Outlook for 2011-12

• The position of the president, Ali Abdullah Saleh, looks less secure than at any time since the 1994 civil war. Emboldened by events in Tunisia and Egypt, protesters have been increasingly directing their ire at Mr Saleh personally.
• The president has stated that he will again delay the parliamentary election. We do not expect the election to go ahead until the present disorder has died down (which may not occur until Mr Saleh leaves office).
• The US will seek to assist the government's anti-terrorism efforts while not being accused by pro-democracy activists of propping up the regime. The Gulf countries will have fewer qualms about providing aid to the regime, however.
• 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political climate will slow economic reform, and for the time-being the ten-point programme of economic reform will be superseded by the government's desire to restore stability.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 strong and 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 have revised our forecast for the fiscal deficit upwards.
• After strengthening in 2010 on the back of newly commissioned gas export capacity, real GDP growth is expected to revert to a more modest pace over the forecast period.
• 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.

Monthly review

• Ali Abdullah Saleh has announced that he will not stand for re-election in 2013, nor will he permit his son, Ahmed, to succeed him. However, his announcement has failed to quell the growing protests against his rule.
• The government has delayed the election, and offered to restart a "national dialogue" with the opposition. However, in light of the increasing number of attacks on anti-regime protesters, the opposition has rejected the offer.
• The US president, Barack Obama, has urged Mr Saleh to follow up his pledges of reform with "concrete actions", but otherwise the US response has been fairly muted.
• The government has announced that it is implementing various economic support measures to help the hard-pressed population. However, the measures may fray relations with the IMF.
• The Central Bank has announced the issuance of its first ever sukuk.
• Plans to advance various infrastructure projects, including three independent power projects, have been hit by a series of delays.

The position of the president, Ali Abdullah Saleh, looks less secure than at any time since the 1994 civil war, and of late the ire of protesters, emboldened by the example of the overthrow of the Tunisian and Egyptian presidents, has increasingly been focused on Mr Saleh personally. In an effort to appease the protesters, the president has pledged to not run in the next presidential election in 2013 and promised various new populist fiscal measures. In addition, the government has also delayed the parliamentary election, in order to facilitate a "national dialogue" with the opposition. However, this has not stopped the protests from spreading, which in turn has led to the authorities adopting increasingly more forceful measures to counter the demonstrators. However, this approach risks backfiring-for example, the opposition is highly unlikely to enter talks given the heavy-handed methods of the security forces, while the recent reports of attacks on demonstrators have led several members of the ruling party to resign. Indeed, even before the present bout of protests, the Yemeni government was struggling to cope with a host of disparate and deepening security and socioeconomic challenges. Arguably, any one of the economic and political problems confronting Yemen-ranging from fast-depleting oil and groundwater reserves to growing secessionist sentiment in the south-could fatally undermine the regime.

Aside from these domestic political disputes, the regime is also confronted by a host of security challenges. An on-off war in the northern Saada region has persisted since mid-2004, and, although a ceasefire between the government and Zaydi Shia rebels (known as Houthis), has held, the truce remains precarious. Providing a "peace dividend" to help counter the underlying grievances of the Zaydi Shia, who complain of economic, political and religious marginalisation, will be essential in ensuring a lasting peace.

Arguably, the government has been even less effective in dealing with the grievances underlying the wave of protests that have spread across the south since early 2008, and we expect unrest to grow further. This growing discontent culminated in 2009 in the creation of the increasingly vociferous, albeit loosely organised, Southern Movement. Although the movement espouses only peaceful means, it appears that elements in the south are increasingly employing violent methods, with attacks against security outposts on the rise. Despite this, the president has recently sought to incorporate the Southern Movement (and the Houthis) into a national dialogue-a demonstration of both the regime's weakness and the increasing relevance of the group.

Although Islamist militants have in the past been co-opted by the regime, for example during the 1994 civil war, al-Qaida in the Arabian Peninsula (AQAP; comprising the Yemeni and Saudi arms of the group) will not be invited into the national dialogue. However, the recent spate of government attacks on AQAP targets, including several large-scale assaults on town centres, will probably end, as the attention of the security forces is focused on regime survival in the face of nationwide protests. This will no doubt allow AQAP to regroup and consolidate-a process that will be assisted by the weakening ties between the government and the tribes.

