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INTERVIEW-Yemen receives promises for more aid from Gulf states

Source: Thomson Reuters Foundation - Mon, 21 Jan 2013 13:26 GMT
Author: Reuters
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* Donor aid has only arrived from Saudi Arabia -planning minister

* Aid delayed by technical issues, lagging heads of state approvals

* Govt to look at how to bring 2013 fiscal deficit down to 5 pct/GDP

By Mohammed Ghobari

SANAA, Jan 21 (Reuters) - Gulf Arab countries have promised Yemen aid on top of the ${esc.dollar}7.9 billion pledged by foreign donors last autumn, but an amount has yet to be specified, a Yemeni government minister said on Monday.

"We got promises from the Gulf ... regardless of previous commitments ... to fund other projects," Minister of Planning and International Cooperation Mohammed al-Saadi, whose ministry negotiates with donors, told Reuters.

He said Yemen had received promises that any additional projects will be funded by Gulf donors once the government has allocated the initial ${esc.dollar}7.9 billion of aid.

The poorest Arab country is seeking an additional ${esc.dollar}4 billion in aid, mainly from wealthy neighbours such as Saudi Arabia, to fix its public finances and revive a crumbling economy hit by unrest and clashes with militants.

Yemen's economy nearly collapsed after a year-long uprising that pushed long-time strongman president Ali Abdullah Saleh from power in February 2012 and allowed al Qaeda militants to infiltrate lawless tribal regions.

Restoring stability is seen as key by Washington and Gulf countries because of Yemen's location on the important Red Sea oil shipment route and the threat from al Qaeda.

Donor pledges in September by the Friends of Yemen group came short of ${esc.dollar}12 billion sought by the government to solve the humanitarian and budget crisis and upgrade infrastructure.

The World Bank said at the time the pledges should be enough to meet budget shortfalls in the cabinet's reconstruction plan over the next 18 months.

Nearly four months after the pledges were made, Yemen has only received a ${esc.dollar}1 billion loan, deposited by Saudi Arabia in the central bank, with the remaining funds delayed by technical issues or lagging approvals by donor heads of state, Saadi said.

The Yemeni government has already identified and costed most projects it would like to get aid for and is waiting for donor countries to approve funding for the proposed projects, he said.

"Many donors have already agreed on these projects, and there are upcoming meetings with these countries," Saadi said.

"Some Gulf states say that they need top-level directives from the heads of states, while others such as Kuwait need the approval of parliament."

The Arabian Peninsula state has yet to receive some ${esc.dollar}3 billion promised by donors in 2006. That aid was delayed due to disagreements over which projects the money should be spent on, with some Gulf states holding money back for political reasons.

The Friends of Yemen is a group including the five permanent members of the U.N. Security Council - China, France, Russia, Britain and the United States - and six Gulf Arab states.

BUDGET STRAINS

Yemen's budget deficit is projected to widen to 9 percent of output this year - a more pessimistic forecast than that of the International Monetary Fund, which said in October the deficit would deepen to 6.0 percent of gross domestic product in 2013 - the highest since 2009 - from 5.7 percent in 2012.

Saadi said the government would continue to look for ways to bring Yemen's fiscal shortfall down to 5 percent of GDP and that it hoped additional aid promises would help cut the gap.

Yemen has been under severe fiscal strains, partly due to frequent bombings by insurgents or tribesmen of oil and gas pipelines as it depends on crude oil exports for about 60 percent of its budget income.

It has received oil from Saudi Arabia and the United Arab Emirates in the past to help ease fuel shortages caused by the attacks. The country needs crude prices to average ${esc.dollar}237 per barrel in 2012 to balance its budget, well up from ${esc.dollar}130 in 2010, the IMF has said.

Saadi said the government's main mission was to keep the rial exchange rate to the dollar stable, so as not to increase hardship for the population of 24 million, two in five of whom live on less than ${esc.dollar}2 a day.

"That's why we will continue to work on providing hard currency to the central bank (to ensure) that the currency reserve doesn't diminish. We're looking for fast tracks to execute donors' pledges," he said but did not give details.

The rial sank to about 243 to the dollar in 2011 due to the political and security turmoil. Since then, although violence continues in some areas, it has recovered to 215. Central bank net foreign assets stood at ${esc.dollar}4.8 billion in November.

In 2011, the economy shrank 10.5 percent, the first fall since the 1990 unification of north and south, destabilising the state and worsening poverty. The IMF forecast GDP to grow 4.1 percent this year after a 1.9 percent contraction in 2012. (Additional reporting by Martin Dokoupil and Mahmoud Habboush in Dubai; Writing by Martin Dokoupil; Editing by Catherine Evans)

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