VZCZCXYZ0282
RR RUEHWEB

DE RUEHYN #0396/01 0681408
ZNR UUUUU ZZH
R 081408Z MAR 08
FM AMEMBASSY SANAA
TO SECSTATE WASHDC 9115

UNCLAS SANAA 000396 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EEB/IFD/OMA (ANDREW SNOW AND RICHARD FIGUEROA) 
STATE FOR NEA/ARP (FRANCESCHI) 
STATE FOR NEA/PI (GROSS AND FRANCESKI) 
STATE FOR NEA/RA (JULIA PALLARES AND JOSEPH SCOVITCH) 
 
E.O. 12958: N/A 
TAGS: EAID ECON KMPI PREL YM
SUBJECT: YEMEN INPUT FOR FOAA-08 REPORT 
 
REF: STATE 16737 
 
SUMMARY 
------- 
 
¶1.  In response to reftel, Post's input for the FY 2008 
Department of State, Foreign Operations, and Related 
Appropriations Act (FOAA-08) report follows. 
 
¶2.  The budget is made public in Yemen through written 
publications, the mass media and the internet.  Nevertheless, 
many observers believe that the ROYG budget is plagued by a 
lack of transparency in allocations to line ministries and 
also in the phenomena of supplemental budgets.  In order to 
improve transparency, in 2006 the ROYG Ministry of Finance 
embarked on a multi-donor-financed Public Finance Management 
Reform Agenda.  END SUMMARY. 
 
LIMITED PUBLIC DISCLOSURE OF BUDGET 
----------------------------------- 
 
¶3.  Articles 61, 73, and 87 of the Yemeni Constitution 
address fiscal processes within Yemen.  The Yemeni fiscal 
year lasts from January 1 to December 31.  A national 
committee chaired by the Prime Minister and composed of 
members from the Ministry of Finance, Ministry of Planning 
and International Cooperation, Ministry of Oil, Customs 
Authority, Tax Authority and Central Bank, is responsible for 
devising the budget.  The committee then submits the budget 
to the Cabinet for approval, which in turn submits it to the 
Parliament by November for final approval.  Parliament does 
not have the power to amend the proposed budget, only to 
approve or reject it.  The budget requires a majority vote 
from Parliament of 51 percent (i.e. 151 votes) in order to 
pass.  If the budget is not approved before the new fiscal 
year, the previous budget is enacted until such time as the 
new one is approved.  If the budget is passed, information 
about it (both projected revenues and expenditures) is 
advertised in bulletins, local newspapers and broadcast on 
radio and television stations and on the internet. 
 
¶4.  The Ministry of Finance controls the actual disbursement 
of the budget through the Central Bank of Yemen.  Some 
payments to line ministries (ministries other than the 
Ministry of Finance) are made on a monthly basis and other 
payments are made on a quarterly basis.  All revenues 
generated from line ministries and revenue agencies, 
including the Oil Ministry, are transferred to a single 
Central Bank of Yemen Consolidated Fund.  In a March 5 
meeting with Econoff, Deputy Minister of Finance for the 
Budget Fadhl Al-Shoaiby said that the Ministry of Finance 
(MOF) publishes 22 volumes of budgetary statistics during the 
fiscal year which are available to the public upon request. 
He added that the MOF submits quarterly, semi-annual and 
annual reports on the budget to the Shura Council, Parliament 
and Central Organization of Control and Audit (COCA).  Under 
Finance Law 1990 (amended 1999), the MOF is required within 
nine months of the close of each fiscal year (i.e. September) 
to submit accounts showing the ROYG's financial position to 
the Cabinet and Parliament. 
 
PERSISTENT LACK OF FISCAL TRANSPARENCY 
-------------------------------------- 
 
¶5.  There has been intense public debate about the level of 
transparency in the Yemen national budget.  Yemen has not 
volunteered for the IMF to report on the country's compliance 
with standards and codes covering fiscal transparency.  Many 
believe that Yemeni laws governing the public disclosure of 
revenues and expenditures of the national budget are not 
adequately implemented or enforced.  For example, the amounts 
earmarked for a particular ministry, like education, in the 
national budget may not be the amounts actually allocated. 
Line ministries are forced to bargain for every expenditure, 
and perhaps bribe or otherwise bypass MOF officials stationed 
in the line ministry. 
 