Post-Saleh scenarios

The growing protests calling for the president, Ali Abdullah Saleh, to go has raised the prospect of an end to his 32-year rule, especially in light of the removal of his peers in Tunisia and Egypt. The consequences of regime change in Yemen are hugely uncertain. At present, a post-Saleh Yemen can largely be viewed according to three scenarios.

In the first, and most benign scenario, a constitutional quorum would be set up, comprising the key parties in parliament, including elements from within the ruling General People's Congress (GPC), which may split, and some extra-parliamentary forces (including representatives of the Houthi and southern secessionist movements). A more parliamentary-oriented system would be inaugurated, with a parliamentary and presidential election occurring in the second half of 2011. Under such a scenario, a more decentralised, federalist political structure would be introduced, sufficient to allay the secessionist leanings across the south.

However, given Yemen's current top-down polity, there is arguably a greater risk that the toppling of Mr Saleh would paralyse government, and, in the absence of a single individual able to draw together the country's disparate powerbrokers, a free-for-all would ensue as the various tribes and sheikhs battle for control. More seriously still, there is potential for at least parts of Yemen to come under the sway of al-Qaida. Under such a scenario, it is difficult to see how the armed forces would cope, and, without the sudden emergence of a capable leader or foreign intervention, it is possible that they would split along regional and tribal lines, threatening the unity of the country itself.

Finally, and in a corollary to the second scenario, there is the possibility of a military coup, in which a number of generals, citing the general disorder, would be able to co-opt several political and tribal leaders to support a "temporary" military interregnum. However, such an outcome could well see a repeat of the period of military rule that lasted from 1974-78. During that period (until Mr Saleh took power), successive presidents were either removed or assassinated, as no one leader was able to balance the authority of the state and the whims of the tribes. Under such a scenario, it is probable that the south would drift away, as the struggle for power in the capital, Sanaa, consumes the military's energies. Under all these scenarios the role of Saudi Arabia, which plays a key financial role in tribal politics in Yemen, will be important.

In the face of the growing discontent and general instability in Yemen, the president has stated that he will once again delay the parliamentary election (already postponed from 2009). The government's inability to reach an accord with the opposition coalition, the Joint Meeting Parties (JMP), over the composition of the electoral commission had prompted the JMP to say it would boycott the polls. With mass protests already spreading across the country, the government clearly deemed that proceeding with the election would be both provocative and impractical. However, the repeated election delays not only highlight the present weakness of the government, but also threaten to erode its legitimacy. In reality, we do not expect the election to go ahead until the present disorder has died down, but it is feasible that the protests will persist as long as Mr Saleh remains in power.

The worsening security situation has prompted Yemen's neighbours and a number of Western powers to attend more seriously to the country's problems. However, the US, which has primarily focused on assisting Yemen's intelligence and security services, will have to tread a fine line in seeking to assist the government's anti-terrorism efforts, while not being accused by pro-democracy activists (both at home and abroad) of propping up the regime. Meanwhile, Yemen's Gulf neighbours will be less wary of providing economic support to the regime, including direct development aid and, potentially, absorbing more Yemenis into their labour forces. Saudi Arabia, however, is likely to take a more direct security interest in Yemeni affairs, especially if it decides that Mr Saleh's grip on power is slipping.

Faced with a mounting struggle to wean Yemen off its reliance on the diminishing oil sector, which contributes the bulk of export and fiscal revenue, the government had stepped up efforts to impose fiscal austerity. However, these efforts, which included passing a contractionary budget for 2011 and implementing a ten-point programme of reforms, will be superseded for the time being by the urgent desire to quell the spreading protests. In an effort to appease demonstrators, the government has implemented several economic support measures, including raising the wages of public-sector workers and reducing income tax, which are likely to strain the already stretched public finances. In addition, the government's programme to gradually phase out fuel subsidies, which began in 2010, is likely to be in hiatus for some time.

