Report No. 2856-YAR FILE P Y Yemen Arab Republic FIL C Economic Memorandum October 23, 1980 Country Programs Department 1 Europe, Middle East and North Africa Region FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit: Yemeni Rial (YR) YR1 = 100 Fils Currency Equivalent 1/: YR1 = US$0.22 US$1 = YR 4.50 Fiscal Year: July 1 to June 30 11 No par value for the Yemen Rial has yet been declared to the IMF. Exchange transactions are effected at the Central Bank rate which has been pegged to the US dollar since February 1973. FOR OMCIAL USE ONLY YEMEN ARAB REPUBLIC: ECONOMIC MEMORANDUM TABLE OF CONTENTS Page No. BASIC DATA ....................................................... MAP .............................................................. INTRODUCTION ..................................................... 1 GROWTH OF THE ECONOMY AND OF INCOMES ............................. 2 INVESTMENT AND ITS FINANCING ..................................... 3 MANPOWER CONSTRAINT .............................................. 6 DEVELOPMENT OF MAJOR SECTORS ..................................... 7 PUBLIC FINANCE ................................................... 12 MONEY, CREDIT, PRICES ............................................ 14 BALANCE OF PAYMENTS .............................................. 15 OUTLOOK .......................................................... 19 STATISTICAL APPENDIX ............................................. 21 This report was prepared by Mr. S. Rangachar (economist) following a mission, headed by Mr. A. Bouhabib, which visited the Yemen Arab Republic in the first half of November 1979. The draft of this report was discussed with the Government in April 1980. This document has a restricted dsuirbuion and fmy be used by recpients ony in the purfwn e i( their ofricial duties. Its wnest nmay not otherwise be discod wthout World Bank authoniatni. Page 1 of 2 BASIC DATA AREA POPULATION DENSITY (1979) 195,000 sq. km. 5.8 million (end 1979) 30 per sq. km. Rate of Growth: 2.9 percent POPULATION CHARACTERISTICS (1978) HEALTH (1978/79) Crude birth rate (per 1,000) 48 Population per Physician 12,510 Crude death rate (per 1,000) 25 Population per hospital bed 2,065 ACCESS TO SAFE WATER (1977) ACCESS TO ELECTRICITY (1977) Occupied dwellings without Z of urban population 57 a safe water (%) 96 NUTRITION (1977) EDUCATION (1977) Calorie intake as percent Adult literacy rate percent 13 of requirements 91 Primary school enrollment percent 26 Per capita protein intake (grams/day) 68 GNP PER CAPITA IN 1977/78 $ 410 1 NATIONAL ACCOUNTS (US$ Mln) (1978/79 Prices) ANNUAL RATE OF GROWTH (Constant prices) 1978/79 2/ FY73-79 GNP at Market Prices 3,810 13 GDP at Market Prices 2,800 10 Gross Domestic Investments 900 33 Gross National Savings 524 27 Exports of GNFS 107 10 Imports of GNFS 1,490 28 GOVERNMENT PINANCE (YRIs Mln) % of GNP 1975/76 1976/77 1977/78 1978/79 1978/79 Current Revenue 605 1,293 1,985 2,188 13 Current Expenditure 617 841 1,250 1,840 11 Current Deficit/Surplus -12 452 735 348 2 Capital Expenditure 361 603 1,167 2,670 16 External Assistance, Net 635 606 697 1,904 11 MONEY CREDIT AND PRICES i---YRs Million Outstanding End Period---------- Money Supply 2,509 4,370 6,205. 7,583 Bank Credit to Govt. Sector, net -407 -939 -990 -609 Bank Credit to Non-Govt. Sector 566 1,474 1,555 2,199 ----- …-- ----------- Percentages --- Annual Percentage Increase in: Money Supply 120 74 42 22 Consumer Price Index 17 24 19 22 1/ calculated by the World Bank Atlas conversion technique. All other conversions to dollars in this table are at the average exchange rate prevailing during the period covered. 2/ Tentative World Bank estimates' Page 2 of 2 BALANCE OF PAYMENTS (US$ Mln) 1972/73 1975/76 1976/77 1977/78 1978/79 Exports of Goods, fob 7 12 19 7 3 Imports of Goods, cif 120 382 730 906 -1,405 Trade Balance -113 -370 -711 -899 -1,402 Non Factor Services, Net -11 21 -10 2 19 Factor Income, Net 105 479 896 1,160 1,007 Workers' Remittances, Net (102) (457) (842) (1,090) (898) Investment Income, Net (3) (22) (54) (70) (109) Balance on Current Account -19 130 175 240 -376 M & LT Capital, Net 22 153 146 165 435 Official Grants, Net 14 114 104 103 312 Official Loans, Net 8 39 42 62 123 Disbursements (12) (42) (46) (68) (133) Repayments (-4) (-3) (-4) (-6) (-10) Other Capital (including errors and omissions), Net 25 -11 133 -32 144 Increase in Reserves (-) -28 -272 -454 -373 -203 Gross Reserves (end FY) 65 520 974 1,347 1,550 MERCHANDISE EXPORTS (Average 1976/77-1978/79) EXTERNAL PUBLIC DEBT, JUNE 30, 1979 US$ Mln. Total Commitments 1,075 Cotton & Cotton Products 2 Of which Disbursed 543 Coffee 5 Hides & Skins 16 Biscuits & Confectionary 20 All other Commodities 57 100 DEBT SERVICE RATIO FOR 1978/79; 1.7 1/ 1/ Includes workers' remittances. >_____ _ 5 0 ' __ __rB_ IRD 13492R _;X- 1 ' ' a _ "Al 9tt S A U D I A R A B I .A 'z'l, ' 7 SAUDI ARABIA\YEMEN ARAB REPUBLIC 6<9R \\5 ',^i.t HAHRAP4 PHYSICAL REGIONS & HYDROGRAPHY ELEVATION - GEOGRAPH C REGIONS - NAJPAN\ r 0-2CC Meters Trh-ma Coasta L-w1n,ds RUSE -- _,RRMR5A X' RER 1800-3 2001O0 Mers \stern and Eastern Slopes A- R Vic RA P 9IRMR >> ta ~~~~~~~~~~~~~~~~~~~~~~~~~~~800 - 3000 rAnters, Ceer-a High -nds EtiORiR SOrREL Rov~~~~~~~~~~~~~~~~~Pced P-irroy Roads Porimry Roads Under COnStR,ction ___________________________________ \__ _ --JUOtnhe Roads JIZAN~- 0 * Weoher Stations A A ports o Cities Tans ann Villages 1 1* Nsat -nal Capitals RE RAT H MI O Wad I /- -c aF RoADrN / - erete-t ana Joundaries . Watersheds 40 A sO 80 1,00 C 20 40 n M LES MAR E MOCEHAA ' TOHAI Rnt I '- AHAMN KS ~ ~ SOWI / GO4F ~~~~~~~~~~~~~~~~ ROE/V~~~ YEM /~~~~OH DJiBOJTI~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~L /~~~~~~~~~~~~~~~~~E E T H I 0 P I A~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~R YEMEN ARAB REPUBLIC ECONOMIC MEMORANDUM Introduction 1. Fuelled by high workers' remittances and growing amounts of foreign assistance the economy of the Yemen Arab Republic (YAR) continues to expand at a vigorous pace. Real GDP is estimated to have grown at about 10 percent per annum in recent years, supported by high levels of investment and imports. Private sector activity has been particularly strong, primarily in trade, construction, manufacturing and modern agriculture. But the public sector has also been expanding, providing urgently required infrastructure, institutional support and public services. Remarkably, development has not been restricted to urban areas and their vicinity, but has been spreading rapidly throughout the rural areas which still dominate YAR's economic and social structure. This has essentially been the result of local initiatives--institutionalized in the form of Local Development Associations--and the availability of private investment funds from workers' remittances. 2. Economic growth and remittances from abroad have brought some measure of prosperity and higher living standards to most people in YAR. Nevertheless, productivity levels are still very low and public services so far reach only a fraction of the population. In terms of real output per capita and of physical infrastructure YAR remains one of the world's least developed countries, and it is likely to stay in this category for many years to come. 3. This memorandum reviews recent economic developments in YAR. It also analyzes some of the constraining factors which have become more pro- nounced as the economy expanded and which will have to be eased to maintain the momentum of development. The most important of present constraints is a severe shortage of skilled labor now being felt in all sectors and in most regions of the country. Another serious constraint is created by the limited capacity of the public administration which faces qualified staff shortages and a fast growing work load. Limited water resources and unfavorable topo- graphic conditions add to the difficulties under which development has to take place in YAR. On the financial side, high rates of inflation, a narrow tax base, and emerging balance of payments deficits present serious challenges to the authorities. 