The World Bank approved a credit of the equivalent of US$ 50 million to support a Public Sector Management Adjustment Project last month (March 23, 1999). The credit will support policy actions designed to improve the public sector's performance in Yemen. The availability of this financing will mitigate the negative impact of the sharp fall in oil prices during 1998 on the balance of Yemen's debt repayments.
The reform of the public sector is the next critical phase in the ongoing economic reform program the Government of Yemen has been implementing since 1996. The first phase of reforms successfully lowered inflation, stabilized the currency and introduced crucial reforms in liberalizing trade, as well as improving the working of the financial sector and the environment for investment.

"The credit is the first in a series of public sector management adjustment operations," says Inder Sud, World Bank Director of the Middle East Department. "This operation supports specific actions in two major areas. First: supporting the program of the civil service reform, which includes focusing the roles of the Government ministries on crucial functions, reengineering selected public agencies, and restructuring the public sector labor force. Second: the program supports the restructuring of public expenditures, which involves creating an improved project data base, prioritizing sectoral expenditures, and making adequate provisions for operations and maintenance budgets. In addition, the reform program also supports improvements in the budgeting process and broadening the tax base through the introduction of a generalized sales tax.

As an integral part of the program, the World Bank is supporting measures to assist the poor during the adjustment period. A second public works project is being implemented and the operations of the Social Fund for Development (SFD) have been expanded. The SFD, supported by the Bank, finances microenterprises which create employment amongst the poorest people of Yemen.
The credit, whose documents will be signed on Tuesday, April 13, 1999 at the Ministry of Planing and Development, will be disbursed in a single payment of US$ 50 million. The credit is on standard IDA (International Development Association, which provides financing on highly favorable loans for the world's poorest countries) terms with a 40-year maturity, a 10 year grace period, and 0.75% service charge.

It is worth to mention that the World Bank stated that it is willing to lend Yemen up to seven-hundred-million dollars over the next three years if the government continues an economic reform program. The Middle East director for the bank, Inder Sud, said in Sanaa that the loans would be allocated for improvements to Yemen's local and national government administration systems; to the water supply, education and health sectors; and to encouraging private enterprise. Inder Sud called on the Yemeni government to stick its reform policies, which had enabled the World Bank to increase its funding compared with the four-hundred-and-twenty-million dollars allocated over the past three years.

Hatem Bamehriz of the Yemen Times attended the World Bank Press Conference related to this latest credit to Yemen last Tuesday, the 13th of April at the Ministry of Planning and Development, and interviewed the following people.

Mr. Inder Sud, Director of the Middle East Department of the World Bank.

Q: What are the World Bank's commitments to basic issues of employment, poverty and meeting the needs of people?
Mr. Inder Sud: First of all, we have not forgotten about the basic issues of employment, poverty and meeting the basic needs of people. These things are part of the package that any government must continue to deal with, and without growth you can not look after the social needs and the improvement of public administration. This is a package of programs that we certainly want to support it fully. What I said in my statement is that in the next three years, besides continuing with things like social funding, and public works that we are working on, we would like to pick a fewer areas where we can make a big push. It seems to us in Yemen that the education of children and women is very important. That is why we give the matter prominence, but it does not mean we forget about other areas. It is just to point out that in the next few years we will be giving a greater push in this area.

Q: What is the expected percentage of growth in 1999?
Minister: We hope that in 1999 we can achieve 5.3% growth in the gross local production according to market prices. But I feel that, due to the sharp fall in oil prices which are an essential part of our exports, if we reach 3.8% or 4% it means that we have achieved a minor miracle. Achieving such growth in production, not only in the Arab areas but in most countries of the world is not an easy task; but we hope that our country can achieve such growth. Of course, we will do our best to achieve this number and we will definitely publicize the results. We expect that in the year 2000 our growth will be about 4%, in 2001 the figure could be 4.5%, and in 2002 we could reach 5%, which are reasonable figures.
It means a lot to us to achieve higher growth rates.