¶6.  Parliament has no control or oversight over the budget 
once it is approved.  Parliamentarians, in general, lack the 
basic skills and knowledge to effectively review and evaluate 
the national budget.  Two budgets actually exist in Yemen, a 
public budget released on January 1 and a supplementary 
budget released at the end of the year.  Supplementary or 
"hidden" discretionary budgets may make up 50 percent of the 
value of the public budget.  In February 2007, a controversy 
erupted when the media discovered that the ROYG underreported 
oil revenues by USD 1.36 billion.  (Note:  Oil constitutes 70 
percent of national revenues.  End note).  According to many 
observers, the "extra" revenues finance special interests 
(including the military, tribal sheikhs and powerful 
businessmen) through supplementary budgets. 
 
GOVERNMENT AND DONOR EFFORTS TO INCREASE TRANSPARENCY 
--------------------------------------------- -------- 
 
¶7.  In order to reduce corruption and increase transparency, 
in 2006 the ROYG embarked on a series of economic and 
political reforms under the National Reform Agenda (NRA). 
The NRA focuses on increasing political participation, 
improving governance, fighting corruption, enhancing public 
administration and improving the business enabling 
environment.  In the field of anticorruption, the Parliament 
passed a financial disclosure law in July 2006 which aims to 
enhance transparency and accountability of ROYG agencies and 
officials and to upgrade the stature of the civil service at 
large by enacting mechanisms that ensure the protection of 
public funds.  In July 2007, the ROYG established an 
11-member Supreme National Authority for Combating Corruption 
(SNACC).  In order to increase transparency in the oil and 
gas industry, the ROYG joined the Extractive Industries 
Transparency Initiative (EITI) in March 2007 and established 
a multi-stakeholder EITI committee in August.  (Comment:  The 
level of effectiveness and implementation of these programs 
remains to be seen.  End Comment.)  The ROYG Ministry of 
Civil Service has undertaken a Civil Service Modernization 
Program.  Since implementation begun in 2007, the program has 
eliminated thousands of "ghost workers" or "double 
dippers"(i.e., where one person holds multiple jobs and 
receives multiple salaries) through the issuance of biometric 
identity cards and the creation of a civil service 
identification system. 
 
¶8.  In the field directly related to implementation of the 
national budget, the Ministry of Finance signed a Public 
Finance Management (PFM) Reform Agenda Partnership Agreement 
and Action Plan in May 2006.  A number of bilateral and 
multilateral donors are involved in the implementation of PFM 
reform, including DFID, the Dutch, GTZ, UNDP, the World Bank 
and the USG.  PFM reform has focused on a) improving policy 
prioritization and budget decision making and budget 
preparation; b) improving national budget execution 
management systems; c) enhancing control and financial 
accountability; d) improving bidding and procurement systems 
laws, and e) improving the efficiency and skills of public 
finance workers and auditors.  PFM activities have included 
the establishment of an Accounting and Financial Management 
Information System (AFMIS) within the Ministry of Finance, an 
assessment financed by the World Bank on Public Expenditure 
and Financial Accountability (PEFA), preparation of a Medium 
Term Expenditure Framework (MTEF) and development of the 
capacity of the Central Organization of Control and Audit 
(COCA). 
 
¶9.  In a February 12 meeting, the PFM Donor Group opined that 
much work still needs to be done, donor coordination is 
fragmented and there has been an absence of strong leadership 
from the Ministry of Finance to drive PFM reforms forward. 
The MOF also complained that there was a lack of coordination 
between the MOF and line ministries on PFM reform issues. 
The MOF stated that PFM reform maintains too much of a focus 
on the MOF and not enough focus on the line ministries. 
 
¶10.  AmEmbassy Sanaa has actively promoted fiscal 
transparency and good governance through several projects. 
USAID, through an anti-corruption LSGA grant, is developing 
the capacity of the newly formed SNACC.  The State 
Department's MEPI Program has provided technical assistance 
to the ROYG for drafting the public procurement law.  (Note: 
The level of effectiveness of these programs in promoting 
fiscal transparency of public revenues and expenditures 
remains to be seen.  End note.) 
 
SECHE