Outlook for 2011-12

• The position of the president, Ali Abdullah Saleh, looks untenable, after a host of political, military and tribal allies have deserted him in recent months.
• Although an internationally formulated proposal, which would entail Mr Saleh leaving office in 30 days, has been accepted by the president and the opposition, we do not expect it to be implemented in its present form.
• There are risks that the military will split along political and familial lines, which, if unchecked, could see an outbreak of large-scale internecine violence.
• Although Yemen's neighbours and a number of Western powers would seek to assist in the country's post-Saleh transition, in reality their concerns will predominately be security-related.
• The unstable political climate will slow economic reform, and for the time being the ten-point programme of economic reform will be superseded by the government's desire to restore stability.
• Given the growing public pressure on the leadership, we now believe that any major moves to rein in spending will be deferred this year. As a result, we expect the fiscal deficit to widen in 2011, despite rising oil prices.
• We expect that economic growth will slow in 2011-12, hindered by falling oil output and the disruption to the economy caused by widespread unrest.
• We have revised higher our inflation forecast for 2011, to 16%, in line with anecdotal reports of fast-rising foodstuffs and gas prices (the latter reflecting supply disruptions).

Monthly review

• Following weeks of negotiations, the president and the opposition parliamentary coalition have agreed to a plan that would see Mr Saleh stand down after 30 days, and a new presidential election occur 60 days thereafter.
• Despite winning the backing of the political establishment, the so-called 30:60 plan has failed to win the backing of the protesters, who want Mr Saleh to stand down immediately and reject a proposal to grant him immunity.
• Tribesmen in Marib have blocked the supply of propane into Sanaa, causing the price to spike and leaving irate consumers empty-handed.
• According to the Yemen General Authority for Investment (YGIA), construction has been postponed on five plants financed by Yemeni and Gulf investors, owing to the ongoing instability and political tensions.
• The Central Bank has announced that its foreign-exchange reserves fell to US$5.1bn in mid-April, compared with US$5.9bn at end-2010. This will erode its ability to support the riyal, and will in turn have inflationary implications.