Yemen eyes 8% growth

Yemen's new gas industry and foreign aid will fuel economic growth of up to eight per cent this year, despite insecurity that has helped drive the riyal to its lowest level for years, a senior Central Bank official said.

Fears of economic collapse are misplaced and the Central Bank is ready to sell more dollars to defend the riyal, Ibrahim Al Nahari, Sub-governor for foreign banking operations, said.

"I expect 2010 will be a very good year compared to 2009," he said. "We are hoping to see growth between 7.5 and eight per cent. This is basically attributed to the growth in gas."

Exports from a $4.5 billion (Dh16.51bn) liquefied natural gas (LNG) project began only in October, several months behind schedule, keeping real growth in gross domestic product (GDP) to 4.1 to 4.2 per cent in 2009 against a targeted five per cent, said Nahari.

Oil income, which accounts for up to 75 per cent of budget revenue, plunged to $2bn in 2009 from $4.4bn in the previous year when world prices peaked, he said.

Tourism earnings and remittances from Yemenis working abroad also suffered in the global financial crisis.

But Nahari said revenue would rise this year with oil prices up and LNG exports gradually increasing, while more of the $5bn in foreign aid pledged in 2006 would be disbursed. Yemen's budget is strained by fuel subsidies, especially imported diesel, which cost it more than $2bn in 2009, he said.

The bill for diesel subsidies, a fraught political issue, will be similar in 2010, the finance ministry said.

Nahari said Yemen held foreign reserves of $7bn, equivalent to 10 months of imports, and the Central Bank would sell more dollars if needed to calm jitters about the riyal.

"The volatility is not due to economic factors but due to psychology," he said, blaming "rumours" about economic weakness.

"We will not allow drastic changes in the exchange rate," he said. "If we see any pressure on the exchange rate due to non-economic reasons, then we sell dollars."

Nahari said exchange rate fluctuations had averaged less than two per cent in the past five years.

The government expects inflation to accelerate this year, but hopes to limit the rise to eight or nine per cent, he said.

 

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