Yemen’s sovereign rating raised

Yemen’s long-term foreign currency rating has been raised to B- from C and its short-term foreign currency rating to B from C by Capital Intelligence, the international emerging markets rating agency. The country has been given a ‘stable outlook’.

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By  Shilpa Mathai Published  January 20, 2004

Yemen’s long-term foreign currency rating has been raised to B- from C and its short-term foreign currency rating to B from C by Capital Intelligence, the international emerging markets rating agency. The country has been given a ‘stable outlook’. According to Capital Intelligence, the upgrade reflects improvements in external solvency, international liquidity, and government debt ratios. Public external debt has fallen steadily since the mid-1990s, to an estimated 94% of current account receipts (50% of GDP) in 2003, "because of a substantial debt relief and oil-price induced increases in export earnings". There has also been a strengthening of the balance of payments position; official foreign exchange reserves grew from less than US$ 1.5 billion in 1999 to about USD5.0 billion in 2003, and there is now adequate reserve coverage of both imports and external debt due within a year. The net public external debt has fallen to an estimated 9% of current account receipts in 2003; this reflects the growth of official reserves. The government’s net debt ratio has declined steadily from 119% of GDP in 1998 to an estimated 57% in 2003. Interest payments on government debt are manageable at around 6% of domestic revenue (2% of GDP). The ratings agency said in a statement that Yemen’s credit ratings are constrained by "significant structural weaknesses, the vulnerability of fiscal and external accounts to oil price changes, and the absence of a strong political and popular consensus for deeper reform". GDP per capita is low at an estimated US$ 557 in 2003 and the economy is not growing fast enough to absorb the rising population. Private sector activity is hampered by institutional weaknesses, infrastructure deficiencies, governance problems and an ineffective banking system. The government is committed to structural reform, but local opposition to new measures has meant that the pace of reform has slipped. “Yemen’s ratings trajectory will, however, depend to a large extent on the government's ability to build a popular consensus for the lengthy reform effort that is needed to raise the level of economic development,” said the statement.

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