Yemen will also require substantial foreign aid, including the full disbursal of the US$5.7bn promised at a donor conference in London in 2006, if it is to avoid a full-blown economic crisis. Although the Gulf Co-operation Council (GCC) states have historically distanced themselves from Yemen's problems, fears that the country is descending into chaos will force them to provide increasing financial support. The economic support plan agreed with the IMF in August should also encourage the disbursal of the monies pledged at the London donor conference, although it is possible that ties with the IMF will be strained by the recently-announced fiscal support measures.

In conjunction with the IMF, the government has set itself a target to reduce the fiscal deficit to the equivalent of 3.5% of GDP in 2013-an ambitious goal, in light of declining oil production. Under the government's recently published medium-term budgetary plans the shortfall would decline to below that target by 2012, but achieving this will prove difficult. Although the government is in the process of introducing a range of revenue-raising measures and the public finances will benefit from full liquefied natural gas (LNG) production at Yemen LNG, the bulk of the deficit adjustment was to come from expenditure cuts. However, given the strong and growing public pressure on the leadership, we now believe that any major moves to rein in spending (including lowering fuel subsidies further) will be deferred this year-indeed, moves to raise public-sector wages and broaden the scope off the Social Welfare Fund will add to spending.

Overall, we now expect that the government's new spending and tax commitments will cause the fiscal deficit to widen slightly in 2011, to 5.3% of GDP, despite higher oil prices. In 2012 it is likely to widen further, to 6.4% of GDP, as forecast oil prices decline. Financing these deficits could prove challenging, given the shallowness of the domestic financial sector, although the recent launch of the country's first sukuk (Islamic bond) could provide a new avenue for state fund-raising.

Yemen's financial system is underdeveloped and its economy is largely cash-based. This means that the direct impact of the global financial crisis on the country has been limited. It has, however, also reduced the efficacy of interest-rate adjustments, depriving the Central Bank of Yemen (CBY) of an important monetary policy tool. As a result, the CBY's efforts to manage liquidity will remain primarily focused on the issuance of certificates of deposit and Treasury bills (although the recent issue of a sukuk has increased the options available to the Central Bank). Although the CBY has a stated goal of liberalising interest-rate policy, it will be hindered in this by the vulnerability of the Yemeni riyal (which, having depreciated rapidly until August, has recovered strongly since then). It raised interest rates sharply in the first half of 2010, and they are expected to remain elevated over the forecast period, given high inflation and domestic political instability.

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After strengthening in 2010 on the back of newly commissioned gas export capacity, real GDP growth is expected to revert to a more modest pace over the forecast period. In large part, this reflects further falls in oil output and the harmful effect on private consumption of growing political instability and of the reduction in the fuel subsidy. Domestic demand will also be hit by problems in the agricultural sector-the country's largest employer-where persistent groundwater shortages look set to get worse. Investment will recover, however, although it will stay relatively weak, after work ended on the LNG facilities in 2010.

Assuming aid disbursements pick up relatively rapidly from their current level, we expect a number of infrastructure projects, such as roadbuilding and school construction, to proceed. Furthermore, rebuilding in eastern Yemen, after serious floods in October 2008, will also support investment, as might reconstruction funds pledged by Qatar for the war-torn Saada region. Nevertheless, we forecast that real GDP growth will fall from an estimated 6.2% in 2010 to an average of below 3% in 2011-12-insufficient to prevent increasing economic hardship.

We expect inflation to remain relatively stable in 2011-12, although the gradual phasing-out of fuel subsidies will keep price growth in double-digits, and perpetually volatile global commodity prices remain a cause for uncertainty. In addition, we expect that the riyal will begin to weaken once more from around mid-2011, pushing up the cost of imports. As a result, we forecast that inflation will rise from an estimated average of 11.2% in 2010 to 13.3% in 2011, before dipping slightly to 11.6% in 2012 as global non-oil commodity prices decline.

Having weakened markedly in mid-2010, the riyal recovered over the next few months, stabilising at around YR214:US$1 since September. This recovery stems from a combination of CBY intervention (including buying riyals and cracking down on some money changers) and the fillip to confidence provided by the IMF's recent lending deal. We expect the authorities to continue to intervene over the next year in an effort to protect the currency, but the CBY's declining stock of foreign-exchange reserves will limit its capacity to prevent a further depreciation. As a result, we expect the currency to weaken once again from early 2011, declining from an average of YR220:US$1 in 2010 to YR228:US$1 in 2011. In 2012, with foreign reserve stocks expected to decline to just four months of import cover, the pace of riyal depreciation will probably accelerate, and we expect the currency to average YR251:US$1.

