DONORS QUESTION ROYG COMMITMENT TO DEVELOPMENT

UNCLAS SECTION 01 OF 02 SANAA 002072

SENSITIVE
SIPDIS

NEA/ARP FOR ANDREW MACDONALD
USAID FOR CHRIS KISCO
DEPT OF TREASURY FOR BRIAN MCCAULEY
USTR FOR JASON BUNTIN
DEPT OF COMMERCE FOR TYLER HOFFMAN
USTDA FOR CARL KRESS

E.O. 12958: N/A
TAGS: ECON EAID PREL PGOV YM
SUBJECT: DONORS QUESTION ROYG COMMITMENT TO DEVELOPMENT

REF: SANAA 1549


1. (SBU) Summary. Donors questioned the pace of Yemen's
development in a meeting with visiting World Bank Middle East
and North Africa (MENA) Vice President Samshad Akhtar on
November 7. Akhtar responded to donor concerns, emphasizing
that the ROYG appears to understand its development issues,
but may need more time to establish political consensus on
sensitive items like removing fuel subsidies. Meanwhile,
visiting IMF Economist Todd Schneider stressed that the
fiscal deficit will be a real budgetary issue in 2010. In
the wake of visits from the World Bank MENA VP and the IMF
Mission, the ROYG's disjointed approach to economic
development appears all the more glaring, as the ROYG has yet
to prove itself as a committed development partner. End
Summary.

DONORS, WORLD BANK, AND IMF LAMENT DEVELOPMENT
-------------- -


2. (SBU) In a meeting with visiting World Bank Middle East
and North Africa (MENA) Vice President Samshad Akhtar on
November 7, donors spoke candidly about economic reform
issues, bemoaning the pace of Yemen's development. Donor
laments covered the large swath of issues affecting Yemen,
ranging from stability to more traditional development
subjects like the need for increased donor coordination. The
UN representative alarmingly summed it up, stating that
"Yemen is not on track for any single Millennium Development
Goal (MDG)." Overall, the emphasis was that action - on both
the part of the ROYG and donor community - needs to happen,
and soon.


3. (SBU) The World Bank's Akhtar responded to donor
concerns, emphasizing that the ROYG appears to understand its
development needs, but may need more time to establish
political consensus on sensitive items such as removing fuel
subsidies. Akhtar suggested the ROYG needs to balance macro
problems with overall development, and identified problems
with land registration, alarming levels of qat consumption,
and water scarcity as fundamental causes of instability.
When VP Akhtar suggested that she start a dialogue process
now and return in February, donors protested the waiting
period, stating that the need for better donor coordination
should not wait, but commence now. The World Bank indicated
more resources (up to USD 200 million) could be generated
this year for existing programs, making the need for
coordination even greater.


4. (SBU) On the heels of the World Bank visit, an IMF
mission (in town for the Article IV consultation) stressed
that the fiscal deficit will be a real budgetary issue in

2010. (Note: The IMF conducts annual "Article IV
consultations" to assess the health of a country's economy
and forestall any future financial problems. End Note.)
According to the IMF team leader, the ROYG continues to
suffer from a rigid expenditure structure, low (to no) tax
collection, and a continued dependency on oil revenues.
Todd Schneider, Chief Economist who works on Yemen for the
IMF, said on November 9 that the ROYG has already "pulled out
all the stops" in terms of managing public debt, issuing
treasury bonds, and Central Bank financing (printing money).
Without much room for recovery, he predicted the ROYG will
develop a much higher deficit and accrue arrears in 2010,
unless it implements drastic changes.

ROYG APPROACH APPEARS DISJOINTED
--------------


5. (SBU) In the wake of visits from the World Bank MENA VP
and the IMF Mission, the ROYG's disjointed approach to
economic development appears all the more glaring. The
Ministry of Planning and International Cooperation (MOPIC)
has a development program embodied in the Socio-Economic
Development Plan for Poverty Reduction (DPPR),the Public
Investment Programme (PIP),and the showcase National Reform
Agenda (NRA). Yet, coordination with the donor community in
the implementation of these programs and the will to address
major development issues is distinctly lacking, particularly
in the difficult sectors such as addressing fuel subsidies,
land registration, qat overuse, and water scarcity.


6. (SBU) Since August of this year, a parallel development
program, "Yemen's Top 10 (Economic) Priorities," has gained
national attention (REFTEL). Developed by a group of

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reform-minded economic advisors to President Saleh, the plan
was created outside of the traditional development apparatus.
While it has received the President's blessing and gained
popularity among Western donors, it has not won many allies
in MOPIC, where some officials believe it is not feasible to
achieve the initiatives outlined with an eighteen-month
timeframe. (Comment: Underlying this criticism may also be a
certain resentment that the Ministry was not consulted
thoroughly in its development. End Comment.) With a
disjointed development apparatus, the ROYG has left the donor
community without a clear sense of its development policy,
since it lacks a coordinated and agreed-upon strategy.


7. (SBU) Comment. There is a strong desire among the donors
to coordinate more closely and identify joint programs with
common goals. Despite partnering with USAID in the
conceptualization of its new three-year stabilization
strategy, the ROYG has yet to prove itself as a committed
development partner to the donor community at large.
Although some donors are treating the "Top 10 Priorities" as
a subset of the National Reform Agenda (NRA),the donor
community could use a clearer message from the ROYG regarding
development policy. Ideally, that message would be a
holistic approach to development, coordinating within the
ROYG and with the entire donor community. End Comment.
SECHE