4. Considerable progress has been made in recent years to establish a statistical basis for analyzing economic and social changes in YAR. Thus, the first population census was conducted in early 1975, and financial accounts on the government budget and the balance of payments are prepared regularly. However, many statistics such as the national accounts, agricultural produc- tion data, or information on labor migration, to mention only a few important ones, still contain large margins of error. The Government has recently com- pleted limited surveys of consumer expenditures, of fertility and of manpower. An education survey is underway. There are plans to conduct an agricultural - 2 - census and another one on manufacturing. More extensive surveys are also planned for manpower and household expenditures. In addition, there are plans for strengthening the national accounts and price statistics. These improve- ments in YAR's statistical system, once completed, would allow more refined analyses of economic and social trends. Growth of the Economy and of Incomes 5. During the past three years (1976/77 to 1978/79), GDP in real terms is estimated to have grown by over 10 percent p.a. 1/ surpassing the 8 percent target set for the current plan period 1976/77-1980/81. The high rate of growth was mainly due to the rapid expansion of the non-agricultural sectors, viz construction and manufacturing, foreign and domestic trade, government services, transportation and finance. Output from agriculture, the major commodity producing sector of the economy, has grown at much slower rates. Strong consumer demand, a major housing boom, and fast growing investment by the public sector and private enterprises were the principal factors respon- sible for the high level of economic activity. Agricultural production, on the other hand, was constrained by unfavorable price/cost relations and the continued labor emigration from rural areas to urban centers and neighboring countries. Table 1: ANNUAL GROWTH RATES OF GDP (In percent; at 1975/76 Prices) Average Annual Plan Targets 1976/77 1977/78 1978/79 1976/77-1978/79 1976/77-1980/81 GDP 11 12 9 10 8 Of which: Agriculture -6 10 6 3 6 Industry 22 17 10 16 12 Construction 61 20 10 29 14 Trade 29 10 13 17 10 Transport 14 15 6 12 11 Finance 35 3 6 14 10 Government 17 13 6 12 10 Housing 6 27 10 14 4 Other Services 9 9 9 3 8 6. With workers' remittances of over $1 billion in 1977/78, YAR's per capita GNP reached a level of approximately $410 in that year. 2/ 1/ Estimates of GDP growth over the past few years are likely to undergo revision by the Government as they are believed to overstate the actual growth achieved in certain sectors. 2/ Current prices, using the Bank Atlas methodology of computing per capita GNP. -3- While this reflects the impressive improvements made in the average standard of living of the Yemenis--most of whom were at the subsistence level less than 10 years ago--it has to be pointed out that about 40 percent of the GNP repre- sents income earned abroad, mostly workers' remittances. Domestic production levels on the other hand, are still very low notwithstanding recent high growth rates of GDP. In addition, as the following table shows, YAR's social infra- structure is still very underdeveloped justifying the country's classification as one of the world's least developed nations. Table 2: INDICATORS OF SOCIAL DEVELOPMENT Employment in Agriculture (%) -1979 76 Adult Illiteracy (%) -1977 87 Primary School Enrollment (%) -1977 26 Population per Physician (1,000) -1978/79 13 Life Expectancy at Birth (years) -1978 39 Access to Safe Water (% of dwellings) -1977 4 Access to Electricity (urban only) (%)-1977 57 7. The absence of reliable data on income distribution and household expenditures make it difficult to say with any certainty which population groups are benefitting from higher incomes. There are, however, indications that recent income gains have been widely distributed. One important factor in this context is the impact of remittances which are going mostly to rural areas. Strong family ties ensure that many people benefit from these income transfers. In addition, the vigorous expansion of modern sectors is providing increasing employment opportunities especially in and around urban areas. Together with labor scarcities enhanced by emigration this has caused wages to rise sharply even in remote villages. More recently, the Government has also taken steps to strengthen the position of sharecroppers vis-a-vis that of land owners. Investment and its Financing 8. A major factor in stimulating the rapid expansion of the economy over the first three years of the present plan period was the sharp rise in investment. Gross fixed capital formation at constant 1975/76 prices is estimated to have grown by about 87 percent in 1976/77 and another 14 percent in 1977/78. There was also a considerable accumulation of stocks. Although * data for 1978/79 are not yet available there are indications that real invest- ment continued to rise in that year. The overall investment ratio was about 23 percent of GNP in 1977/78. Table 3: GROSS FIXED CAPITAL FORMATION Annual Average Increase (%) 1975/76 1976/77 1977/78 Actual Plan Target (YR Million, 1975/76 Prices) 76/77-77/78 76/77-80/81 Private Sector 519 1,142 1,208 53 30 Public Sector 254 305 444 32 70 Total GFCF 773 1,447 1,652 46 48 Housing 286 590 716 58 32 Transport 232 471 492 46 50 Industry 61 209 189 75 86 Agriculture 106 76 157 22 52 Other 88 101 98 6 9. The bulk of investments was undertaken by the private sector, mainly for housing, transport equipment, industrial plants and service facilities. Public sector investments--mostly in infrastructure--were also substantial and growing, although at a slower pace than private investments. 10. Residential buildings were the most important investment item accounting for over 40 percent of total fixed capital formation in 1976/77 and 1977/78. Transport and communications were second in importance, representing approximately one-third of the total. Investments in industry are still rela- tively small but showed the highest growth rates of all sectors. Agricultural investment, on the other hand, appears to have lagged behind. 11. Overall targets of the investment program were broadly achieved during the first two years of the current Five-Year Plan. However, there were problems in implementing some sectoral targets particularly in the field of agriculture and industry. Most of these problems were experienced by the public sector reflecting absorptive capacity and manpower constraints. An example is the cement project in Amran which was delayed by about two years mainly due to cumbersome administrative procedures. In agriculture, difficul- ties in land acquisition have delayed the implementation of some projects. Actual public investments fell therefore short of the planned targets reaching approximately 61 percent of the goal in 1976/77, and 86 percent in 1977/78. Private investments, on the other hand, exceeded the overall plan targets by a substantial margin, especially in the housing sector. - 5- Table 4: IMPLEMENTATION OF PUBLIC INVESTMENT PROGRAM (In percent) Implementation Rates - 1976/77 1977/78 Agriculture 34 41 Industry 51 22 Transport 41 137 Education 37 88 Others 83 114 Total 61 86 /a Actual expenditures as percent of plan targets. 12. Surprisingly large investments were also undertaken in rural areas, largely under the direction of Local Development Associations (LDAs). 1/ The bulk of these investments went into the construction of rural access roads, connecting outlying villages with the main trunk road network built and maintained by the central government. In addition, the LDA's built local water supply systems, schools and health centers. These investments were undertaken with limited financial and technical assistance from the central government, relying largely on local initiative and resources including voluntary labor. The overall volume has been large in recent years, although precise data are not available. Tentative estimates suggest that during 1976/77 and 1977/78 alone, LDA's completed approximately 6,500 km of rural roads, about 650 water supply systems, 350 schools and 30 health centers. 13. The bulk of past investment in YAR has been financed from domestic resources (see Table 5). This is certainly true for the private sector where investments are usually funded either directly from profits and workers' remittances or indirectly through loans from domestic banks. More recently, government sponsored specialized banks 2/--for agriculture, industry, housing and LDAs--have assumed an increasingly active role in private investment financing. LDAs rely mostly on voluntary contributions from community members either in the form of money (usually derived from remittances) or labor. Only the central government uses large amounts of foreign aid to finance its development expenditures. But even here the contribution of budgetary savings to investment financing has been very substantial in recent years. 1/ LDAs are regional self governing bodies which had been established since 1963 to promote local development projects. 2/ So far capital subscription for these banks have amounted to YR 300 million. Table 5: FINANCING OF INVESTMENT (YR Million, Current Prices) 1975/76 1976/77 1977/78 Gross Fixed Capital Formation /a 773 2,016 2,741 Of which: Private Sector 519 1,612 2,031 Financed from: Own Resources 90% 94% 98% Local Banks 10% 6% 2% Public Sector 254 404 710 Financed from: Budget Resources 47% 59% 71% Foreign Aid 53% 41% 29% Local Development Associations /b 150 300 500 Financed from: Voluntary Contributions 80% 80% 80% Local Taxes 20% 20% 20% /a Excluding Local Development Associations. /b Rough estimates. Manpower Constraint 14. Manpower shortages constitute a major constraint to the economic and social development of YAR. The main problem is that the majority of the working-age population possess skills that are limited to traditional agricul- ture and handicraft. This makes it difficult to meet the fast growing domestic labor demand which emanates chiefly from the modern sectors. Large scale migration of Yemenis abroad has further aggravated the shortage in both skilled as well as unskilled categories. 