Prof. Mansour Ali Albutani Mohammed A. Saeed Al_bawraji Problems and Obstacles of Foreign Debt Management In the Republic of Yemen (Field Study)

Study content: Introduction Chapter (1): It was related to The study theoretical framework which includes two studies: (Study 1) :Concept of Foreign Debt Management (Study 2) :Foreign Debt Size in Yemen during ( ) Chapter (2): This chapter includes the following studies: (Study 1):Discussion of Study Sample Results about Foreign Public Debt objectives and policies (Study 2): Discussion of Study Sample Results about Foreign Public Debt Management (Study 3):Discussion of Study Sample Results about Problems related to Foreign Public Debt Management : Based on that we are so pleased to briefly explain all what have been mentioned above:

The Introduction: The Introduction focused on International cooperation in its different aspects as follows: - Foreign Trade - Direct Investment - Loans and Grants…etc In this Concern the Introduction section considered that Foreign loans are as one of the important aspects of the above mentioned cooperation in the field of international economic relationships, those loans reached in 1990 (the year of reunification of the two parts of Yemen) about 11 billion USD. In addition, the Introduction section included the following: -Study Objectives -Study Importance -Study Problem

Chapter (1) Study Theoretical Framework (Study 1) :It was included in this study the Concept of Foreign Debt Management and managing it effectively and efficiently. It was also explained that the Foreign Debt aspects are: 1-To enhance the organizational capabilities of public debt management (local/ foreign) with qualified cadre and required experiences in foreign debt and financial analysis and financial risks management….etc. 2-To enable the management to access the financial tools such as: exchange currencies and interest rate of risk management. 3-To enable the management to access to market information (study of international and financial markets, having the progress in capital's aspects, investments and loans costs). 4-Necessity of having a strategic frame work to manage the foreign debt and précising the objectives of debt management.

5-To establish data base to follow up the foreign debt development. 6-To develop an appropriate organizational structure of the foreign debt management mandate. 7-Finally, the management should be given the necessary flexibility in practicing its mandates and avoiding the centralization and bureaucracy. Foreign debt Management includes: Administrative Management: It includes the following phases: -Negotiation in all types and analysis of the financial conditions of debts. -Validity of the process and completing the required procedures of loans -Withdraw and liquidity money. -Repaying phase in which preparation of debts tables are done and handling required records to follow up all commitments. -Regular statistical reports preparations.

Economic and Financial Management: It is committed to: - Develop debt management policies - Reduce debt's burden. - Increase the benefit of debt for the national economy. - Coordinate between the entities concerned with foreign debt management. (Study 2): In this study was focused on the Foreign Debt Size in Yemen during ( ). Therefore, it was explained the following: - The reasons behind foreign loans in Yemen are: 1- Increased social and economic development needs in comparison with what Yemen suffers of the insufficient local resources. 2- continuous deficiency in: Payment scale Commercial scale Deficiency in public budget

3- weakness in private sector to play its economic and developing role 4- weakness in the size of direct foreign invested flows.etc Foreign Debt Balance: It can be noticed that the Foreign Debt Balance of Yemen has - Decreased from (9.8) $ billion in 1997 to (5.5) $ billion, a rate almost (28.7%) of Gross Domestic Production, this balance is also reached in 2006 to (70%) of the services and products exports. - Foreign debt balance witnessed during the period between ( ) a fluctuation with a clear rise and decline we grasp the reasons for this to Yemen efforts in the frame work of the Reform Program of Financial and Administrative to reduce the size of foreign debts balance through an agreement with member countries in Paris Club in years ( ) which concluded the following

*Yemen has been exempted from (67%) from its total foreign debts, The Russian debt written-off represented (80%) of this figure, The amount of the exempted Yemeni foreign debt for year (2005) was (5,7billion) USD (Central Bank Report p.38). *Donor countries granted Yemen number of loans during ( ) to support the Financial and Administrative Reform Program. *Rescheduling another part of those loans during ( ) which reached (2,2billion) USD (Central Bank Report p.34) -The rate of overdue interest decreased from (1.3) billion dollars in 1997 to hit (99.9) million in The rate of installment arrears decreased from(4.9) billion dollars in 1997 to hit (92.7) million in 2006.

