We have revised up our projections for Yemen's current-account deficit, in response to an increase to our forecast for global foodstuffs prices in 2011. We now expect the import bill to increase by 7% this year, although it should slow in 2012 once the fuel subsidy reduction programme recommences (which will lessen demand for imported refined products). Export earnings, meanwhile, will rise by 8% in 2011, lifted by rising oil prices and higher LNG exports, before resuming their downward trajectory in 2012, in line with gently declining oil production. Nevertheless, the trade deficit is projected to widen markedly over the forecast period, from an estimated US$744m (2.3% of GDP) in 2010 to US$1.7bn in 2012.

We expect Yemen's 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 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$2.5bn in 2012.