15. In order to alleviate the labor shortages which prevail in urban as well as rural areas, the Government has recently stepped up its efforts to recruit labor abroad. It is estimated that in early 1980 more than 17,000 foreigners worked in YAR, of which some 6,000 were employed by the public sector, and about 11,000 by private enterprises. The bulk of these expa- triates are professionals or skilled technicians who supplement the still very limited number of skilled Yemeni labor. However, in some cases employers in YAR have started to import even unskilled labor. 16. The Government has also made attempts to restrict emigration of Yemenis to neighboring countries. These efforts have, however, met with little success largely because policing of such rules is difficult and no restrictions are imposed by the recipient countries. Much more important, especially in the longer run, are government programs to provide education and technical training to the local population. The progress made in this respect and the problems encountered, are discussed later in this report (paragraphs 31/32). 17. There is also need for more effective manpower planning. As a first step one would have to strengthen the data base gathering more reliable in- formation or labor demand, employment, skill distribution, migration pattern, etc. This would allow more rigorous analyses of the labor market identifying supply shortages and possible misallocation of scarce manpower. Combined with agricultural and industrial censuses this would enable the Government to formulate effective programs and policies designed to ease existing labor constraints by increasing labor productivity through training and determining the incentives required to channel scarce skills into the most productive uses. Development of Major Sectors 18. Agriculture remains the single most important sector of the YAR economy employing about three-quarters of the domestic labor force and con- tributing approximately 35-40 percent to the country's GDP. Investment projects in this sector have been undertaken with assistance of a wide range of bilateral and multilateral donors including IDA. In recent years, however, agricultural production appears to have increased slowly. Together with the continued rapid growth of other sectors--especially trade, transport and industry--this has reduced the share of agriculture in the gross domestic product. 19. Even though agricultural statistics are rather weak, two major trends in agricultural output can be identified: a decline in the production of low-value traditional crops offset by an increase in the production of high-value modern crops. Traditional crops consist mainly of grains--sorghum, millet, barley--used for human consumption and animal feed, and grown mainly on rainfed land. They are subject to wide annual fluctuations; this is essen- tially the result of changes in rainfall. Yet, in recent years the production of these crops seems to have declined more than usual reflecting shifts in consumer demand and the growing labor constraint. - 8- Table 6: PRODUCTION OF MAJOR CROPS (In 1,000 tons) 1971/72 1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 I978/79 Traditional Crops SorSkuaj Millets 627 809 639- 1,008 859 660 641 686 Barley 140 120 85 80 75 54 50 54 Modern Crops Vegetables 137 150 150 168 183 210 226 230 Potatoes 58 64 64 71 76 100 107 116 Fruits 62 95 91 100 107 119 122 122 Cotton 15 19 20 27 14 5 4 5 20. Modern crops--mainly vegetables and fruits--have been expanding rapidly during the early and mid 1970s. They are grown mostly on irrigated land which is gradually expanding, and have benefitted from a strong surge in consumer demand. However, during the late 1970s labor shortages appear to have slowed down production even in the modern sector. 21. Cotton is the only modern crop that has declined sharply since the mid 1970s. High labor cost and declining export prices have made cotton unprofitable for most farmers. 22. An assessment of agricultural performance would be incomplete without considering qat, a mildly narcotic plant which has become the most important cash crop in YAR. Like coffee or tobacco, it has no nutritional value but is widely consumed by the local people who enjoy its mind relaxing properties. High prices and low production cost have made qat perhaps the most profitable crop in the country. Supported by a very efficient marketing organization this crop demonstrates convincingly how "uneducated" farmers adjust quickly to incentives and market opportunities. Although there are no official estimates of production, it can be assumed that its market value exceeds by far that of any other cash crop in YAR. This suggests that agri- cultural incomes including those derived from qat, are substantially higher than shown in the national accounts. 23. YAR's industrial base is still very small having started only in the early 1970s. Despite limiting factors such as the small size of the domestic market, scarcity of industrial raw materials, shortage and high cost of labor, the country has managed to establish a number of manufacturing plants mainly in food processing, construction materials, textiles, metal and wood working. No current data on industrial activity is available, but the first industrial census is planned for later this year. Selective production indicators suggest a rapid increase of output in most branches except textiles where the largest establishment--a government-owned plant located in Sana'a--has been plagued by technical problems and marketing difficulties. Table 7: PRODUCTION OF MAIN INDUSTRIES Fiscal Years Ending June 30 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 Cotton Textiles (million yards) 11 12 9 6 4 8 Biscuits (tons) /a 3,247 3,247 2,771 5,338 .. 18,189 Sweets (tons) /a 3,985 3,985 691 5,049 .. 8,000 Soft Drinks (million bottles) 20 20 24 49 504 504 Paints (thousand gallons) 44 44 60 76 90 90 Cement (thousand tons) 50 50 66 61 60 69 Aluminum Products (tons) 140 200 200 192 1,450 1,450 Electricity (million kWh) 22 29 32 40 65 150 /a Calendar years. 24. Industrial development in YAR has been taking place without much protection from imports, taking advantage of investment incentives provided by the government, of transport cost differentials and special characteristics of the local market. It is largely undertaken by the private sector with the Government participating only in those investments that are too large for private entrepreneurs to finance. The Government is promoting joint ventures between the public and the private sector, including foreign private capital. It has also set up an industrial estate in Sana'a with IDA assistance to relocate and support small and medium scale manufacturers and in 1976, it has created the Industrial Bank of Yemen which started operations in early 1978. Among the major new investments currently under way is a cement plant (500,000 tons capacity p.a.) being built in Amran, the expansion of the Bajil cement factory to 250,000 tons p.a., two new soft drink factories, poultry farms and the rehabilitation of the government owned textile factory. 25. The rapid increase in the volume of private and public investment (see para. 8) has led to the present boom in the construction sector. Although statistical data are even scarcer than for the manufacturing sector, it can be assumed that construction is at present the largest industry in YAR employing perhaps up to 70,000 workers. The sector's output has apparently grown very fast in recent years as indicated by the sharp rise of residential construction licenses (see Annex Table 8.1) and of cement imports (Annex Table 3.4). 26. Much of the ongoing construction is being undertaken by local firms, most of them being rather small in size. After severe teething troubles during the mid 1970s the large local establishments (with up to 1,000 employees) have now become more efficient and are gradually adopting modern construction tech- niques. Larger civil works contracts are carried out in cooperation with foreign firms or by foreign contractors alone. - 10 - 27. The spectacular growth of imports and domestic trade during the 1970s has been accompanied by a strengthening of YAR's transport network, viz. roads, ports and airports. Initially, the Government concentrated on build- ing the main trunk road network connecting the country's three main cities: Sana'a, Taiz and Hodeidah. This road triangle is now all paved and reasonably well maintained. More recently, trunk roads have been built or are under construction in the less populated regions to the North and East of the country. Most of these projects are being financed with bilateral and multi- lateral assistance including that of IDA. 28. At the same time, many rural access roads are being built by Local Development Associations to connect villages and towns with the main highway network (see para. 12). Most of these rural roads are being constructed in local self-help, and the quality of their design and construction is generally poor. This reduces their average life span, and substantially increases maintenance costs. The rapid expansion of the road network is matched by the large and growing volume of road vehicle imports which rose from $16 million in 1974/75 to $182 million in 1978/79. In addition, a sizable number of cars and trucks is being smuggled into the country over poorly controlled land borders. 