetary financing—commercial bank balance sheets will tend to expand, resulting in lower LTD ratios. Our analysis suggests that government and CB actions may also drive the demand for and supply of credit, which are traditionally attributed to the behavior of banks and non-financial corporates and households only. The findings offer a different interpretation of changes in CB and banks’ balance sheets, with direct implications for LTD, calling to exercise caution in recommending policy action which aim at propping up LTD to ‘appropriate’ levels in an effort to reinvigorate credit following a downturn.
Keywords:
WP; Ltd ratio; balance sheet structure; CB action; asset purchase; CB financing; FX reserve; MENA; central banks; banks; credit; a number of AE CBs; CB bill; CB asset; credit growth; Commercial banks; Financial statements; Bank credit; Global
Cover Departmental Papers
Toward New Horizons: Arab Economic Transformation amid Political Transition
Mr. Harald Finger
and
Ms. Daniela Gressani

The changing political landscape in the Arab world has created opportunities for economic transformation by tackling long-standing economic issues. Nevertheless, three years after the onset of political transition, implementing necessary economic policies has proven to be challenging. This paper lays out key elements of economic policy reform for Arab countries in transition.

Keywords:
DPPP; DP; exchange rate; labor market; private sector; central bank; job creation; monetary policy; Exchange rate flexibility; Employment; Global; North Africa; East Asia; Europe; Central and Eastern Europe
Cover IMF Research Bulletin
IMF Research Bulletin June 2013
The June issue of the IMF Research Bulletin looks at the role of IMF programs and capacity building in fostering structural reforms and the economics of Arab countries undergoing political transitions. The Q&A analyzes the neutral interest rate through the experiences of several Latin American countries. The Research Bulletin also includes its regular features: a listing of IMF Working Papers and Staff Discussion Notes, information on the forthcoming IMF Economic Review and the Fourteenth Jacques Polack Annual Research Conference, and recommended readings from IMF Publications.
Keywords:
IRB; conference program; IMF research bulletin; journal website; author guideline; pricing information; policy option; Real interest rates; Structural reforms; Central bank policy rate; Current account deficits; Exchange rate flexibility; Global; Central and Eastern Europe; Southern Africa; Caribbean
Cover IMF Working Papers
The Economics of Political Transitions: Implications for the Arab Spring
Padamja Khandelwal
and
Agustin Roitman
Over the past two years, ongoing political transitions in many Arab countries have led to social unrest and an economic downturn. This paper examines comparable historical episodes of political instability to derive implications for the near- and medium-term economic outlook in the Arab countries in transition. In general, past episodes of political instability were characterized by a sharp deterioration in macroeconomic outcomes and a sluggish recovery over the medium term. Recent economic developments in the Arab countries in transition seem to be unfolding along similar lines, although the weak external environment and large fiscal vulnerabilities could result in a prolonged slump.
Keywords:
WP; current account; government; deficit; IMF staff projection; Economic growth; political instability; Arab Countries in Transition; Arab Spring; government crisis; PI episode; E. exchange rates; regime change; country indices; inflation development; current account balance; currency depreciation; Fiscal stance; Inflation; Exchange rate flexibility; Current account deficits; Real effective exchange rates; Global; Africa; Eastern Europe
Cover IMF Staff Country Reports
Republic of Yemen: Request for a Three-Year Arrangement Under the Extended Credit Facility-Staff Report; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Yemen.
International Monetary Fund
Yemen is confronted with a range of difficult economic challenges. The reduction in oil revenues in the past year has affected the Yemeni economy through a set of direct and indirect channels. The loss of oil revenue contributed to a record fiscal deficit of about 10 percent of GDP in 2009, financed in large part by the central bank. The balance of payments was also put under considerable strain. The identified measures are home-grown and designed to have a long-lasting impact on the structure of the budget.
Keywords:
ISCR; CR; equivalent to SDR; disbursement equivalent; public finance; priority reform; tax policy reform; exchange rate pressure; U.S. dollar; balance of payments; current account; broad money; Currencies; Fuel prices; Middle East; Global
Cover IMF Working Papers
Inflation Dynamics in Yemen: An Empirical Analysis
Abdullah Almounsor
Yemen has had a high and volatile rate of inflation in recent years. This paper studies the underlying determinants of inflation dynamics in Yemen using three different approaches: (i) a single equation model, (ii) a Structural Vector Autoregression Model, and (iii) a Vector Error Correction Model. The outcomes suggest that inflation dynamics in Yemen are driven by international price shocks, exchange rate depreciation, domestic demand shocks, and monetary innovations. The impact of international prices and exchange rate depreciation indicate a significant pass-through of import prices. In the short run, external shocks of international prices and the exchange rate account for most variations in inflation, but domestic shocks to money supply and domestic demand explain larger variations in the medium term.
