VZCZCXRO0175
PP RUEHDE RUEHDH RUEHDIR
DE RUEHYN #1582 2370547
ZNR UUUUU ZZH
P 250547Z AUG 09
FM AMEMBASSY SANAA
TO RUEHC/SECSTATE WASHDC PRIORITY 2650
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SANAA 001582 
 
SIPDIS 
 
NEA/ARP FOR ANDREW MACDONALD 
USAID FOR CHRIS KISCO 
DEPT OF TREASURY FOR BRIAN MCCAULEY 
USTR FOR JASON BUNTIN 
DEPT OF COMMERCE FOR TYLER HOFFMAN 
 
E.O. 12958: N/A 
TAGS: ECON EINV EFIN YM
SUBJECT: YEMEN: INTEREST IN INVESTMENT STAGNATES AS 
INTEREST RATES FALL 
 
¶1.  SUMMARY: The Central Bank of Yemen (CBY) has reduced 
interest rates in Yemen twice in the last six months, 
ostensibly in an attempt to stem inflation.  The reduction in 
interest rates appears to have had little effect on 
investment in Yemen.  The ROYG has not shown an inclination 
to introduce a policy of economic growth, investing more than 
it saves (initially) in order to gain the capital to increase 
production levels.  END SUMMARY. 
 
¶2.  The Central Bank of Yemen (CBY) has reduced interest 
rates in Yemen twice in the last six months, ostensibly in an 
attempt to stem inflation.  The CBY reduced interest rates 
from 13 to 12 percent in January 2009 and reduced them again 
to 10.5 percent in May 2009.  Ibrahim al-Nahari, Sub-Governor 
for Foreign Banking Operations at the CBY, told EconOff on 
August 11 that the CBY is reducing interest rates to 
sterilize excess liquidity in the market.  According to 
Nahari, the CBY has successfully managed to reduce the real 
inflation rate from last year's 10 percent to the current 
levels of 1.5 to 1.8 percent.  Amin Mohie al-Din, Director of 
the Central Statistical Organization (CSO), confirmed to 
EconOff on August 23 that the Consumer Price Index (CPI) has 
fallen in the last six months.  (Comment: While the CBY and 
CSO both conduct surveys of inflationary trends, there is no 
smooth relationship between the two organizations or the 
statistics that they produce.  Since the numbers that they 
produce differ, it is more useful to examine if their trends 
are similar.  End Comment.) 
 
¶3.  The reduction in interest rates appears to have had 
little effect on investment in Yemen.  Nahari told EconOff 
that the CBY has seen steady growth in deposits over the last 
year and a half.  Specifically, deposits in commercial banks 
have grown by 25 percent from January 2008 to June 2009.  The 
growing amount of deposits has not resulted in increased 
loans.  In fact, the amount of credit available has only 
increased very minimally.  According to Nahari, the volume of 
trade has increased, signaling more integration with the 
world economy.  (Comment: While an increase in the volume of 
trade is a positive sign, Nahari could not identify how much 
trade had increased, which suggests that it was nominal at 
best.  End Comment.) 
 
¶4.  COMMENT: In the short-term, the CBY appears to have the 
upper hand on curbing inflation by reducing interest rates. 
In the long-term, interest rate reduction could lead to 
capital flight.  Yemen's deep-seated problems with low 
investment levels are more often due to a poor investment 
climate than interest rates.  The ROYG has not shown an 
inclination to introduce a policy of economic growth, 
investing more than it saves (initially) in order to gain the 
capital to increase production levels.  END COMMENT. 
SECHE