29. Limited port facilities led to severe congestion during 1976 and 1977, causing ship waiting periods of up to 150 days. This bottleneck has meanwhile been overcome through improvements in YAR's major port of Hodeidah, the setting up of a floating jetty at Ras Al-Kateeb, and the expanded use of port facilities at Salif and Mocha. Some of these facilities are, however, temporary in nature and need to be replaced by permanent structures. The ongoing project assisted by the Kuwait Fund and IDA to modernize and expand the port of Hodeidah is designed to strengthen YAR's port capacities in the longer run. 30. Airport facilities have also been greatly improved in recent years. The international airport at Sana'a has recently been equipped for night traffic, and its air terminal and parking apron have been expanded with bilateral assistance. Hodeidah's airport has been completely rebuilt and was opened to international traffic in late 1979. The airport at Taiz has been modernized and will be further expanded in the future. Yemen Airways, the national airline, has sold 49 percent of its shares to Saudi Arabia forming a joint company with a greatly increased capital base. New equipment has been purchased and additional routes have been started to Arab countries and to Europe. 31. A major effort has been made by the Government to expand the educa- tional system during the past decade with assistance from bilateral and multilateral donors including IDA. A large number of schools were built, including technical schools and the University of Sana'a. The number of teachers was greatly increased (including many expatriates), curricula were modernized, and local teacher training was expanded. This has led to great improvement of both quality and quantity of educational services provided. The result of this effort is illustrated by the following table. - 11 - Table 8: EDUCATION INDICATORS AND TARGETS OF FIVE-YEAR PLAN Actual Plan Target Enrollments in 1969/70 1975/76 1978/79 1980/81 ------------In Thousand------------- Primary Schools 72.1 252.7 252.6 426.9 Adult Literacy Program -- 5.7 10.0 28.9 General Preparatory Schools 3.1 15.6 18.9 40.3 General Secondary Schools 0.9 6.1 7.2 15.5 Teacher Training 0.5 1.4 0.4 4.6 Vocational & Technical Schools 0.1 0.5 0.6 3.0 University of Sana'a -- 2.3 3.3 8.0 32. Over the last two to three years, however, the increse in enroll- ments has slowed down, and in some instances, student numbers have declined. This seems to be less the result of physical constraints--even though some schools are overcrowded--but rather due to a growing shortage of teachers. Low wages in relation to alternative employment opportunities, and difficulties in the supply of adequate housing have made the teaching profession increasingly unattractive. This is particularly the case in rural areas where a number of school buildings are underutilized or even empty for want of teaching staff. Another important reason for the apparent slowdown in student numbers is the general shortage of labor in YAR which provides strong incentives to teenage students to quit school and enter the labor market where attractive wages are offered even for under-age workers. These constraints make it all but impossible to reach the educational targets set by the 5-year plan. 33. Despite improvements during the 1970s, health conditions in YAR are still very poor. This is clearly reflected by the present high death rate of about 25 per thousand inhabitants; the low life expectancy at birth which averages 39 years; and the high infant mortality rate of 24 percent. Lack of personal hygiene, inadequate nutrition and shortages of modern health facilities are the main reasons for the low standard of public health in the country. - 12 - Table 9: PUBLIC HEALTH INDICATORS Total Number Population Per No. 1970/71 1978/79 1970/71 1978/79 Physicians 184 462 26,630 12,510 Local 102 292 Foreign 82 170 Medical Assistants 643 1,407 7,620 4,108 Local 601 1,107 Foreign 42 300 Hospital Beds 3,317 2,799 1,477 2,065 34. The Government is making strenuous efforts to strengthen modern health services in the country. Thus, during the present plan period more than 1,100 medical assistants and nurses are to be trained. In addition, about 500 Yemenis are studying abroad specializing in medicine, dentistry and pharmacy. Most of these are expected to return to their country. But even if these targets are met, medical services will remain inadequate for many years to come. lhis is particularly true for rural areas where public health services are still largely absent. Public Finance 35. The budgetary situation improved dramatically during the first two years of the Five-Year Plan. Government revenues more than tripled raising the tax ratio from 7 percent of GNP in 1975/76 to 10 percent in 1977/78. This was essentially the result of a sharp rise in import duties--still the main source of government income--reflecting both fast rising imports and improve- ments in tax collection. Revenue from income and profit taxes quadrupled, starting however from a very low base. Income from other taxes and non-tax revenue also rose at a very fast rate (see Table 5.1 of Statistical Appendix). Part of the increase in government revenue was of course due to rising prices. But even if one excludes the impact of inflation - using the GDP deflator as a rough approximation - the real value of budget revenue approximately doubled during these two years. 36. Current government expenditures doubled in nominal terms between 1975/76 and 1977/78, growing by about one third in real terms. Much of the increase was spent on salaries for civil servants which remain the largest expenditure item in the current budget. But spending for education, health and economic support services rose even faster indicating the importance of these sectors to the Government. - 13 - Table 10: SUMMARY OF THE GOVERNMENT BUDGET (YR Million) _P 1975/76 1976/77 1977/78 1978/79-P Current Revenue 605 1,293 1,985 2,188 Current Expenditure 617 841 1,250 1,840 Current Deficit/Surplus -12 452 735 348 Capital Expenditure 361 603 1,167 2,670 Foreign Grants and Loans 635 606 697 1,904 /P Preliminary estimates. 37. The rapid increase in government revenue led to sizable surpluses in the current budget - YR 452 million in 1976/77 and YR 735 million in 1977/78 - after a series of deficits in earlier years. These savings enabled the Govern- ment to finance from its own resources a growing share of capital expenditures. The rest was financed through foreign assistance. 38. Capital expenditures more than tripled during the first two years of the Plan - approximately doubling in real terms - testifying to the Govern- ment's strong commitment to development, and the growing absorptive capacity of the public administration. Capital expenditures include both fixed invest- ment and recurrent expenditures relating to specific development projects. The majority of the projects were designed to strengthen the physical infra- structure and social services, and to provide support for the productive sectors. Direct investments in agriculture and industry were relatively small. 39. Provisional data for 1978/79 suggest a sharp decline in government savings. The expansion of current revenue slowed down considerably, and in real terms there may have been no increase at all in that year. The reasons for this change in trend are not entirely clear, especially since imports, the main source of taxation, continued to rise at a fast pace. But there may have been a shift in the composition of imports from higher taxed items to lower taxed ones, especially capital goods, many of which are exempt from tariffs. There were apparently also some delays in actual tax payments to the treasury. 40. Current government expenditure, on the other hand, continued its rapid expansion reflecting larger outlays for government services and fast rising costs of operating projects completed in earlier years. Capital expenditure rose even more sharply, more than doubling in nominal terms. - 14 - 41. The shortfall in domestic revenue was made up by a large increase in foreign aid. Budget grants tripled while disbursements from project and commodity loans more than doubled. Total aid disbursements reached YR 1.9 billion in 1978/79 compared to YR 0.7 billion in 1977/78. The over- all budgetary situation thus remained quite comfortable. Money, Credit, Prices 42. The rapid expansion of YAR's economy in recent years was accompanied by an even larger monetary expansion. Money supply increased by 74 percent in 1976/77, 42 percent in 1977/78 and 22 percent in 1978/79. The principal factor causing this growth in money supply was surpluses in the balance of payments (see following section) and the resulting accumulation of net foreign assets. There was also substantial bank lending to the non-government sector. Most of the loans were short-term advances for import financing. The expan- sionary impact of growing foreign assets and bank lending to the non-government sector was partly offset by surpluses in the government budget which withdrew liquidity from the banking system. During 1978/79, however, the Government started drawing down its bank deposits. But since the accumulation of foreign assets was much smaller in that year than in earlier years, the rate of monetary expansion continued to slow down. Table 11: MONEY SUPPLY AND PRICES 1975/76 1976/77 1977/78 1978/79 Increase in Money Supply /a YR Million 1,367 1,861 1,835 1,378 Percent 120 74 42 22 Factors Affecting Money Supply (YR Million) Accumulation of Foreign Assets 1,476 1,521 1,914 574 Non-government lending 173 908 81 645 Government deposits, net -257 -533 -51 381 Increases in Prices (x) Total 17 24 19 22 Foodstuffs 12 22 18 17 Housing 30 29 24 20 Transport 23 26 15 45 /a Including quasi money. 