Yemen is expected to return widening current-account deficits in 2011-12, as the impact of a growing import bill is exacerbated by falling oil production. We expect the import bill to increase by 10% this year, as global commodity prices surge, although import growth should slow in 2012 once the fuel subsidy reduction programme recommences (which will lessen demand for imported refined oil products). Export earnings, meanwhile, will rise by 16% in 2011, lifted by rising oil prices and higher LNG exports, before falling in 2012, in line with declining oil production. Nevertheless, the trade deficit is projected to widen markedly over the forecast period, from an estimated US$815m (2.5% of GDP) in 2010 to US$1.8bn in 2012.

We expect the non-merchandise deficit to narrow over the forecast period, however, as high income debits (reflecting the repatriation of profits by Yemen LNG's foreign investors) are more than offset by rising current transfers credits, as donor aid rises and Yemeni workers' remittances from the GCC recover. Overall, the current-account deficit is expected to widen from an estimated US$1.9bn in 2010 to US$2.6bn in 2012.