Table No1: Showing the balance of foreign debt for the period ( ) in billions, compared to some of the indicators: Indicators 5.50%5.20%5.30% 5%4.80%5%5.30%10.10%9.80% Total of foreign debt including arrears in billions 28.70%31%39%45%49%51%52%69%72.5%162% The ratio of foreign debt compared to GDP 70%76%106%124%126.4%143%131.50% % % 170% The ratio of foreign debt to total exports (goods) 0.90%1.30%1.90%1.50%1.40%1.80%1.40%4.20%4.90%5.30% The proportion of foreign debt service payments to GDP 2.10%3.09%5.04%4.15%5.10%7.10%6.80%12.70%11.70%14.20% The proportion of foreign debt service payments to total exports Years

The distribution of foreign loans as Donor States: According to the data in the study that shows the distribution of loans by states and agencies and donor institutions, as the following: -Member States in the Paris Club (1.73) billion dollars or (31.6%), Russian debts ranked first loans under the group rate (72%) of the volume of loans from the block. - Non-members of the Paris Club (.960) billion dollars or (17.5%) and Saudi Fund comes in ranked first rate (32%) of the volume of loans from the block. - International financing institutions by (2.8) billion dollars or (51.1%). It is noticed that the International financing institutions is ranked first among creditors in Yemen in this block. The International Development Authority is in the first rank of (1.9) billion dollars, representing a rate of (67.9%) from the total loans provided to Yemen by international financing institutions or rate of (34.5%) of The volume of loans provided to Yemen in 2006 in generall.

It can be also remarked that the offered loans for Yemen are directed to the following: Table No2: 44.40% Support public administration 11.10% Works Sector 10.40% Water and Electricity Sector 8.10% Agriculture Sector 3.40% Financial Sector 7.24% Bank Sector 4.10% Education Sector 1.84% Health Sector 1.48% Defense 1.68% Civil Service (Administrative Reforms) 1.20% Telecommunication Sector 0.90% Oil Sector A proportion of the remaining sectors

Chapter (2) This chapter focused on Discussion of Study Sample Results which consists of 50 sample units distributed to three entities, that are related to Foreign Public Debt( Central Bank, Ministry of Planning and Ministry of Finance). The study Variables were: -Foreign Public Debt objectives and policies: -Foreign Public Debt Management: - Problems related to Public Debt Management

Foreign Public Debt objectives and policies In this regard the study analysis shows the following Standard deviationMeans VariantsNo The policies related to foreign debt are define under a law organizes those policies The foreign loans policies are done according to the economic development needs of the country The foreign loans objectives and policies focus on how to get foreign resources with less cost and best conditions The foreign loans are made under an objective evaluation to enable the Yemeni economy to pay off debts burdens The foreign loan policies use those resources in a best way forwarding them into production The expansion policy in investment expenditure obliges the government to return to the foreign loans in order to fill the gap between the revenues and expenditure The foreign debt burden is considered as one of the biggest problems from which the Yemeni economy suffer The analysis of the relation between the foreign loans, economic growth and financial inflation is made continuously The loans policies relate to the position of loans policies and the average of the foreign exports of the country The foreign public debt leads to economic troubles due to the misuse of that debt The objective of foreign loans policies is to increase the difference between the capital and the loan's returns The consistency and integration of foreign loans policies with the overall government policy The foreign debt plays an important role to increase the available resources of the country and then to increase the average of growth respectively The foreign loans policies relate to the average of interests prices and the average of gross domestic production (GDP) The source of the foreign debt will be controlled when it moves to undesirable direction. 15

In the variants related to foreign debt management: The results of analysis show the following :

Third : In the variants related to public debt management problems : The results of analysis show the following :

Chapter (3) Results and Recommendations The Results: According to the filed and theoretical study, it can be inferred that: 1-In the framework of the Financial and Administrative Reform Program, Yemen exerts great efforts to overcome the foreign debt problem. In this concern, a lot of procedures were taken: ● Releasing foreign trade and enhancing the private sector in the economy life. ● Preparing investment atmosphere to attract the international and Arab capitals for direct investment in different aspects of economy ● Reduce and rationalize government spending ● Rescheduling the foreign debts in agreement with the donors in Paris Club. 2-The debts of the regional and international institutions on Yemen has a big part of percentage which is (51%) then the debts of the member countries in Paris Club including Russia (31,5%) from the total of debts in Yemen.