43. High liquidity of the economy resulting from the increase in money supply created the basis for large price rises. The average rate of inflation was about 20 percent p.a. in recent years, as measured by the consumer price index for Sana'a. Price increases were accentuated by supply constraints such as limited port capacity during 1977 (see para. 29) and severe shortages of - 15 - housing. More recently, international inflation had a strong impact on domestic price levels, especially in the transport sector where fuel prices rose sharply. 44. The slowdown of monetary expansion during 1978/79 was partly the result of private capital outflows triggered by growing interst rate differen- tials. While international interest rates rose sharply - up to 14 percent for Euro-dollar term deposits - the Government of YAR decided in May 1978 to reduce maximum lending rates for commercial banks from 12 percent to 10 percent. This gave strong incentives to local investors (including banks) to place some of their liquid funds abroad. As the Yemen Rial is pegged to the US$ and capital transfers are not subject to exchange restrictions, there was no substantial risk involved for the investors. Table 12: INTEREST RATES (In Percent) May/June 1978 February/ July Before After April 1980 1980 Commercial Bank Loans 12 10 15.5 12 Loans from specialized banks Short-Term 9 7 12.5 9 Medium-Term 8 6 11.5 8 45. These outflows created a liquidity squeeze for domestic banks causing them to cut back lending to local merchants and investors. The interest rate differential which has caused the outflow of liquid funds, made it also unprofitable for local banks to refinance domestic credit operations with term deposits which in some instances cost the banks more than they could earn through their loans. Responding to the legitimate needs of the banks, the Government therefore decided in February/April 1980 to raise the maximum lending rates for commercial banks to 15.5 percent, and for specialized banks to 12.5 percent and 11.5 percent, respectively. With declining international rates the Government lowered maximum lending rates in July 1980. Balance of Payments 46. During the first two years of the current Plan YAR's external financial position continued to strengthen. Foreign exchange earnings - mostly from workers' remittances - more than doubled reaching US$1.1 billion in 1977/78. Imports also rose sharply to a level of US$0.9 billion but increased somewhat less than exchange earnings. The surplus on current account thus grew to US$240 million which was almost twice as much as in 1975/76. Data for 1978/79 suggest, however, a major change in the balance of payments. Foreign exchange earnings dropped, by about 10 percent while imports continued their rise. The result was a sizeable deficit in the current account (US$376 million). The impact on the overall balance of payments was softened by a sharp increase of foreign assistance, and foreign reserves still rose, although at a slower pace. - 16 - Table 13: SUMMARY BALANCE OF PAYMENTS (US$ million) 1975/76 1976/77 1977/78 1978/79 Foreign Exchange Earnings, net of which 512 905 1,146 1,029 Workers' Remittances, net (457) (842) (1,090) (898) Other Services, net (43) (44) (49) (128) Exports f.o.b.. (12) (19) (7) (3) Imports c.i.f. -382 -730 -906 -1,405 Current Account Balance 130 175 240 -376 Official Grants 114 104 103 312 Official Loans, net 39 42 62 123 Other Capital, net /a -11 133 -32 144 Change in Reserves = increase) -272 -454 -373 -203 /a Including, errors and omissions. 47. This change in trend does not come as a surprise and was in fact anticipated in the Bank's last economic report. 1/ It signals an end to the foreign exchange surplus which YAR experienced in the preceding three years, and a return to current account deficits that more accurately reflect the foreign aid requirements of this still very underdeveloped country. 48. Workers' remittances are likely to remain YAR's principal source of foreign exchange for some years to come. Gross receipts recorded by the Central Bank have risen from YR 2.4 billion (US$523 million) in 1975/76 to YR 6.4 billion (US$1.4 billion) in 1977/78 (see Table 3.5 of Statistical Appendix). During 1978/79, however, remittances did not increase any further. In part this may have been due to special circumstances such as the armed confrontation on the country's southern border in the spring of 1979. But there are also indications that net emigration is levelling off reflecting a weakening in labor demand from the oil exporting countries, and that an increasing number of returning migrants now stay at home investing their savings in agriculture or some small-scale business. 1/ Yemen Arab Republic: Development of a Traditional Economy; a World Bank country study, January 1979, p. 159. - 17 - 49. At the same time, private transfers abroad have risen sharply from US$68 million in 1975/76 to US$525 million in 1978/79 thus causing the decline in net receipts from remittances in the latter year. A substantial part of these transfers appear to be capital flows taking advantage of higher interest rates in the international markets (see para. 44). To the extent that they are recorded under current transfers they exaggerate the deterioration in the current account balance. 50. Receipts from commodity exports have become insignificant in recent years. They declined from US$19 million in 1976/77 to US$3 million in 1978/79, largely as a result of failing cotton production (see para. 21). High labor cost, buoyant domestic markets and the absence of exploitable mineral resources have so far prevented the emergence of alternative export products (see Table 3.3 of Statistical Appendix). 51. Commodity imports, on the other hand, keep growing at a rapid pace and reached US$1.4 billion in 1978/79. This reflects the growth of real incomes in the country which led to a surge in private consumption of imported foodstuffs, clothes and other manufactured consumer goods including, above all, motor vehicles (see Table 3.4 of Statistical Appendix). Even more spectacular was the sharp rise in the imports of capital goods and building materials triggered by the investment boom. To some extent, the growing import value is also the result of international prices increases. 52. In this context, fuel prices are of special importance. YAR imports all of its fuel requirements which have risen more than four times between 1973 and 1979 (Table 15). Since unit prices have risen at about the same rate, fuel imports which were an insignificant item in YAR's balance of pay- ments a few years back, accounted for about 8 percent of total imports in 1978/79. This share is expected to rise to 11 percent in 1979/80 and 15 percent in 1980/81, the last year of the present 5-year plan. Table 14: FUEL-IMPORTS CY1973 CY1979 Quantity (1,000 tons) Gasoline 38 280 Diesel Fuel 78 277 Kerosene 29 88 Others 10 32 Total 155 677 Value (US$ mln) 7 132 - 18 - 53. Since independence, YAR has received substantial amounts of foreign assistance almost exclusively by way of grants and concessional loans. As Table 14. shows, these inflows averaged some US$150 million each in the first two years of the Plan, two-thirds of which were given as grants and one-third as loans. In the third year of the Plan (1978/79) the amount of grants tripled (US$312 million) while loan disbursements doubled reaching US$123 million (net). Most of the grants were provided by Saudi Arabia as budget support; the remainder came in the form of technical assistance (in- cluding UNDP) and food aid. The bulk of foreign loans was given for specific development projects primarily in the sectors of transport, agriculture, education and power. There were also small amounts of commodity and cash loans. 54. The larger inflow of grants and loans during 1978/79 has cushioned the impact of stagnating workers' remittances and rising private capital outflows. As a result, foreign reserves still rose by US$203 million in that year. Monthly figures for 1978/79 show, however, that the reserves reached their peak in March of last year (US$1,613 million) and have since been gradually falling to US$1,427 at the end of 1979. 