Keywords:
WP; demand-pull inflation; inflation dynamics; Inflation; pass-through; domestic demand; and money supply; inflation response; inflation elasticity; variance inflation; inflation variation; inflation shock; inflation in Yemen; Monetary base; Exchange rates; Vector error correction models; Structural vector autoregression
Cover IMF Staff Country Reports
Republic of Yemen: 2008 Article IV Consultation: Staff Report; Staff Statement and Supplement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for the Republic of Yemen
International Monetary Fund
Recent economic performance in Yemen has been mixed. A sharp decline in oil production, coupled with inflexible government expenditure and only marginal improvement in the tax-to-GDP ratio led to an overall fiscal deficit of 5.8 percent in 2007. Executive Directors have noted that Yemen’s non-oil GDP growth has been solid in recent years, and progress has been made on a number of structural reforms. Directors have welcomed the authorities’ commitment to reduce expenditure in the event that oil prices remain below the benchmark price in the 2009 budget.
Keywords:
ISCR; CR; WEO oil price baseline; adjustment scenario; debt; deficit; oil; oil price; staff appraisal; private sector credit growth; staff projection; Oil prices; Inflation; Global
Cover IMF Working Papers
Yemen: Exchange Rate Policy in the Face of Dwindling Oil Exports
Todd Schneider
,
Nabil Ben Ltaifa
,
Mr. Faisal Ahmed
, and
Mr. Saade Chami
This paper investigates the likely implications of declining oil production on Yemen's equilibrium exchange rate, and discusses policy options to ensure a smooth transition to a nonoil economy. The empirical results suggest that, as oil production and foreign exchange earnings fall, the Yemeni rial will have to adjust downward in real effective terms to keep pace with the equilibrium exchange rate. In light of strong pass-through from exchange rate depreciation to domestic inflation, this could entail a substantial depreciation in nominal terms. Given the nature of the adjustment, a floating exchange rate regime appears to be the best option, if supported by appropriate macroeconomic policies. However, given public fixation on a exchange rate stability, a softly managed float would be a better option for Yemen whereby the central bank may have to lead the market toward the equilibrium exchange rate.
Keywords:
WP; exchange rate; crawling peg; Yemen; depreciation; Exchange rates; adjustment process; oil; equilibrium exchange rate; exchange rate depreciation; regime in the form; developments in Yemen; crawling peg exchange regime; exchange rate development; band in an effort; nominal exchange rate; real effective exchange rate; exchange rate pass-through effect; exchange rate band; crawling peg regime; Real exchange rates; Real effective exchange rates; Oil production; Exchange rate arrangements; Africa; Global
Cover IMF Working Papers
What Are the Potential Economic Benefits of Enlarging the Gulf Cooperation Council?
Mr. Selim A Elekdag
,
Mr. Saade Chami
, and
Mr. Ivan Tchakarov
This paper uses a variant of the IMF's Global Economy Model (GEM) to estimate the macroeconomic effects of Yemen's full accession into the Gulf Cooperation Council (GCC). After calibrating the model to Yemen and the GCC countries, several simulations were carried out to estimate the potential impact of economic integration on both. The paper draws two fundamental conclusions. First, further steps in regional integration would enhance competition and produce large economic benefits for both Yemen and the GCC countries. In particular, we show that in some cases economic integration could increase GDP in Yemen by as much as 18 percent and in the GCC by as much as 20 percent over the long run. Second, even if market structures do not improve substantially, GCC enlargement can still generate substantial spillover gains with consumption increasing by up to 7 percent in Yemen and 8 percent in the GCC, respectively.
Keywords:
WP; GCC country; GCC; labor market; regional integration; competition; IMF’s Global Economy Model (GEM); goods market; Yemeni product markets; GCC enlargement; GCC member; GCC Labor; GCC block; market power; Labor markets; Consumption; Real exchange rates; Commodity markets; Global
Cover Yemen in the 1990s
Yemen in the 1990s
From Unification to Economic Reform
Ms. Nada Choueiri
,
Mr. Klaus-Stefan Enders
,
Mr. Yuri V Sobolev
,
Mr. Jan Walliser
, and
Mr. Sherwyn Williams

Abstract

The 1990s saw the unification of the two Yemens into one nation and a burgeoning of the country's oil sector. This paper examines the structural changes in the Yemeni economy brought about by these and other developments and identifies the reforms needed to move the country toward rapid and sustainable growth, effectively manage its oil wealth, and reduce the widespread poverty. The paper addresses the issue of poverty reduction by providing background and drawing lessons from Yemen's adjustment experience to date.

Keywords:
OP; government; Yemen; policy; pins government policy; economic reform program; adjustment experience; oil sector development; employee pension plan; benefit rule; Oil; Oil prices; Commercial banks; Middle East; East Africa; North Africa; Europe; Asia and Pacific