Yemen’s economy could survive without policy adjustments in the short term but falling oil production means the government would have to make economic corrections further down the road, the International Monetary Fund said yesterday.
“The long-term fiscal and external position are clearly unsustainable,” the fund said in an annual review of Yemen’s economy.
Already, there are signs that the economy has shifted into lower gear amid aging large oil fields and no significant new oil finds.
The IMF said gross domestic product growth was expected to have fallen to 2.7 per cent in 2004, versus 3.1 per cent in 2003. Non-oil GDP growth should have reached 4.1 percent last year, due to stronger activity in the construction, transportation and trade sectors, it said.
To maintain the debt-to-GDP ratio at current levels, a budget adjustment of more than 20 per cent of GDP in the non-oil primary fiscal deficit will be needed over the next 12 years, the IMF said.
“To achieve an adjustment of such magnitude, it will require a strong and front-loaded fiscal adjustment, along with a range of structural reforms to help the transition to a non-oil economy,” the fund said.
Some IMF board directors encouraged Yemen to explore the country’s natural gas reserves.