55. YAR's external public debt was estimated at US$1,075 million at the end of June 1979, of which US$543 was disbursed. No information is available on external private debts, but they are believed to be small. US$300 million of the public debt was owed to multilateral agencies, mainly IDA and the Arab Fund. The principal bilateral creditors are Saudi Arabia, the USSR, China, Germany and Kuwait. Germany has since waived all claims on further debt payments and declared its intention to provide future aid to YAR in the form of grants. Table 15: EXTERNAL PUBLIC DEBT, JUNE 30, 1979 (US$ million) Total Disbursed Undisbursed Multilateral Loans 300 118 182 Of which: IDA 174 73 101 Arab Fund 115 43 72 Bilateral Loans 774 424 350 Of which: Saudi Arabia 226 56 170 USSR 142 115 27 China 123 70 53 Germany 95 90 5 Kuwait 70 41 29 Others 118 52 66 Suppliers' Credits 1 1 - Total 1,075 543 532 - 19 - 56. The terms on which YAR has obtained official loans were very favor- able. Loans from the USSR and from China are, for the most part, interest free. Western European countries have generally charged between 3/4 percent and 2.5 percent. Interest rates on loans given by Arab countries have varied from 0 percent to 4 percent; some of these loans were later converted into grants. Loan maturities range from 5-50 years, with a median of 20-30 years. Debt service payments are therefore relatively low. For 1978/79 they were estimated at US$28 million or the equivalent of 1.7 percent of YAR's gross foreign exchange earnings. Outlook 57. Over the past decade the Government of YAR has pursued an effective development strategy which has brought some measure of prosperity to most of its citizens. 1/ By establishing modern institutions, building infrastructure and social services, and providing incentives for private sector activities the authorities have created conditions for rapid growth of incomes and investments. More recently, however, the unprecedented economic boom has intensified some of the constraints mentioned earlier in this memorandum, i.e. labor shortages, limited absorptive capacity of the public administration and a narrow tax base, to mention only the most important ones. Foreign exchange is not yet a constraint but could become one in the future. The relatively high rates of inflation which the country experienced in recent years, could hardly be avoided in an atmosphere of rapid growth straining against various bottlenecks, and given the fact that YAR is closely interlinked with the world economy. 58. Yemen has the potential for continued economic development over the medium and long run. There are large unmet needs for infrastructure and social services in urban and rural areas. Productivity in agriculture and industry is still very low and needs to be increased. The country has no export industry to speak of, mineral resources have hardly been explored, and facilities for domestic and international trade and marketing are still rudimentary. These tasks should provide strong stimuli for future investment and growth. 59. To maintain the momentum of growth and development, the Government will however, have to take measures aimed at easing the constraints mentioned above (para. 57). Above all, this requires effective manpower planning which subsumes strengthening of the quality and scope of YAR's education system; the provision of adequate material incentives for skilled labor, especially in the public sector; and filling of the most pressing manpower gaps through recruitment abroad. Equally important is the task of strengthening the public administration through the streamlining of organization and procedures; rational recruitment and promotion policies; effective in-service training; and improvements in accounting and auditing procedures. Another issue which 1/ For an assessment of YAR's economic and social development during the early and mid 1970s, see Yemen Arab Republic: Development of a Tradi- tional Economy; op. cit. - 20 - the authorities will have to resolve is the need to increase taxation and to mobilize growing amounts of domestic financial resources. Interest rate policies are of some importance in this context, as has been discussed earlier in this memorandum. Furthermore, a strong public administration and increas- ing financial resources are required to utilize and maintain present and future public sector facilities such as schools, roads or hospitals. In the area of public investment, proper design and construction standards need to be established so as to minimize future maintenance cost. Attention should also be given to preserving scarce natural resources such as water and land, through controls of well drilling, afforestation and other methods of watershed protection, or dune fixation. In the longer run, there is need to establish viable export industries to supplement exchange earnings from remittances. 60. The Government is presently preparing its second 5-year plan (1982- 1986) which will address the issues mentioned above. In doing so it has requested technical assistance and advice from a number of international and bilateral agencies, including the World Bank. In response to this request, Bank staff is presently conducting a series of analytical background studies on major sectors, manpower planning and public administration. These studies will help the Government to determine appropriate policies, identify priority projects and clarify some of the major issues it will have to deal with in the coming years. 61. YAR will require substantial amounts of foreign aid to support its present and future development programs. Given the country's limited natural and financial resources, only relatively small local contributions are likely to be available for the financing of public investment projects. Furthermore, a slow-down in the growth of YAR main source of foreign exchange i.e., worker's remittances and the country's growing dependence on imports suggest that foreign aid will have to be provided at highly concessional terms to maintain the country's financial viability in the medium and long-run. As was mentioned above (para. 56), Yemen's principal creditors are clearly recognizing these needs and the fact that YAR continues to be one of the least developed countries in the world. Assuming future aid flows would continue on similar terms as in the past, it can be expected that the debt service burden will remain manageable. - 21 - STATISTICAL APPENDIX List of Tables 2.1 Gross Domestic Product at Current Prices 2.2 Gross Domestic Product at Constant Prices 2.3 Expenditures on Gross National Product at Current Prices 2.4 Gross Investment 3.1 Balance of Payments (US$ million) 3.2 Balance of Payments (YR million) 3.3 Commodity Composition of Exports 3.4 Imports by SITC Groups (Non-Government) 3.5 Service Receipts and Payments 4.1 External Public Debt Outstanding Including Undisbursed as of June 30, 1979 4.2 Service Payments, Commitments, Disbursements and Outstanding Amounts of External Public Debt as of June 30, 1979 5.1 Summary of Government Finances 7.1 Production of Main Agricultural Crops 8.1 Residential Construction Licenses 9.1 Consumer Price Index for Sana'a 10.1 Enrollments in Primary, Preparatory and Secondary Schools 10.2 Enrollments in Technical and Commercial Schools 10.3 Number of Students at Sana'a University 10.4 Health Indicators Table 2.1: GROSS DOMESTIC PRODUCT AT CURRENT PRICES (YR Million) 1972/73 1973/74 1974/75 1975/76 1976/77 Commodity Sectors 1,532 1,977 2,760 224 3,726 Agriculture, Fishing & Forestry 1,263 1,582 2,335 2,305 2,656 Industry, Mining & Electricity 142 2I3 249 302 450 Construction 127 182 176 227 620 Distribution Sectors 577 795 1,060 1,512 2,706 Trade 460 629 826 1,220 2,250 Finance and Banking 40 57 96 141 249. Transport and Communication 77 109 138 151 207 Services Sectors 405 488 654 835 1,113 Government 252 291 401 509 656 Housing 94 118 150 199 282 Other Services 59 79 103 127 175 GDP at Market Prices 2,514 3,260 4,474 5,181 7,545 Net Indirect Taxes 151 202 283 453 1,039 GDP at Factor Costs 2,363 3,058 4,191 4,728 6,506 Source: Central Planning Organization. Table 2.2: GROSS DOMESTIC PRODUCT AT CONSTANT PRICES (YR Million) Preliminary 1972/73 1973/74 1974/75 1975/76 1975/76 1976/77 1977/78 1978/79 ----------- 1971/72 Prices…---------- 1975176 Prices Commodity Sectors 1,449 1,376 1,667 1,604 2,834 2,891 3,238 3,469 Agriculture, Fishing and Forestry 1,208 1,091 1,401 1,305 2,305 2,157 2,369 2,513 Industry, Mining & Electricity 126 148 153 165 302 368 431 473 Construction 115 137 113 134 227 366 438 483 Distribution Sectors 491 513 557 677 1,512 1,930 2,113 2,367 Trade 386 394 411 511 1,220 1,568 1,721 1,952 Finance and Banking 32 41 59 75 141 190 155 206 Transport and Communication 73 78 87 91 151 172 197 209 Services Sectors 337 354 397 426 835 945 1,088 1,168 N Government 201 212 247 271 509 597 672 712 Housing 86 89 92 94 199 210 266 292 Other Services 50 53 58 61 127 138 150 164 GDP at Market Prices 2,277 2,243 2,621 2,707 5,181 5,766 6,439 7,004 GDP Deflator (1971/72 - 100) 110 145 171 191 100 131 Source: Central Planning Organization. Table 2.3: EXPENDITURES ON GROSS NATIONAL PRODUCT AT CURRENT PRICES (YR Million) 1972/73 