Fiscal Position To Weaken In Long Run

On the back of our projection of rising oil prices in 2011, we revise Yemen's 2011 fiscal deficit forecast to 2.0% of GDP from 2.6% previously (compared to 3.8% estimated for 2010). However, hydrocarbon production in Yemen is declining and fiscal consolidation will only be sustainable as long as oil prices surge. Subsequently, from 2013 onwards the deficit will start widening and reach 4.9% of GDP by the end of our five-year forecast period. A massive surge in foreign aid poses upside risks to our forecasts, but unless we see a strong pick-up in the country's non-hydrocarbon sector, we don't expect to witness the budget balance flipping into surplus in the foreseeable future.

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