YEMEN'S ECONOMY AS SEEN BY WORLD BANK ECONOMISTS

UNCLAS SECTION 01 OF 02 SANAA 000595

SIPDIS

E.O. 12958: N/A
TAGS: ECON PGOV EAID PINR YM WTRO ECON COM
SUBJECT: YEMEN'S ECONOMY AS SEEN BY WORLD BANK ECONOMISTS


1. Sensitive But Unclassified, please protect.


2. (SBU) Summary: Two World Bank economists in Sanaa are
complimentary about the ROYG's fiscal policy and commitment
to reforms. In a March 17 discussion with Emboffs, the bank
economists gave positive assessments of Yemeni fiscal
discipline, currency management and WTO prospects. End
Summary.

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Fiscal Policy
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3. (SBU) World Bank Senior Economist for Yemen Nadir A.
Mohammed (please protect throughout) and Economist Mohammed
Al-Sabbry both have positive forecasts for the Yemeni economy
despite Yemen's per capita income of $460 USG, literacy rates
of 56 %, and prospects for oil revenues dwindling in the next
five years. Nadir said that while they have a huge
challenge, the Yemenis are on the right track. Citing five
billion dollars in foreign reserves, he said the ROYG
compared favorably to other countries that have spent their
recently increased oil revenue less wisely. (Note: Yemen
Central Bank Figures for February report 4.75 Billion USG in
Reserves. End Note.) Mohammed said that he was impressed with
the frankness and openness of his Yemeni contacts, and felt
that the ROYG's fiscal policy was sound. He said that the
ROYG appears to have learned lessons from 1991 (the first
Gulf War),and 1994 (the abortive rebellion in the South).

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Currency
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4. (U) Nadir also praised the ROYG Central Bank for holding
firm on its decision to float the riyal. Nadir's point was
confirmed when on March 19 Pol/Econoff visited Omar S.
Bazara, the Payment Systems Director of the Yemeni Central
Bank. He reported that the Central Bank was selling dollars
to keep the riyal from slipping further on the dollar as a
result of worries about an attack on Iraq. For the last
month, the riyal had held firm at 182 riyals to the USG
dollar, but yesterday the rate had increased to 183 Yemeni
riyals to the dollar. One of our FSNs reported that same day
that the black market rate had risen to 186 riyals to the
dollar.

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Yemen's Bid to Join the World Trade Organization
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5. (U) Mohammed was optimistic on the ROYG's prospects for a
faster than average accession to the World Trade
Organization. He estimated that it could take four to five
years, less than the average seven to eight years, because
Yemen's neighbors and others are unlikely to press strong
objections to Yemen's candidacy. (Background: In October
2002, Yemen submitted its Memorandum on Foreign Trade Regime
to the World Trade Organization. End Background.)

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Fishing Rights
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6. (U) Mohammed Al-Sabbry said that the Bank was closely
following USG efforts to improve the capacity of the Yemeni
Coast Guard and Navy because the illegal harvesting of fish
has adversely affected the Yemeni fishing industry.
Specifically, Chinese fishermen take their boats to the Red
Sea to harvest and process their fish. According to Nadir
Mohammed, the Chinese obtain licenses for a lower amount of
fish, then through bribery of unnamed Yemeni officials,
vastly exceed their allotment. Fishermen from Egypt, Eritrea
and Ethiopia also have been over-fishing in Yemeni
territorial waters. Al-Sabbry said that Bank experts are
worried that if Yemen promotes fish exports too heavily, the
waters might be over fished, damaging a potentially lucrative
resource for the ROYG. Thus, any effort to improve the
ability of the ROYG to protect their fishing rights will have
a direct impact on the local economy.


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Boycott on US/Israeli Products
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7. (U) Pol/Econ Chief noticed a sticker pasted onto the front
door of the Jordanian owned restaurant calling for a boycott
of American and Israeli products. He wondered aloud in the
owner's presence why the sticker was so prominently
displayed. After the meal, Pol/Econ chief noticed that the
sign had been removed. However, other contacts report mixed
results for the boycott of US and Israeli goods. The local
Pepsi distributor told one of our FSNs that he had seen only
a 10% decline in business in 2002, noting that this decrease
was much less than Pepsi had felt in other countries. A
colleague at the British Embassy related a story about taking
a delegation of nine British security officials to do some
shopping at a store where a boycott sign was displayed. The
team made the removal of the sign a condition of doing
business with the store, but the owner refused to comply and
the team went elsewhere.

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Bio Note
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8. (SBU) Nadir Mohammed said that he was born in the Sudan,
and received his doctorate in Economics from Cambridge
University where he also completed his post doctoral studies
and did some teaching. He has worked at the Islamic
Development Bank in Washington, and has held jobs with the
World Bank in Morocco, Ethiopia and Egypt. He expects to
leave Yemen in the coming year and said he would like an
assignment in Southeast Asia.
HULL