1973/74 1974/75 1975/76 1976/77 Consumption 2,607 3,380 4,422 5,581 8,169 Private 2,290 3,105 3,904 4,900 7,234 Government 317 365 518 681 935 Gross Investment 499 630 1,077 1,170 2,622 Gross Fixed Capital Formation 342 472 586 773 2,016 Change in Stocks 157 158 491 397 606 Net Exports of Goods and NFS -592 -750 -1,025 -1,570 -3,246 Exports of Goods and NFS 94 175 221 293 255 Imports of Goods and NFS -686 -925 -1,246 -1,863 -3,501 GDP at Market Prices 2,514 3,260 4,474 5,181 7,545 Net Factor Income 505 528 913 2,157 4,034 GNP at Market Prices 3,019 3,788 5,387 7,338 11,579 Memorandum Item Gross Domestic Savings -93 -120 52 -400 -624 Gross National Savings 412 408 965 1,757 3,410 Source: Central Planning Organization, and Balance of Payments for External Accounts (see Table 3.2). Table 2.4: GROSS INVESTMENT (YR Million) 1975/76 1976/77 1977/78 E/ 1975/76 1976/77 1977/78P/ -----(At Current Prices)----- ----(At 1975/76 PricePs) Gross Fixed Capital Formation, Total 773 2,016 2,741 773 1,447 1,652 By Economic Sector Agriculture 106 108 263 106 76 157 Industry 51 214 207 51 166 136 Construction 10 55 82 10 43 53 Transport and Communication 232 629 778 232 471 492 Housing 286 869 1,250 286 590 716 Other Sectors 88 141 161 88 101 98 ln By Type of Owner Public Sector 254 404 710 254 305 444 Private Sector 519 1,612 2,031 519 1,142 1,208 Increase in Stocks 397 606 837 397 442 513 Gross Investment 1,170 2,622 3,578 1,170 1,889 2,165 P/ Preliminary estimates Source: Central Planning Organization - 26 - Table 3.1: BALANCE OF PAYMENTS (US$ Million) PROVISIONAL Fiscal Years Ending June 30 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 Trade Balance -180 -245 -370 -711 -899 -1,402 Exports f.o.b 14 13 12 19 7 3 Imports c.i.f. -194 -258 -382 -730 -906 -1,405 (Government) (-35) (-36) (-60) (-65) (-121) (-286) (Private) (-159) (-222) (-322) (-665) (-784) (-1,119) Non-Factor Service, Net 14 17 21 -10 -21 19 Factor Services, Net 117 203 479 896 1,160 1,007 Workers' Remittances, Net 112 191 457 842 1,160 898 Investment Income, Net 5 12 22 54 70 109 Current Account Balance -49 -25 130 175 240 -376 M< Capital, Net 62 126 153 146 165 435 Official Grants 33 93 114 104 103 312 Official Loans, Net 29 33 39 42 62 123 (Disbursements) (32) (37) (42) (46) (68) (133) (Repayments) (-3) (-4) (-3) (-4) (-6) (-10) Other Capital, Net /1 10 3 133 -32 144 Chanre in Reserves /2 -23 -98 -272 -454 373 -203 (Increase = -) Official Gross Reserves /2 150 248 520 974 1,347 1,550 /1 Including errors and omissions and valuation adjustments. 72 Held by Central Bank of Yemen. Source: Central Bank of Yemen - 27 - Table 3.2: BALANCE OF PAYMENTS (YR Million) PROVISIONAL Fiscal Years Ending June 30 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 Trade Balance -811 -1,105 -1,666 -3,200 -4,044 -6,311 Exports f.o.b. 62 58 55 84 32 13 Imports c.i.f. -873 -1,163 -1,721 -3,284 -4,076 -6,324 (Government) (-159) (-163) (-269) (-292) (-547) (-1,288) (Private) (-714) (-1,000) (-1,452) (-2,992) (-3,529) (-5,036) Non-Factor Services, Net 61 81 96 -46 -96 87 Factor Services, Net 528 913 2,157 4,034 5,220 4,530 Workers' Remittances, Net 504 859 2,057 3,791 4,905 4,041 Investment Income, Net 24 54 100 243 315 489 Current Account Balance -222 -111 587 788 1,080 -1,694 M< Capital, Net 277 566 690 659 734 1,957 Official Grants 148 419 513 471 452 1,403 Official Loans, Net 129 147 177 188 282 554 (Disbursements) (144) (164) (191) (207) (308) (598) (Repayments) (-15) (-17) (-14) (-19) (-26) (-44) Other Capital, Net /1 49 -14 -53 596 -135 650 Change in Reserves /2 -104 -441 -1,224 -2,043 -1,679 -913 (Increase = -) Official Gross Reserves /2 675 1,116 2,340 4,383 6,062 6,975 /1 Including errors and omissions and valuation adjustments. /2 Held by Central Bank of Yemen. Source: Central Bank of Yemen - 28 - Table 3.3: COMMODITY COMPOSITION OF EXPORTS (YR million) Fiscal Years 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 Ending June 30 Payments Basis 1/ Cotton and Cotton Seed 35.0 33.3 30.7 56.6 20.6 9.0 Other Exports 26.9 24.7 24.6 27.3 11.2 4.2 Total Exports 61.9 58.0 55.3 83.9 31.8 13.2 Customs Basis Cotton 35.2 28.2 24.2 25.0 - - Cotton Seed 1.9 2.8 0.4 - - - Cotton Manufacturers 0.3 1.6 1.4 0.6 0.5 0.3 Coffee 6.5 5.0 7.6 10.2 0.9 2.2 Qat - - 0.4 0.8 - - Hides and Skins 6.2 4.4 8.0 6.1 5.2 4.7 Pastry, Biscuits, etc. 1.3 1.1 2.1 3.2 4.0 8.5 Others 2/ 3.9 9.9 6.0 4.6 22.7 12.8 Total Exports 55.3 53.0 50.1 50.5 33.4 28.5 1/ Estimates from customs data through 1973/74 and banking data thereafter. 2/ Includes some re-exports of imported products. Source: Central Bank of Yemen and Central Planning Organization - 29 - Table 3.4: VALUE OF RECORDED NONGOVERNMENT IMPORTS BY SITC GROUPS 1/ (In Millions of Yemen Rials) Fiscal Years Ended June 30 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 Food and Live Animals 364.4 418.6 741.6 868.4 981.3 1.304.8 Live animals -- 1.4 9.5 13.8 17.5 24.4 Dairy products 14.6 20.4 34.6 69.5 122.9 196.0 Cereals and flour, etc. 154.5 165.1 235.1 296.7 234.8 220.2 Fruits and vegetables 32.3' 43.5 70.4 180.4 220.1 307.4 Sugar and sweets 101.7 119.4 242.1 166.6 132.4 245.4 Coffee, tea, and spices 23.4 24.7 48.0 29.9 77.9 55.8 Food products (mainly margarine) 31.8 38.7 90.1 64.1) 48.2 Other groups (mainly meat and fish) 6.1 5.4 11.8 47.4) 175.7 207.4 Beverages and tobacco 13.1 29.1 44.4 49.0 85.6 101.1 Beverages 0.6 1.2 1.4 3.2 9.9 20.7 Tobacco and products 12.5 27.9 43.0 45.8 75.7 80.4 Raw Materials 1.4 3.1 6.6 12.7 19.8 15.9 Mineral Fuels and Lubricants 21 32.6 36.0 81.1 58.9 108.0 139.5 Animal and Vegetable Oils and Fats 2.8 3.6 7.9 11.2 28.3 32.2 Chemicals 48.5 66.2 82.8 155.3 222.0 301.9 Medicines 16.3 25.6 32.6 56.1 75.8 103.1 Cleaning Materials and Cosmetics 20.3 20.7 22.9 42.5 77.4 59.2 Fertilizer 1.3 6.6 6.8 3.5 17.6 25.1 Coloring agents 2.2 4.1 4.8 10.2 23.6 26.6 Other Chemicals and Products 8.4 9.2 15.7 43.0 27.6 87.9 Manufactures, Classified by Material 133.0 193.1 310.7 668.2 974.9 1,270.0 Leather products 0.4 0.8 1.2 1.4 2.0 3.0 Rubber products 6.2 11.9 17.1 30.4 31.9 105.4 Wood and products 20.1 21.3 41.1 154.6 202.4 287.5 Paper products 7.0 18.1 11.3 25.3 21.8 41.8 Textiles 48.7 75.4 142.5 171.4 208.9 153.7 Nonmetallic mineral products (mainly cements) 17.8 12.0 32.4 80.9 138.9 177.4 Iron and steel 19.9 38.1 29.6 94.3 138.3 191.0 Nonferrous metals 3.3 2.7 7.8 18.7 41.9 49.7 Metal manufactures 9.7 12.9 27.8 91.2 188.8 260.5 Machinery and Equipment 3/ 85.9 149.6 289.6 965.7 1,155.0 1,581.4 Nonelectrical machinery 25.9 50.2 116.7 333.4 446.2 775.9 Electrical machinery and equipment 17.2 28.5 51.7 105.1 154.7 245.2 Transport equipment 42.9 70.9 121.1 527.2 554.1 560.3 Miscellaneous Manufactures 3/ 61.2 79.6 140.4 243.0 339.5 313.3 Sanitary and lighting fixtures 5.1 4.5 7.7 24.6 27.3 15.2 Furniture 2.0 2.3 3.0 10.9 31.7 49.5 Clothing 22.7 29.5 51.0 94.1 118.9 76.5 Footwear 11.3 11.6 32.2 31.6 61.6 64.6 Others 20.1 31.7 46.5 81.8 100.0 107.5 Goods not Classified by Kind 2.0 2.1 1.9 2.9 24.3 20-3 TOTAL 745.0 981.0 1,706.9 3,035.3 3,938.7 5,080.4 1/ From customs returns compiled by the Central Planning Organization and revised by the Central Bank. Data partly reflect increased coverage over time. 2/ Valued to reflect price increases since 1973. 3/ Data affected by introduction of revised SITC in January 1976. Source: Central Bank of Yemen and Central Planning Organization. Table 3.5: SERVICES RECEIPTS AND PAYMENTS (YR Million) Fiscal Years Ending June 30 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 Investment Income Receipts 29.1 60.6 104.9 251.2 349.3 531 Payments -4.8 -6.3 -5.4 -8.5 -34.3 -42 Workers'Remittances /1 Receipts 595 1,013 2,363 4,561 6,351 6,404 Payments -91 -154 -306 -770 -1,446 -2,363 Transportation Receipts 14.0 24.2 33.7 31.4 70.7 135 Payments -0.8 -5.7 -6.1 -16.0 -8.2 o Travel and Tourism Receipts 9.5 15.2 30.0 44.2 66.4 7 Payments -10.7 -19.2 -24.0 -64.7 -90.2 -127 Other Services /2 Receipts 89.3 123.6 174.2 95.5 103.3 258 Payments -40.9 -57.8 -111.4 -136.5 -238.3 -216 Total Services, Net 588.7 993.6 2,242.9 3,987.5 5,123.7 4,617 Receipts 736.9 1,236.6 2,695.8 4,983.3 6,940.7 7,402 Payments -148.2 -243.0 -452.9 -995.8 -1,817.0 -2,785 /1 Private transfers are included. /2 Mostly government n.i.e. Source: Central Bank of Yemen and IMF estimates. Table 4.1: EXTERNAL PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF JUN. 30, 1979 INCLUDES ONLY DEBT COMMITTED JAN. 1. 1900 - JUN. 30, 1979 DEBT REPAYABLE IN FOREIGN CURRENCY AND GOODS (IN THOUSANDS OF U.S. DOLLARS) D E B T O U T S T A N D I N G I N A R R E A R S TYPE OF CREDITOR -----------------------------------:----------------------- CREDITOR COUNTRY DISBURSED :UNDISBURSED: TOTAL PRINCIPAL INTEREST SUPPLIERS CREDITS GERMANY, FED.REP. OF 1,245 - 1,245 - TOTAL SUPPLIERS CREDITS 1.245 - 1,245 - MULTILATERAL LOANS ARAB FUND EC SOC DEV 42,742 72.156 114.898 - IDA 72,924 100,826 173.750 - ISLAMIC DEV. BANK 309 137 446 - OPEC SPECIAL FUND 2,250 8,700 10,950 - TOTAL MULTILATERAL LOANS 118.225 181.819 300,044 - BILATERAL LOANS ABU DHABI 5.398 17.813 23.211 - ALGERIA 242 758 1,000 .