SANAA: Yemen’s new gas industry and foreign aid will fuel economic growth of up to 8 percent this year, despite insecurity that has helped drive the riyal to its lowest level for years, a senior central bank official said.
The impoverished Arab country is fighting a civil war in the north. Its population of 23 million is growing at 3.45 percent a year, even as oil reserves dwindle and water resources dry up. But fears of economic collapse are misplaced and the central bank is ready to sell more dollars to defend the riyal, Ibrahim Al-Nahari, sub-governor for foreign banking operations, said.
“I expect 2010 will be a very good year compared to 2009, he told Reuters. “We are hoping to see growth between 7.5 and 8 percent. This is basically attributed to the growth in gas.”
Exports from a $4.5 billion liquefied natural gas (LNG) project began only in October, several months behind schedule, keeping real growth in gross domestic product (GDP) to 4.1 to 4.2 percent in 2009 against a targeted 5 percent, Al-Nahari said.
Oil income, which accounts for up to 75 percent of budget revenue, plunged to $2 billion in 2009 from $4.4 billion in the previous year when world prices peaked, he said.
Tourism earnings and remittances from Yemenis working abroad also suffered in the global financial crisis.
But Al-Nahari said revenue would rise this year with oil prices up and LNG exports gradually increasing, while more of the $5 billion in foreign aid pledged in 2006 would be disbursed.
Yemen’s budget is strained by fuel subsidies, especially imported diesel, which cost it more than $2 billion in 2009, Al-Nahari said. The bill for diesel subsidies, a fraught political issue, will be similar in 2010, the Finance Ministry says.
Al-Nahari said Yemen held foreign reserves of $7 billion, equivalent to 10 months of imports, and the central bank would sell more dollars if needed to calm jitters about the riyal.
“The volatility is not due to economic factors but due to psychology,” he said, blaming “rumors” about economic weakness.
“We will not allow drastic changes in the exchange rate,” he said. “If we see any pressure on the exchange rate due to non-economic reasons, then we sell dollars.”
Al-Nahari said exchange rate fluctuations had averaged less than 2 percent in the past five years.
Last week, when moneychangers said the riyal had weakened to 215 to the dollar from 208 the previous week, the central bank offered $200 million, but the market took only $150 million. The next day it sold $90 million out of $100 million offered.