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.

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Responding to events around the region and the growing political tension within Yemen, on February 1st the president, Ali Abdullah Saleh, announced that he would not stand for re-election in 2013, nor would he permit his son, Ahmed, to succeed him. However, given that the demonstrations have since both persisted and spread (and become increasingly bloody), it appears that Mr Saleh's move has been deemed insufficient by the public, who no doubt remember his previous pledges in 1999 and 2006 to not stand again. (Both times he was "persuaded" to change his mind by state-organised pro-Saleh demonstrations.)

Mr Saleh had earlier made a concession to protesters by abandoning moves to alter the constitution that would have annulled the ban on a president standing for a third term in office, thereby clearing the path for him to prolong his rule (February 2011, The political scene). At the same time, he also announced that the legislative election would be further postponed (it had already been delayed by two years from its originally scheduled date of April 2009), in order to give time for the government and opposition to reinvigorate talks over reform.

The timing of these concessions failed to forestall a large protest that was scheduled for February 2nd, dubbed Yemen's "day of rage". The day itself passed off relatively peacefully, although the government managed to rally significant numbers of pro-regime supporters, who were able to occupy the central Tahrir Square in the capital, Sanaa, denying anti-government protesters access to a symbolic public space. A significant security presence was deployed around the city, with tanks and armoured vehicles clearly visible. The demonstrations attracted an estimated 20,000-40,000 supporters.

The ousting of the Egyptian president, Hosni Mubarak, on February 11th changed the political dynamics in Yemen, with the protests subsequently becoming increasingly spontaneous, and the protesters commonly coalescing around the single demand for Mr Saleh's removal. By mid- to late February, protests were occurring daily and often lasting until late at night. The protests were also growing progressively violent, as the security forces reportedly stood by as regime supporters attacked anti-regime demonstrators. According to Human Rights Watch (a New York-based international rights watchdog), the security forces were also involved in the violence and were initially seen to beat protesters with batons and stun them with Tasers. Journalists and foreign reporters were apparently a specific target, with numerous members of the press reporting either being harassed by security officials or subjected to violence.

Demonstrations were also increasingly in evidence in towns and cities outside Sanaa, with protests reported in Taiz and Hodeida in the north, and in Aden, Zinjibar and Mukalla in the south. In Taiz there were scores of injuries reported after a grenade was set off in a large crowd of protesters, and in Aden the security forces used live ammunition against protesters; in just the three days running up to the February 19th, 16 protesters are believed to have been killed. Subsequently, more deaths were reported at protests in Aden on February 23rd and 24th, while, in Saada in the north, supporters of the Houthi movement (a Zaydi Shia group that has fought an on-off war with the government since mid-2004) took to the streets in solidarity with the anti-government protests elsewhere.

Initially, the opposition Joint Meeting Parties (JMP) accepted the government's offer to restart political dialogue, but as the street protests grew, it quickly changed its stance. On February 13th the opposition tentatively agreed to talks, subject to assurances that they take place "under the auspices of the Friends of Yemen group [of concerned countries]". However, the next day it recanted, owing to what it called government "provocations" towards demonstrators and the violence perpetrated by "thugs" hired by the ruling General People's Congress (GPC). Despite this, the JMP subsequently made it clear that it was not seeking Mr Saleh's removal. The apparent state-sanctioned use of violence against protesters not only prompted a backlash from the JMP, but also from within the president's own party. Seven members of parliament (MPs) resigned from the GPC on February 23rd, in protest against the crackdown on demonstrators. The departing MPs included one relative of Mr Saleh, a tribal leader from Sanaa, and two representatives from the south. However, the GPC's large majority in parliament will not be threatened by the desertions.