- CHINA, P.R. OF 70,268 53.151 i23,419 56,687 FRANCE 7,783 21.797 29,580 - GERMAN DEM. REP. 3,848 1,152 5,000 - 96 GERMANY, FED.REP. OF 89.393 5.180 94,573 IRAO 22.618 7 22,625 1,683 JAPAN 4.696 13.183 17.879 - KUWAIT 40.872 29,421 70,293 - NETHERLANDS 6,160 9.924 16,084 - SAUDI ARABIA 55.758 169,820 225,578 - UNITED STATES 1.292 689 1,981 - USSR 115,521 26,779 142,300 - TOTAL BILATERAL LOANS 423,849 349.674 773,523 58.370 96 TOTAL EXTERNAL PUBLIC DEBT 543,319 531.493 1.074,812 58,370 96 NOTES: (1) ONLY DEBTS WITH AN ORIGINAL OR EXTENDED MATURITY OF OVER ONE YEAR ARE INCLUDED IN THIS TABLE. (2) DEBT OUTSTANDING INCLUDES PRINCIPAL IN ARREARS BUT EXCLUDES INTEREST IN ARREARS. Table 4.2: SERVICE PAYMENTS. COMMITMENTS, DISBURSEMENTS AND OUTSTANDING AMOUNTS OF EXTERNAL PUBLIC DEBT PROJECTIONS BASED ON DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF JUN. 30, 1979 INCLUDES ONLY DEBT COMMITTED JAN. 1. 1900 - .JUN. 30, 1979 DEBT REPAYABLE IN FOREIGN CURRENCY AND GOODS (IN THOUSANDS OF U.S. DOLLARS) TOTAL YEAR DEBT OUTSTANDING AT T R A N S A C T I 0 N S D U R I N G P E R I 0 D OTHER CHANGES : IBEGINNING OF PERIOD : DISBURSED INCLUDING COMMIT- DISBURSE- S E R V I C E P A Y M E N T S CANCEL- ADJUST- : ONLY UNDISBURSED MENTS MENTS -----------:-----------:----------- LATIONS MENT * PRINCIPAL INTEREST TOTAL : (I) (2) (3) (4) (5) (6) (7) (a) (9) 1974 172,749 321.989 48,262 52,112 8,865 693 9,558 140 18.248 1975 229,644 379,494 94,099 30.022 3.717 719 4.436 - -17,661 1976 244,233 452,215 149,212 49,533 3,341 1.052 4,393 23,922 9.292 1977 269,619 583,456 167,109 56,938 2,760 1.438 4,198 - 49,709 1978 345,678 797.514 182,451 100,734 11.616 3.368 14,984 20 49,335 1979-1 464,348 1.017,664 48,054 60,877 13.474 2.715 16,189 - 22.566 1979-2 543,319 1,074.810 * * * * * * THE FOLLOWING FIGURES ARE PROJECTED * * * * * * 1979-2 543,319 1.074.810 - 82,804 11,532 2,030 13.562 - -58,370 w 1980 556,220 1,004,910 - 164,122 24.597 6,148 30,745 - - Q 1981 695.740 980,310 - 120,899 25,778 8,075 33,853 - - 1982 790,859 954,532 - 74,304 31,129 9,946 41,075 - 1983 834,033 923.406 - 40,614 37,658 10,630 48,288 - - 1984 836,988 885,746 - 22.703 46,579 10,767 57,346 - 1985 813.114 839,169 - 12,799 46,358 10,318 56,676 - - 1986 779,553 792.811 - 8.696 44,276 9,707 53,983 - 1987 743,976 748.539 - 3,901 49,097 9,524 58.621 - - 1988 698,776 699.439 - 642 40.048 8,716 48,764 - - 1989 659,370 659.391 - 21 42,883 7,897 50,780 - 1990 616,513 616,513 - - 37.405 7,101 44,506 - - 1991 579,107 579,107 - - 37,384 6,387 43,771 - - 1992 541.723 541,723 - - 36,756 5,669 42,425 - 1993 504,976 504,976 - - 34,607 4,985 39,592 - - 1994 470,367 470,367 - - 34,014 4,460 38,474 - 1995 436,356 436,356 - - 32,057 3,959 36,016 - 1996 404,300 404,300 - - 30,481 3,472 33,953 - 1997 373,822 373.822 - - 29,430 3,037 32,467 - 1998 344,393 344,393 - - 25,389 2,671 28,060 - Note: Includes service on all debts listed in Table 1, prepared April 3, 1980. * THIS COLUMN SHOWS THE AMOUNT OF ARITHMETIC IMBALANCE IN THE AMOUNT OUTSTANDING INCLUDING UNOISBURSED FROM ONE YEAR TO THE NEXT. THE MOST COMMON CAUSES OF IMBALANCES ARE CHANGES IN EXCHANGE RATES AND TRANSFER OF DEBTS FROM ONE CATEGORY TO ANOTHER IN THE TABLE. - 33 - Table 5.1: SUMMARY OF GOVERNMENT FINANCES (YR Million) ACTUALS PROVISIONAL Fiscal Years Ending June 30 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 Domestic Revenues /1 275.2 378.9 604.7 1,292.8 1,985.4 2,187.9 Tax Revenue 227.4 301.1 492.7 1,074.4 1,603.0 1,768.3 Import Duties 155.3 222.0 393.6 928.6 1,304.1 1,385.4 Income & Profit Taxes 19.0 16.9 23.1 40.3 100.9 138.6 Others 53.1 62.2 76.0 105.5 198.0 244.3 Non-Tax Revenue 47.8 77.8 112.0 218.4 382.4 419.6 Current Expenditures /1 322.5 472.3 616.5 841.0 1,250.4 1,839.5 Defense 187.1 207.7 304.5 430.5 545.5 793.2 Health and Education 30.9 43.8 73.8 92.9 200.0 363.4 Other 104.5 220.8 238.2 317.6 504.9 682.9 Balance on Current Operations -47.3 -93.4 -11.8 451.8 735.0 348.4 Capital Expendirures 139.3 205.5 361.1 a03.4 l,1u7.0 2,670.4 Development 125.6 173.7 293.1 404.1 780.4 1,329.5 Capital Transfers 13.7 20.8 38.8 140.9 276.4 429.9 Defense - 11.0 29.2 58.4 110.2 911.0 Overall Deficit (-) -186.6 -298.9 -372.9 -151.6 -432.0 -2,322.0 External Financing (Net) 238.5 536.3 635.0 606.1 696.8 1,904.4 Commodity & Project Loans 125.6 115.4 191.1 188.1 276.9 581.6 Cash Loans 18.8 48.9 - 19.5 36.7 16.5 Less Repayments -15.1 -16.9 -14.1 -19.4 -26.1 -44.3 Cash Grants 109.2 388.9 458.0 417.9 409.3 1,350.6 Domestic Financing (Net) Change in Deposits /2 -20.1 -226.9 -256.8 -532.1 -51.0 380.7 Central Bank -34.9 -Z07.1 2387F -484.9 -50.4 350.5 Commercial Banks 14.8 -19.8 11.8 -47.2 -0.6 30.2 Statistical Adjustment /3 -31.8 -10.5 -5.3 77.6 -213.8 36.9 /1 Excludes grants for budgetary support from revenues, and loan repayments from expenditures. /2 Increase = - /3 Reflects lags in recording, exchange rate valuation adjustments associated with external financing and other errors and omissions. Source: Ministry of Finance and Central Bank of Yemen. - 34 - Table 7.1: PRODUCTION OF MAIN AGRICULTURAL CROPS (In 1,000 tons) Crop 1971/72 1972/73 1973/74 1974/75 1975/76 1976/77 1977/78 197/79 Cereals Sorghum & millet 627 809 639 1,008 859 660 641 686 Maize 16 70 80 79 72 89 89 94 Wheat 25 50 71 56 52 51 44 53 Barley 140 120 85 80 75 54 50 54 Legumes, Vegetables Legumes/pulses 60 56 64 71 76 82 77 79 Green vegetables 137 150 150 168 183 210 226 230 Potatoes 58 64 64 71 76 100 197 116 Fruits, tree crops Fruits 28 60 60 60 65 72 77 73 Grapes 34 35 31 40 42 47 45 49 Coffee 4 4 4 3 3 3 4 Industrial Crops Cotton 15 19 20 27 14 5 4 5 Tobacco -5 5 5 5 6 6 5 6 Sesame 5 4 4 5 6 6 6 6 Source: Central Planning Organization - 35 - Table 8.1: RESIDENTIAL CONSTRUCTION LICENSES Number of Area Licenses (In 1,000 Sq. Meters) Main Cities /1 1974. 1,653 475 1975 1,963 537 1976 3,744 1,170 1977 4.147 1,248 FY1978/79 5,244 1,632 Sana'a Only 1975 890 279 1976 1,598 551 1977 2,423 785 FY1978/79 2,733 980 /I Sana'a, Hodeidah, Taiz and Ibb. Source: Central Planning Organization - 36 - Table 9.1: CONSUMER PRICE INDEX FOR SANA'A (1972/73 - 100) Fiscal Years Ended June 30 Weights 1973/74 1974/75 1975/76 1976/77 1977/78 1978/79 General Index 10,000 154 203 237 293 348 425 Foodstuffs 6,500 165 187 210 256 301 352 Cereals 1,735 156 185 169 164 160 174 Dry vegetables 130 142 209 280 326 378 420 Meat, fish and eggs 1,205 155 199 264 365 467 551 Vegetables 447 142 173 215 323 406 443 Dairy products 301 140 164 177 266 347 413 Edible oils and fats 295 206 257 343 372 397 461 Fruits 513 123 169 221 270 264 283 Sugar and sweets 382 151 272 226 204 198 200 Soft drinks 148 140 179 202 250 302 305 Tobacco, etc. 967 134 141 158 282 309 404 Other 377 139 204 240 273 294 359 Clothes 581 155 229 263 313 351 442 Dwelling 1,946 186 259 337 435 539 647 Furniture 206 131 167 196 233 263 324 Durable goods 407 143 286 219 242 270 321 Rent and water 609 138 203 286 373 513 713 Fuel and lighting 724 266 374 487 643 791 870 Miscellaneous 973 152 180 206 245 280 347 Transportation 326 147 193 238 299 344 498 Education 87 143 170 205 224 251 368 Medical costs 268 166 181 188 226 267 307 Household cleaning items 166 153 172 191 208 221 234 Personal cleaning items 126 139 160 187 204 238 283 Source: Central Planning Organization. Table 10.1: ENROLLMENTS IN PRIMARY, PREPARATORY AND SECONDARY SCHOOLS Academic _ PRIMARY PREPARATORY /2 SECONDARY /2 Year /1 Male Female Total Male Female Total Male Female Total 1973/74 158,242 20,837 179,079 9,229 133 9,362 3,094 4 3,098 1974/75 209,996 22,788 232,784 11,236 927 12,163 4,153 197 4,350 1975/76 224,948 27,778 252,726 13,927 1,692 15,619 5,581 469 6,050 1976/77 191,258 30,224 221,482 16,062 2,913 18,975 6,485 712 7,197 1977/78 218,199 31,611 249,810 19,329 3,137 22,466 7,115 858 7,973 1978/79 225,691 26,897 252,588 16,349 2,503 18,852 6,526 639 7,165 /1 Annual series not always comparable. /2 Includes teacher training Source: Ministry of Education - 38 - Table 10.2: ENROLLMENTS IN TECHNICAL AND COMMERCIAL SCHOOLS Academic Year Technical Commercial 1970/71 92 43 1971/72 180 60 1972/73 250 124 1973/74 292 174 1974/75 337 215 1975/76 348 218 1976/77 291 213 1977/78 266 256 1978/79 267 350 Source: Ministry of Education - 39 - Table 10.3: NUMBER OF STUDENTS AT SANA'A UNIVERSITY Academic Year Male Female Total 1973/74 1,034 116 1,150 1974/75 1,630 226 1,856 1975/76 2,083 260 2,343 1976/77 2,733 370 3,103 1977/78 3,121 401 3,522 1978/79 of which 2,910 395 3,305 by faculty: Commerce 1,202 86 1,288 Arts 505 172 677 Science 145 33 178 Law (including 699 50 749 Islamic Law) Education 359 54 413 Source: Ministry of Education. - 40 - Table 10.4: HEALTH INDICATORS 1976/77 1977/78 1978/79 No. of Physicians 234 399 462 Local 124 255 292 Foreign 110 144 170 No. of Dentists 10 20 21 Local 3 11 12 F,oreign 7 9 9 No. of Pharmacists 21 44 56 Local 11 25 23 Foreign 10 19 33 No. of Medical Assistants 453 1,001 772 Local 433 978 756 Foreign 20 23 16 No. of Nurses /1 323 505 635 Local 200 312 351 Foreign 123 193 284 Hospitals Number 24 25 23 Beds 2,637 2,821 2,799 Dispensaries Number 13 20 24 Beds 355 535 605 Health Centers 16 16 18 Health Sub-Centers 11 18 23 Rural Health Units 75 106 106 Drug Stores 166 178 174 Pharmacies 16 18 24 /1 Including qualified midwives. Source: Central Planning Organization