Yemen: Poverty Assessment

The Yemen Poverty Assessment found that about 2.6 million people, or 19 percent of the population, lived in poverty in 1992, without sufficient resources to meet their basic food and nonfood requirements. The share of the population with total expenditures insufficient to meet even their food needs, i.e. those living in 'absolute poverty', was nine percent. The average upper poverty line was YR9,134 per capita or $203. The lower poverty line was YR6,371 or $142 per capita. Though the poor comprised about one-fifth of the population, they consumed only six percent of the total private expenditures in Yemen. This distribution is about average for a low income country. Poverty in Yemen is distributed roughly equally between rural and urban areas as a proportion of local populations. Thus, with between 70 and 80 percent of the total population, rural areas contain approximately 80 and 85 percent of the poor and absolute poor, respectively. Labor force participation rates of the poor and nonpoor are roughly similar though both poor men and women (for whom participation is low for both poor and non-poor) start to work earlier in life and finish later.

Incentive and Regulatory Framework

The report points out that misallocation and misdirection of resources between recurrent and capital expenditures and among different recurrent categories inhibits the effectiveness of public economic intervention: (i) material expenditures are just 8 percent of public expenditures; (ii) public sector employment grew at 15 percent a year from 1990 to 1994; and (iii) public domestic investment in "development" activities was only about 7 percent of total government investment in 1995. It points as well to heavy deficit spending undertaken by the government to finance universal subsidies and rapid public sector hiring. The external borrowing as well as monetization of debt used to finance this spending were important factors fueling annual inflation of over 50 percent through the first half of the 1990s, and were thus somewhat counterproductive in helping the poor. Finally, the report points out the negative effect of wheat and flour subsidies on the poor. Agriculture employs 58 percent of the labor force, and a disproportionate number of agriculture workers are the rural poor. Because wheat is not a major staple in rural areas, the subsidy imparts little consumer benefit to the rural poor. However, agricultural workers' income is depressed due to artificially depressed cereals prices.

Public Expenditures

The report's analysis of the government budget indicates that expenditures on health and education are not related to the level of poverty in a governorate – thus, need is not the criteria for distribution of public resources in the social sectors. Moreover, though lacking data by income group, the report finds that the evidence available suggests higher incidence of ill health and mortality among the poor than the nonpoor. While the report finds that education expenditures have fallen rapidly since unification and that the education system is ineffective in relation to comparator countries, factors that affect all students, it points out that out of pocket expenses can be particularly prohibitive for the poor, preventing school attendance in some cases. Finally, significant expenditures for subsidizing imported wheat and flour are untargeted: the non-poor benefit more from these expenditures than the poor.

Safety Net

The report emphasizes that the universal subsidies program, which cost about 16 percent of GDP in 1994, is ineffective. The program included subsidies for wheat and flour, electricity, petroleum products, cement, water and waste water. The opportunity cost of this program is enormous – although exact calculation is difficult, the report estimates that a package of basic health services could be provided to the entire population for about a quarter of its cost. Moreover, while the cash cost to the government of the wheat subsidies alone is estimated at 4 percent of GDP, re-export, smuggling, discrimination against local producers, and import premiums charged to the government to insure against late payment and other endemic problems result in leakage and overcharging amounting to more than 2 percent of GDP.

Government financial assistance to NGOs providing social services was equal to just over half of one percent of GDP in 1994, which was considered inadequate given the needs. Strong non-governmental support systems providing targeted small-scale assistance to the needy include religious charity (zakat and satqa), traditional community-based assistance and intra-family transfers. Estimates of the amount of assistance or the extent of coverage provided by these activities are difficult. There is however evidence both that these systems function well, and that some of them may be eroding due to demographic and socio-economic pressures. The report concludes that systematic sociologic and economic research would provide a better understanding of the strengths and limitations of nongovernmental assistance.

Poverty Strategy

The report points out first that options available to the government for assisting the poor are limited by the fact that most of the poor live in rural areas, making it difficult to reach them through public assistance programs. Second, because public institutions are weak, the government must choose options easily implementable and involving private and nonprofit partners. The report recommends a three prong strategy: encourage broad-based economic growth, increase social service provision, and develop the nongovernmental sector. The main measures the government should pursue are identified: (i) phase out the universal subsidy program, (ii) improve the effectiveness of public expenditures, and (iii) revisit the strategies in the health and education sectors. Poverty reduction activities in the private and NGO sectors would be best facilitated through improving the regulatory framework, particularly incentive structures, within which social service agencies operate, and increasing the financing for these activities.

Statistical System

The statistical system in general does not adequately supply decision and policy makers with information needed to formulate national development strategies. Data sets in the education and health and social protection sectors have significant gaps. The Household Budget Survey on which the analysis in the report is based contains information from 1992 on 60,550 individual and 8,405 households. The number of poor in the sample is 11,058. The survey is not representative: 72 percent of the households that it contains are urban, whereas the urban population makes up just 20 percent of the population.

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