For his part, Mr Saleh repeatedly said that he was still prepared to meet all the "legal" demands of the opposition through dialogue, and set up a government committee to talk with the protesters on February 24th. In addition, in February Mr Saleh held up to ten gatherings with tribesmen from the country's most influential tribes, the Hashed and Bakil, in various rural localities. Earlier, his spokesman announced: "The president has decided to open his office ... to listen closely to all groups for the interest of the nation." In keeping with this pledge, Mr Saleh offered to incorporate both the Houthis and the secessionist Southern Movement into the talks. However, given Mr Saleh's presently weakened position, it is unlikely that either movement will wish to ease the president's situation by taking up his offer.

The international response to the growing political crisis in Yemen was initially muted. The US president, Barack Obama, urged Mr Saleh to follow up his pledges of reform with "concrete actions". However, behind the mild rhetoric, there was clearly some concern within US policymaking circles. In mid-February the director of national intelligence, James Clapper, told the House of Representatives' intelligence committee that the deteriorating situation in Yemen will "present serious challenges to US and regional interests, including leaving AQAP [al-Qaida in the Arabian Peninsula] better positioned to plan and carry out attacks".

There is no doubt that the protests have added an extra dimension to Yemen's myriad travails and Mr Saleh cannot treat them as he has other anti-regime groups, which he can typically paint as extremists or separatists. On this occasion, the vast bulk of the protesters are ordinary, disaffected Yemenis. However, there is one important difference to Egypt that will greatly assist Mr Saleh's efforts to weather the current crisis. When Mr Mubarak warned Egyptians that chaos would ensue if he was ousted, his words were mostly ignored. In contrast, in Yemen there is a much greater possibility of anarchy if Mr Saleh falls. Although the president may be the architect of many of Yemen's present problems, he is also the person who has kept the country together throughout his tenure. It is inevitable that at least some Yemenis will fear the prospect of chaos more than they despair of Mr Saleh's rule-a calculation that may only be further sharpened in light of the bloody uprising in Libya (which arguably shares more of the tribal and socioeconomic hallmarks of Yemen, than Egypt and Tunisia).

Either way, the US and Saudi Arabia will be watching Yemen's turmoil closely. Both countries consider Yemen a major source of international terrorism, and the possibility of the country falling into political limbo, where AQAP is free to operate, will seriously unnerve US and Saudi officials. However, the US faces a particularly tricky moral conundrum (as it did during the Egyptian revolution). Although US foreign policy in the region has tended to err in favour of stability over liberty, it will equally be loath to place itself on the side of Mr Saleh's weakening regime-a stance that would alienate the mass of protesters currently calling for greater democracy and accountability.

In late January the government announced that it was implementing various economic support measures to help the hard-pressed population. The first measure was to increase the number of families eligible for cash subsidies under the Social Welfare Fund by 500,000, raising the number of dependent families by half. The government also created a fund to support out-of-work university graduates and waived university tuition fees for existing students for the next academic year.

Public-sector employees were also given support: the military and security forces were given pay rises and offered other benefits, such as free basic foodstuffs, and bureaucrats were given a 30% pay rise. Public-sector workers also benefited from a reduction in income tax, which was halved. In addition, the income tax threshold was raised more than threefold. The various measures clearly came as a response to rising popular antipathy towards the government and the president. The measures are wide-ranging and cover almost all groups within society. Specific measures directed at the army, the poor and students are a good indication of where the government believes the greatest fault lines within society lie.

The obvious concern that these measures raise is how the government is going to pay for them. The state budget projected a 9.5% reduction in expenditure this year, but it is now highly likely that the government will have to issue a supplementary budget in due course. This may provoke the ire of the IMF, which in mid-2010 signed a US$369.8m extended credit facility with the government, designed to support public finances and bring the fiscal deficit to below 3.5% of GDP within three years. Instead of shrinking as anticipated, however, the deficit could now widen, putting untold strain on the government finances.

The government's situation should at least be assisted by the improved fiscal performance in 2010, when the Economist Intelligence Unit estimates that the deficit halved. In addition, oil prices have increased sharply in the wake of the wave of protests that have swept the region. Oil earnings constitute some 60% of total government revenue, and the rising oil price will thus boost state earnings. However, the fiscal situation could be further assisted by reducing fuel subsidies, spending on which will simultaneously rise in line with higher oil prices. The helpful effect on the state finances of higher local fuel prices is evident in recent official data showing that the three subsidy reductions in 2010 contributed to a 4.8% decline in domestic consumption of the country's oil production (thus leaving more available for export).