3-The big part of foreign debts was directed for infrastructure, health, education, electricity, communication…etc. 4-Foreign loans represented (92,5%) in 2006 of the general size of debts, Yemen will be in a bad need for foreign loans in order to meet its need in economic and social developments in this phase of development. 5-No difference in the questionnaire's opinion in the three entities (Ministry of Planning, Ministry of Finance, Central Bank) about the variants of the field study, which means: There was consensus among the sample on variables related to policy and objectives of external borrowing, namely: ● Foreign debt policies are précised according to a law which organizes those policies ● Foreign debt policies in light of the needs of the country's economic development. ● The foreign loan is done according to objective assessment of the capability of Yemeni economy to repay those debts ● The inefficient use of loans leads to obstacles in National Economy

● The policies of loans integrate and connect with the public policies of the country ● The foreign public debt center is controlled whenever it goes in undesired direction All that means those variants represent the foreign debts policies and objectives in the Republic of Yemen. Opinions of questionnaire of the other variants were different although its importance, therefore its rejection by the questionnaire. 6. there was consensus among the study on variables relating to the management of external debt following: ● There is a management concerns with public debt under the supervision of Ministry of Finance ● The Central Bank manages all the transactions related to foreign debt ● There is a Coordination between Ministry of Finance, Ministry of Planning and Central Bank to manage the foreign debt in Yemen. ● There is a management concerns with public debt which follows up each party and organizes a regulation confirmed by council of ministers, which coordinates between those entities. ● The management of public debts is concerned in collecting data and information related to all loans according to the signed agreements. ● There is a précised information system in the concerned departments in the three entities for measuring the size of loans, its installments, interests and its services…etc

-Those departments (in the three entities) are in charge to prepare the reports related to the foreign debt development movement. The opinions of the sample is not compatible with the rest of variants which means there is a weakness in laws and regulations organize the policies, objectives and mandates of the foreign debt management in the three entities that are responsible of the foreign debt management, these departments also lack to the accounting system guarantees the registry of the transactions related to loans transparently. 7. The opinions of the sample is compatible with the rest variants related to the problems and obstacles in the foreign debt management as below: The absence of a clear strategy in field of foreign loans There is no link between foreign loans transactions and indicators of economy growth and the range of export growth There are obstacles, in the field of the foreign public debt service, which lead to the accumulation of the public debt delays in the last years. the researchers noticed that the opinions of the sample are not in agreement with the rest of variants related to problems and obstacles of foreign debt which means, they rejected them.

Recommendations According to the study results, we recommend the following: 1. the necessity to issue a decree in public debt (local and foreign) very quickly, since this decree will play a role to enhance the institutional work, organize all its aspects related to debts and specify the mandates of the parties related to local and foreign public debt management and specify the rules and measurements of foreign debts. 2. Necessity of preparation the public strategy of foreign loans and put on the plans and policies which will help in the following: ● Linkage the loans policies with the economy development for achieving the economic and financial stability and with the ability of the Yemeni Economy to yield its commitments as a major indicator to keep the credit worthiness of Yemen

3-The study recommends to establish a central unit followed structurally the President of the Government. 4-The necessity to develop the IT systems and documentation in different departments of the foreign debt management. 5-The necessity to provide with administrative skills, qualifications and experience in the field of foreign loans (risks analysis, system of financial analysis…etc) 6-Necessity of strengthening and developing the internal Control systems in the account of loans and enhancing the transparency towards its work.