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Yemen finances improved, currency to stabilise – IMF official

Economic challenges still enormous.

November 9, 2010 12:01 by

An International Monetary Fund official has praised Yemen, under U.S. pressure to battle al Qaeda militancy in the impoverished country, over an improvement in public finances, saying it would help stabilise its currency.

“Important progress was made this year to strengthen public finances and the revenue base. This will contribute to low inflation, greater exchange rate stability, and more investment and pro-poor spending over the medium-term,” Masood Ahmed, Director of the IMF’s Middle East and Central Asia Department, said in a statement issued late on Monday.

“Nevertheless, the economic challenges facing Yemen are enormous. These relate to Yemen’s heavy reliance on declining oil revenues, high unemployment, widespread poverty, and the country’s huge developmental needs.”

The central bank has intervened several times this year to support the rial, which hit 250 to the dollar in August, the weakest level in its history.

The rial has been undermined by the crippling of Yemen’s economy by constant insurgencies and a civil war as well as massive unemployment.

A year ago the currency stood at about 206 to the dollar. The currency held stable in the past two months at around 215 to the greenback, aided by central bank interventions.

An IMF delegation met government officials, diplomats and donor groups for regular annual consultations on Nov. 7, it said.

The IMF predicts real GDP growth of 8 percent in Yemen for 2010 but a drop to 4.1 percent in 2011.

Yemen’s central bank has said it expects inflation to remain at 8 percent during 2010 and 2011. The IMF sees average inflation of 9.8 percent in 2010 and 8.9 percent in 2011.

The discovery last week of U.S.-bound parcels carrying bombs from Yemen has added to investor concerns about security in the the country which is the poorest in the Arab world. The bombs are thought to be the work of al Qaeda’s Yemen-based arm, al Qaeda in the Arabian Peninsula (AQAP).

A World Bank official told Reuters this month international donors are finding it harder to locate investment projects in the impoverished Arab state, crippling its efforts to diversify its economy away from hydrocarbons.

Donor nations have voiced support for Yemen to help contain the al Qaeda threat and tackle other security challenges including conflicts with northern rebels and southern secessionists.

One in three of the 23 million people suffer chronic hunger in the Arabian Peninsula state, according to U.N. agencies.

(Reporting by Andrew Hammond; editing by Stephen Nisbet)

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