Yemen issues sukuk

In mid-February the Central Bank of Yemen announced the issuance of its first ever sukuk, or Islamic bond, worth a relatively modest YR4bn (US$18.7m). The issuance has been expected for some months, but comes at a particularly propitious time in light of the government's new spending pledges. The initial offering is part of an ongoing programme to offer sukuk worth US$125m every three months, helping Yemen to raise some YR100bn by the end of 2011. According to the deputy finance minister, Jalal Yaqoub, domestic banks and individual investors are being targeted as potential buyers. (The largest single buyer of the first offering was the country's largest Islamic bank, Tadhamon International Islamic Bank.)

Yemen has been given technical advice on issuing commercial Islamic paper by the World Bank and IMF, under an agreement the World Bank has with the Jeddah-based Islamic Development Bank (IDB). The Islamic Corporation for the Development of the Private Sector (the private-sector funding branch of the IDB) is closely involved in the process, advising the Yemeni government on developing a market for Yemeni sharia-compliant bonds.

The development of a sukuk market will add flexibility to the local financial sector, not least by providing an alternative to government Treasury bills. By issuing sukuk, the government hopes to diversify its sources of budgetary financing, as well as to attract foreign investment to fund development projects. It may also be hoping to raise finance at less cost-at present it is paying out a very high 22.9% rate of interest on an 182-day T-bill. It will also offer a liquidity outlet for local Islamic and conventional banks and will provide local Islamic banks a repository for their capital and statutory reserves (a mechanism that is not currently available to them). More widely, it will help to build the capacity of the local Islamic banking sector, which is underdeveloped and uncompetitive.

That said, the sector has shown considerable growth. In the five years since end-2006 total investment advances made by the Yemeni Islamic banking sector have risen by 116%, and the three Islamic banks account for one-third of total bank assets, 43% of total loans, and 30% of total bank deposits.

There is also a willing regional market for Islamic financial products; Islamic banks were largely unaffected by the global credit crunch and have much greater surplus liquidity than conventional banks. Despite this, given that Yemen is far below investment grade, it is highly unlikely that investors from outside the Gulf will consider investing in Yemeni bonds, and even Gulf investors, cognisant of the fact that their investment will ultimately support Yemeni-and wider regional-stability, may wait a few months to see how the latest political crisis plays out, before putting their money down.

Yemen has three Islamic banks: Tadhamon International Islamic Bank, the biggest bank in the country in terms of assets; Saba Islamic Bank, the biggest lender; and Yemen Islamic Bank for Finance and Investment. The first sukuk offering is earmarked to finance three local road projects, but given the growing and more immediate need to finance current, rather than capital, expenditure, the government might divert future offerings to support the budget.

Plans to advance various infrastructure projects have been hit by a series of delays recently. Most worrying is the ongoing postponement of three independent power projects (IPPs), which had been in the pipeline for over a year. In 2009, the Ministry of Electricity and Energy launched the IPP programme which focused on the construction of three power plants around the country; two 150-mw plants in Aden and Hodeida, and a third plant with capacity of 75 mw in Mukalla on the south coast. The original tendering process for the build-own-operate-transfer projects in 2009 attracted interest from 40 companies. However, according to a Dubai-based business weekly, MEED, the government is still deliberating over the level of guarantees it is prepared to give the scheme.

These latest delays mirror similar problems experienced by the Marib power project, which took more than four years to get off the ground. However, Yemen needs power desperately; there were riots in Aden on account of blackouts in mid-2010. The daily shortage in Sanaa is estimated at 50 mw, and, according to the Ministry of Planning and International Co-operation, only 15% of rural areas are connected to the national grid. In recognition of this problem, the Development Plan for Poverty Reduction, 2006-10, aimed to double capacity to 2,114 mw, but this target was subsequently lowered to 1,829 mw in the 2009 mid-term review. New facilities, run on gas, should be far cheaper than the existing diesel powered-plants (which typically rely on imported fuel), making the country's supply more reliable and also cheaper. Currently, Yemen spends around US$1bn annually on fuel to meet its energy needs.

