2 January 2008
Policy conditions attached to the $50 million grant include a reduction of the civil service, land reform, and lower corporate taxes.
On December 6, 2007, the World Bank approved a $50 million grant to Yemen to support the government’s economic reform program. In an apparent violation of its disclosure policy, however, the Bank failed to make available its Project Information Document (PID) during project preparation, nor did it release the longer, more comprehensive Program Document (PGD) upon approval. The Bank only made these documents available following interventions by civil society.
Civil society representatives in Yemen submitted a formal request to the World Bank country office in Sana’a asking for relevant documents on the project, while BIC reported the omission to the Disclosure Unit at the World Bank’s headquarters in Washington, DC. These efforts gained fruit; the World Bank posted the PGD on its website on December 11, 2007 and the PID on December 12, 2007. The Yemen policy reform credit is just the first in a series of similar World Bank projects in the Middle East and North Africa (MENA) region for which BIC has discovered disclosure policy violations.
The Yemen Reform Program is categorized as a “development policy” grant, which is the latest manifestation of the hotly contested Structural Adjustment Programs of the 1980’s. Development policy programs provide direct budget support to governments, and the disbursement of funds is tied to the government meeting certain conditions such as changes in a country’s laws, regulations and/or institutions. While citizens are often affected the most by these policy changes, decisions are usually made behind closed doors between the World Bank and the government. However, as opaque and distant as they may seem, policy reforms can have very direct – and at times, dire – consequences for a country’s population.
Yemen has had a turbulent experience with such programs. In 1995, the Yemeni Government, acting on advice from the World Bank and the International Monetary Fund (IMF), carried out a structural adjustment program which led to a significant increase in the price of basic goods and services, ultimately resulting in widespread unrest in which 52 people were killed and hundreds wounded.
The newly released Program Document reveals that the Yemeni government has agreed to implement policy changes suggested by the World Bank and the IMF. The proposed reforms include ending fuel subsidies by 2010, doubling the General Sales Tax rate to 10 percent in 2009 and cutting wages and salaries by 1.6 percent of GDP. In the document, the Bank estimates that the elimination of petroleum subsidies would increase the poverty rate by 9.2 percent
This $50 million grant will be disbursed in two equal tranches, each tied to certain numbers of actions, some of which raise serious concerns:
- A new land registration law aims at encouraging private investment by securing land titling. However, in a country where tribal and customary traditions predominate, many poor Yemenis live on and farm lands without holding a legal title, some of whom have inherited the land for generations. The application of this law could create a group of dispossessed, homeless farmers and increase tribal tensions, and could also make many urban residents vulnerable to losing their homes. The recent story of a man who lost his eye while attempting to prevent the demolition of his home in Aden’s Assalam neighborhood remains vivid in the minds of Yemenis.
- A new corporate income tax aims to lower tax rates, but it will also reduce exceptions which might affect many lower income participants and vulnerable groups. Like any new tax law, it could be accompanied by an increase in the price of basic goods and services.
- A public administration reform program aims to reduce the public wage bill, and will lead to the retrenchment of so-called “redundant” civil servants. The program raises the minimum wage of public servants, though any gains could be offset by the elimination of most allowances that are typically paid over and above basic salaries. While the need to improve the effectiveness of Yemen’s civil service is clear, the application of similar Bank- and IMF-sponsored reforms elsewhere has generally met with limited success. Constraints on public wage spending have all too often affected employment in the most critical sectors, such as health and education, which typically account for the majority of civil servants in developing countries. Apart from the direct consequences of the loss in wages for retrenched workers, the reform program could have significant negative effects on the quality of basic service provision.
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