IMF sees scope for Yemen CB to cut interest rates

28 Jan 2013

(MENAFN) The International Monetary Fund said that Yemen’s central bank can cut interest rates gradually to support economic recovery, Reuters reported.

Khaled Sakr, the IMF mission chief for Yemen said “In view of the continued decline in inflation, there is scope for a further gradual reduction in the interest rate to stimulate bank lending to the private sector.

Yemen saw inflation level jumping to 25 percent year-on-year in October 2011. Nevertheless, it eased to 5.5 percent in November 2012, according to the latest central bank data.

In October last year, the central bank slashed its key deposit rate by two percentage points to 18 percent following a sharp fall in consumer prices and the stabilization of Yemeni rial currency.

Sakr said international support is critical to enable Yemen to consolidate its stabilization and advance reforms to boost employment and reduce poverty.

The IMF is ready to consider further financial aid in 2013 if it is approached, he added.

Sakr expected Yemen’s economy to grow by around 4 percent in 2013, after having stabilized in 2012. It shrank 10.5 percent in 2011.

He was also more optimistic in his estimates for Yemen’s 2013 government budget deficit. He said he expects the budget deficit to be a little higher than the 2012 estimate of around 5.5 percent of gross domestic product.

The government expected the budget gap to reach 9 percent of GDP.

The IMF wants Yemen, the poorest Arab nation, to focus on consolidating its public finances.

In order to achieve that, Yemen should mainly focus on slashing energy subsidies of around 8 percent of GDP and the public sector wage bill now at more than 10 percent, Sakr said.