However, efforts to develop the rural grid are also facing problems. On February 8th the government issued a tender for consultants to advise on its rural energy access project, which is based on off-grid networks for remote areas. However, the next day the electricity and energy ministry cancelled its invitation for expressions of interest, without giving a reason.

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Please see graphic below

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Land area

527,968 sq km

Population

23.6m (IMF, mid-2009 estimate)

Main towns and provinces

Population in '000 (2004 census)

Taiz: 2,403 Hajjah: 1,481

Ibb: 2,138 Dhamar: 1,339

Hodeida: 2,161 Hadramawt: 1,029

Sanaa city (capital): 1,748 Sanaa (province): 918

Climate

Northern and central highlands: warm in summer but cold in winter; Tihama and southern coast including Aden: hot; eastern plains and desert: hot, arid and harsh

Languages

Arabic (official); English is also used in official and business circles

Measures

Predominantly metric in the northern provinces and UK (imperial) in the south; local measures are also in use

Currency

Yemeni riyal (YR) = 100 fils. The riyal was floated on the open market in July 1996

Time

3 hours ahead of GMT

Public holidays

The dates of Islamic holidays are based on the lunar calendar and are therefore approximate. New Year's Day (January 1st); Mawlid al-Nabi (the birthday of the Prophet; February 15th 2011); Labour Day (May 1st); Unity Day (May 22nd); Revolution Day (September 26th); Eid al-Fitr (end of Ramadan; August 30th 2011); National Day (October 14th); Independence Day (November 30th); Eid al-Adha (Feast of the Sacrifice; November 6th 2011); Islamic New Year (November 26th 2011)

Official name

Republic of Yemen

Form of state

Republic, unified on May 22nd 1990

Legal system

Under the constitution of May 1991, sharia (Islamic law) is the principal source of law

Legislature

Unicameral assembly directly elected for a six-year term

National elections

September 20th 2006 (presidential); April 2003 (parliamentary). Next parliamentary election had been scheduled for April 2009, but in February it was postponed for two years; next presidential election scheduled for 2013

Head of state

President (directly elected for a seven-year term): Ali Abdullah Saleh; vice-president: Abdel-Rabbuh Mansour Hadi

Executive

Council of Ministers headed by the prime minister

Political parties

There are 22 legal parties, five of which are represented in parliament: the General People's Congress (GPC, the ruling party); the Yemeni Congregation for Reform (Islah, a religious-based party with tribal and Islamist wings); the Arab Socialist Baath Party; the Yemeni Socialist Party (YSP); and the Nasserist Unionist Party (NUP). These, together with two opposition groups without parliamentary representation, the Union of Public Forces and al-Haq, form a loose parliamentary coalition, the Joint Meeting Parties

Government

Prime minister: Ali Mohammed Mujawer

Deputy prime minister for defence & security affairs, & local administration: Rashad al-Alimi

Deputy prime minister for interior affairs: Sadiq Amin Abu Ras

Deputy prime minister for economic affairs & planning & international co-operation: Abdel-Karim al-Arhabi

Key ministers

Agriculture & irrigation: Mansour Ahmed al-Hawshabi

Defence: Mohammed Ahmed Ali

Electricity & energy: Awad Saad al-Soqotri

Finance: Nouman Taher al-Souhaibi

Fisheries: Mohammed Saleh Shamlan

Foreign affairs & immigration: Abu Bakr Abdullah al-Qirbi

Human rights: Huda Ali Abdel-Latif al-Ban

Interior: Mutaher al-Masri

Justice: Ghazi Shayef al-Aghbari

Labour & social affairs: Amat al-Razzak Ali Hamad

Oil & minerals: Amir Salem al-Edroos (suspended)

Public health & population: Abdel-Karim Rasei

Public works & roads: Omar Abdullah al-Qurshumi

Teaching & education: Abdel-Salam al-Jufi

Trade & industry: Hisham Sharaf

Transport: Khaled al-Wazir

Water & environment: Abdul Rahman Fadhl al-Iryani

Central Bank governor

Mohammed Awadh bin Hamam