Q: Would you please give us statistical information on
unemployment, inflation and the gross national product?
Minister: I would like to state that the concept of indicators has two meanings: expected indicators and achieved indicators. When you talk about an indicator, it refers to an expected indicator and by the end of the year we hope to come to the estimated figures, maybe slightly more or less, which is the normal case. Regarding unemployment percentages in Yemen, which is still high, there is no annual data on this subject. We are keen to fix this problem, but during the population census of 1994, the unemployment level reached 27-30%. There are new concepts in specifying the meaning of unemployment, but I think that within the coming years we will have accurate annual and semiannual data to deal with this matter. Our database is still limited in Yemen. The inflation rate that we are expecting to encounter for the year 1999, is approximately 5%, but we might reach a lower figure. We are quite optimistic, the implementation level up to now indicates good potential. There was great optimism during preparation of the expected budget deficit for the year 1999 in November and December, but during implementation there were some disappointments, now our expectations are much better than in November and December. The deficit might decrease greatly; the loan we have signed today with the WB will assist the government to reduce the budget deficit expected for the year 1999. The planned gross products, despite the fact that there is no way to achieve a planned gross product, but if we manage to achieve a certain growth percentage that is 4%; it is a good indicator. If a lower percentage is achieved it means a reasonable level of success. The inflation percentage achieved in 1998 was about 6 %.

Q: What is the expected budget deficit for the year 1999?
A: The budget deficit that we were expecting for the year 99 during preparation of the budget was about 3.8 %. But we hope now that such a deficit would decrease to reach a better figure than in 97 and 98. At the end of the year I could tell you the exact figure.

Q: What are the issues you concentrate on? And how do you utilize these loans from the World Bank?
A: The basic issues that we deal with are those necessary issues of civil services, improvement of judicial implementation, and dealing with our troubles and difficulties such as population growth, qat, security, and weapons. These issues the government deals with require some support from various public and political institutions, for instance the political competition. Such matters require a unified vision regarding qat, merging women into the society, education, the improvement of the implementation and quality of the administration apparatus.

These are some of the most important issues that we are looking forward to achieving with the extended efforts of the concerned parties at the ministries. In this framework we concentrate on basic issues, for instance, what has been implemented during the last few months regarding essential matters we deal with daily. In one such case, the issue of Sanaa's sewage, a very vital case related to the public health, the ministry of electricity and water, the general authority of water sanitation and the ministry of planning and development worked jointly to increase the efforts toward dividing the expected loans and grants from the Arab fund and the World Bank. Now we guarantee reasonable amount to enter this aspect soon in 7-8 areas in the capital. Besides Al Mukala, Al Hoddeida and Taiz sewage water, there are projects that are estimated at US $ 270 million within the coming period. The main directions in this period is laying out future strategies and improving the implementation of all projects institutions.

Q: What are the targets achieved by the reforms process so far?
A: The taken procedures aimed to improve the level of implementation on such various aspects as reducing the outlay on imported grain led to many advantages. First, it enabled Yemeni farmers to compete with the imported quality, secondly it improved the government's ability to redirect funds that used to go into subsidization into real investment aspects, such as the education and health sectors.
Frankly, the concept of administrative reform does not mean only the reform of prices, it is much wider. We think that we have almost finished the prices reform. Regarding construction and management reform programs, such tasks require sustained efforts and widespread procedures as improvement of the various institutional performance and improvement of services. The citizens experienced some changes, some have benefited while the others have lost, such as one employee who had 4-5 jobs and received many salaries. Definitely there will be a huge affected portion describing this phase as a painful one, which is not, on the contrary it is a useful one.

Q: Is the agreement with WB conditional?
A: Conditions; a financier or a loaner should lay down certain conditions, as a matter of course. When you go to the bank to borrow some money, the bank will ask things such as what is the purpose of this loan, especially if the loan is a facilitated one with a 40-year maturity and an interest of less than 1%, like a grant.

Q: What is the expenditure value of the loaners for their consultations?
A: We should realize that any project requires certain directions from other nation's experiences, and our own experiences. When we talk about privatization, the transportation sector for instance, such a matter needs a clear vision and examples of privatization, studies and researches, these things require certain capabilities that we do not have. As a government we are trying our best to deal with these projects effectively, and implement our development goals.