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 SANAA 00002072 002 OF 002 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