Oil prices force government to decrease expenditures by 50 percent

Yemen has been negatively affected by the decrease in international oil prices, which have forced the government to reduce its spending for the 2009 budget by 50 percent.  

The government has announced the decrease in public expenditure for the 2009 budget by 50 percent due to the decrease in oil prices, which will cause the deficit to increase from YR 427 billion to YR 532 billion as the price of a barrel reaches $30 within 15 days, according to an official resource.

Prime Minister Ali Mujawar has said that the decision to economize expenses was taken by the government to help maintain the level of the public budget to face the impacts of the international financial crisis and the decrease of oil prices, in order to avoid resorting to foreign debts. 

He noted that this decision is subject to revision and amendments every 3 months in the light of the improvement of the flow of revenues. 

Mujawar noted that this decision was necessary to cope with the massive changes in crude oil prices, which the state depends on for 75% of its budget. 
Under the decision No. 467 for 2008, which was approved at the Minister’s Council’s, salaries will be exempt from cuts, the source said.  

The move comes as a result of the fall in oil prices, which slumped to $36 a barrel. The source made clear that the drop in oil prices will lead to a financial deficit in the 2009 budget, increasing it from YR 427 billion to YR 532 billion as the price of a barrel reaches $30.

Minister of Finance Noman al-Suhaibi said that the measures taken by the government in to reduce by 50 percent total public expenditure for 2009 will include all government bodies, including economic units, and the budgets of the independent units. 

He confirmed that the investment program for the 2009 budget would witness a decrease, with the exception of projects already under implementation.

Al-Suhaibi said that the decrease would include the office of the President, Prime Minister, Parliament, the Shura Council and the judiciary branch as well as the Ministries of Defense, Interior and security agencies. 

He called all government bodies to abide fully by this decision and deal with its consequences, as well as work to adopt and implement strict austerity measures in various areas of expenditure. 

Al-Suhaibi demanded concerned bodies and people redouble their efforts to collect legally all financial resources at the central and local levels. He argued that we must improve those financial resources to reduce the negative effects of global financial crisis, whose main effect so far on Yemen has been the decrease in oil prices. 

Al-Suhaibi stated that the consequences of the decline in the price of oil and other effects will reflect negatively on balance of payments and the balance in trade, as well as other financial transactions, monetary and economic conditions. 

Governmental employees have shown their anxiety as a result of this decision, which will lead to a decrease their incomes. Some of them have announced they are looking for an additional occupation to help them live through these difficult times.

The government and Parliament have confirmed the application of programs aiming to improve economic and social stability, and consolidate the country’s development gains. More specifically, the goals include raising the standard of living, fighting poverty, and enhancing the investment climate- all in a way which meets national security requirements and social peace. 

The budget will ensure the continuation of the implementation of the National Wage Strategy, focusing on the relationship between production and wages, and cleaning the pay sheet of duplicated and fallacious jobs.

The budget will work to modernize and develop human resource management systems, and provide the necessary requirements for decentralizing the country’s administration. It will also continue the implementation of the government’s efforts on strategic road projects, research new sources of sustainable public income, in addition to strengthening efforts to combat poverty and promote social safety programs, according to government financial statements read by Noman al-Suhaibi, Minister of Finance. 

The public budget for the fiscal year 2009 estimated general available resources at YR 1.5 trillion (1,537,168,000,000). The general estimated expenses are YR1.9 trillion (1,963,995,000,000) in the state budget for next year. 

Current expenditures are estimated at YR1.4 trillion. Capital and investment expenditures are estimated at about YR 529.100 billion (529,100,000,000). The Cabinet referred the budget draft to parliament for the completion of constitutional procedures and approval on both a central and decentralized levels, including independent and annexed budget drafts, the special funds, and economic units. 

The net total deficit for the general budget in 2009 will be 7.37 percent of the total gross domestic product.  The Cabinet recommended the net deficit should not exceed at implementation the determined conditions for economic reforms.  

Regarding the independent annexes and special funds for 2009, the draft law rated the sources and usage of the unified accounting system affiliates at YR 347,512,638 billion. The government’s account system affiliate units are rated at 32 148 408 000.  

On Nov 8, 2008, Parliament approved measures to reduce the effects of the financial crisis. The recommendations of Parliament stressed the need to apply measures to rationalize all expenditures from the 2009 budget; however this rationalization must not affect the financial allocations of the investment expenditure program. 

Parliament has obligated the government to provide these measures and procedures during a discussion of the public budget for the 2009 fiscal year. 

Parliament directed the government, which was represented by the Ministry of Finance, Tax Authority and Customs Authority, to collect all taxes and customs fees and speed up potential amendments to the Income Tax Law. It suggested the cancellation of customs exemptions, and the need to strengthen the capacity of promising sectors such as agriculture, fisheries and tourism, which can raise revenues and compensate for fluctuations in incomes from other resources.

It also recommended developing the necessary infrastructure to attract domestic and foreign investment, and removing obstacles to creating a favorable investment climate which could help solve the related problems of unemployment and poverty. Improving the investment environment would help Yemen overcome expected difficulties related to a possible economic slowdown, which is considered a strong possibility in light of the global financial and economic crisis. 

The recommendations proposed the government take all necessary measures to stop the smuggling of oil derivatives, and to expand investment in the oil and gas sector because of its great importance to the national economy.

Parliament’s Financial Affairs Committee revealed the most negative effect of the global financial crisis on national economy is the retreat of oil prices. This decrease will negatively affect budget resources as well as the balance of payments and trade balance. This decline will ensure the government runs a deficit rather than a surplus. 

The challenge facing Yemen is the need to strengthen the capacity of our national economy, exports from the non-oil sector and to create and develop other resources to supplement the public budget. The public budget depends on oil revenues for 75 percent of government spending. So, the exploitation of promising sectors to diversify the structure of the national economy is essential to reduce the national dependence on oil. 

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