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How is Yemen Reacting to Low Oil Prices?



The country suffers from a catastrophic humanitarian crisis resulting from war, conflict and low oil prices. Oil is the main source of the government budget, accounting for more than 60 % of fiscal revenues. As a result of war, sabotage on oil fields and falling oil prices, oil revenues fell to 3 % of GDP in 2015 from 13 % of GDP in 2013, a drop of $4 billion in a country with a GDP of about $38 billion.

The fiscal deficit has widened to 11.4 % of GDP in 2015 from 4 % of GDP a year earlier. The government is financing the deficit by issuing debt which has led to a large increase in total public debt from $22.1 billion in 2014 to 25.9 billion in 2015, reaching 94 % of GDP. The 2015 loss in foreign financing and in oil and gas exports increased pressures on the Central Bank’s foreign assets, which declined from $5.3 billion (5 months of imports) in 2013 to $2.1 billion (about 1.5 months of imports), a level that is not sustainable.

In response to low oil prices, the government has reduced spending and suspended the public investment program and cash assistance to the poor, and cut the premium on wages. It has also reduced spending on basic social services, such as education, health, water and electricity, resulting in a complete suspension of diesel and fuel oil-powered stations.

Falling oil prices have also given rise to a black market where the currency has lost more than one quarter of its value so far. As a result of all of these, the number of poor has been rising, exceeding more than 85 % of the population.