Yemen's foreign debt increased by $135 million by the end of 2009 compared with 2008, while its hard currency reserves decreased by $157 million, according to an official report by the Central Bank of Yemen (CBY).
While economists warn that a decline in foreign currency reserves combined with high debt could lead to major economic damage and eventually bankruptcy of the general budget, government officials insist that Yemen's debt is within safe limits, saying that efficient tax collection and the use of loans for development projects can improve the economic situation.
The CBY report stated that Yemen's foreign debt reached "$6.3 billion as of the end of last year, compared with $5.9 billion in 2008."
It outlined Yemen's debts to international financial institutions: $2.2 billion to the International Finance Corporation, $669 million to the Arab Development Fund, $125 million to the International Fund for Agricultural Development (IFAD) and $199 million to entities not listed in the report. The remaining debt is owed to the International Monetary Fund, the OPEC Fund, the Islamic Bank and the European Union.
Yemen ranked second in terms of debt owed to member states in the Paris Club, amounting to $1.7 billion, of which $1.2 billion is owed to Russia and $270 million to Japan. The rest of the debt is divided among the United States, France, Italy, Spain, Denmark, the Netherlands and Germany.
The country also ranked third in debt owed to non-members in the Paris Club, amounting to $933.5 million, the largest portion of which is owed to the Saudi Fund at $372.4 million, $273 million to China and $137.4 million to the Kuwait Fund. The remaining debt is divided among the Iraq Fund, Algeria, Poland and Korea.
In an interview with Al-Shorfa, Dr. Mohammed Al-Maitami, professor of economics at Sanaa University said, "Yemen's foreign debt comprised nearly 200% of the GDP in 1995, but with the implementation of economic reforms, it fell to less than 50% and now comprises less than 40% of the GDP. This is considered a safe situation according to international standards."
According to Al-Maitami, Yemen's foreign debt does not constitute a burden because it has low, accessible interest and a long grace period. "But the worrisome thing that threatens the national economy," he said, "is the balance of payments, especially as it relates to the major decline in Yemen's foreign exchange reserves in light of the significant fall in oil production."
Oil production declined from 450,000 barrels per day in 2002 to 270,000 last year, along with its drop in price globally.
Al-Maitami also blamed Yemen's debt problems on the imbalance in state revenue collection, especially taxes, as there is "obvious tax evasion," he said. "The state also subsidises oil derivatives by $3 billion a year, placing a great burden on the state budget. Such expenses could cover, to a large extent, the development projects, challenge many of the loans and support Yemen's foreign exchange reserves."
A government official played down the risk of the debt, saying it was still within safe limits.
Ahmed Damim, a Central Bank deputy, said in an interview with Al-Shorfa, "The bank is committed to paying the premiums and interest on this debt as due and in a continuous fashion so that Yemen does not accrue additional interest."
Damim said, "The results of an increasing debt with declining reserves are catastrophic, possibly culminating in bankruptcy, but the foreign currency reserve still exceeds the debt so the situation remains safe."
The solutions that might allow Yemen to emerge from its crises, Damim added, "are wise expenditures and efficient collection of revenues, while improving the efficacy of using loans for development projects, especially those that are highly productive, and that will boost the economy and improve economic indicators in general."
"Yemen is affected by declining oil production and the global fall in prices, but the Ministry of Oil announced the discovery of new oilfields in the eastern region that will ease the burden in general, since Yemen is heavily dependent on oil revenue," he said.