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Volume :8 Issue : 32 1982      Add To Cart                                                                    Download

EXTERNAL FINANCE AND THE FUTURE OF ECONOMIC DEVELOPMENT IN THE YEMEN ARAB REPUBLIC

Auther : By: Dr. Abdel-Rahman Zaki Ibrahim

One of the most striking features of Yemen’s economic policy is the increasing dependency on the outside world for financial development plans. The Yemen Arab Republic has received substantial amounts of foreign assistance, most of which was provided in the from of official loans and credits. This may be seen in the findings of the Third-Year Program 1973/74 – 1975/76, and the first five-year plan (1976/77 – 1980/81).

With exports lagging behind the rapid expansion of imports, Yemen Arab Republic’s trade deficit exceeded 7714 million Yemeni Rials in 1979/80 about nine times the average for 1973/74. As a result, the balance of current account, which was in surplus until 1977/78, recorded its first deficit in 1978/79 (YR 291 million) and later rose to YR 567 million in 1979/80. Several reasons lie behind the increasing deficit in both trade balance and current account such as: The sharp rise in import prices, the upsurge in import demand for consumptive purposes, the decrease in export prices, etc. Such deficit, however, is ascribed in the main to the prevailing development strategy, which led to an increasing dependence on external resources for financing investment and consumption expenditures.

The Yemen Arab Republic faces a range of problems stemming essentially from the increasing dependency on the outside world to finance development programs. First: domestic saving has become negative; i.e. total consumption exceeded domestic production. It is estimated that Yemen’s external public debt outstanding on June 30, 1980 was YR 2544 million. Secondly: the problem of inflation which averaged some 30% p.a. in recent years, creates distortions in resource allocation and income distribution and tends to weaken the saving propensity of the private sector. Thirdly: increasing dependence on foreign financing had led to economic and technological subordination.

To overcome these difficulties, great efforts have to be directed towards satisfying the people’s basic needs: food, shelter and social services. In other words it is imperative for the Yemen Arab Republic to divert its development strategy to one of economic self-reliance. In such a strategy, priority should be given to commodity sectors, i.e. agriculture and industry.

In conclusion, a set of recommendations are postulated as follows:

  1. Establishing a central agency to conclude official Loans, to study conditions of new Loans in relation to the national economy and to estimate the optimum volume of indebtedness.
  2. Adopting an effective saving policy to mobilize domestic savings for financing development.
  3. Providing comprehensive measures to avoid excessive inflationary pressures.
  4. Limiting the growing external migration, for the benefit of the Yemeni economy.
  5. Introducing adequate maintenance programmes, and repair facilities for machinery and equipment, if past and future investments are not to be wasted.
  6. Initiating a public sector in agriculture and changing the crop rotation.
  7. Extending enrollment in technical and vocational schools needed by the economy over the next few years.
  8. Reviewing the structure of import duties to protect new industries.
  9. Delimiting clearly the borderline between private sector projects and those of the state.
  10. Designing a national policy for scientific and technological research that goes along with development plans, and exploring simplified forms of project appraisal.

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