ReportNo. 15158-YEM Republic of Yemen Poverty Assessmzent Public Disclosure Authorized June26, 1996 Middl(e I st I IlImmi RemMIrcesD)ivi,(fln ( o LIltrV DX I IeeItII Middle East mindNorthi Africa Retgion Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of the World Bank ClURRENCY EQuIVALENTS Currency Unit = Yemeni Rial (YR) YR 1.0 = 100 Fils Exchange Rate as of.June 1, 1996 Official exchange rate: YR II 5/US$ Parallel exchanigerate: YR I1 5/1US$ Yemen Fiscal Year January I - December 3 1 LIST OF ACRONYMS ARI Acute Respiratory Infectionis DHS Demographilc and Maternal and Child Health Survey EPI Expanded Program of Iin Inllnizationis FAO Food and Agriculture Organization GDP Gross Domestic Product GNP Gross National Product HBS-92 Household Budget Survey, 1992 LCCD Local Counicils for Cooperative Development LDA Local Developmenlt Association MOSL Ministry of Social Affairs, Social Insiuranice,and Labor NGO NongoverinmenltalOrgan ization OECD Organ isation for Economic Co-operation aiid Development PDRY Peoples' Democratic Republic of Yemen TFR Total Fertility Rate UNDP lUnited Nations Development Programine UNHCR ULited Nations High Commission for Reftugees WDR World Development Report YAR Yemen Arab Republic YR Yeienl Rial REPUBLIC OF YEMEN POVERTY ASSESSMENT TABLEOF CONTENTS i EXECUTIVESUMMARY ................................................................ I THE POVERTY PROFILE ................................................................ ,. 2 THE EXTENTAND DEPTHOF POVERTY........................................................................ 3 A DESCRIPTIONOF THE POOR............................................................ 5 Sectoral and Regional Comparison of Poverty ............................................................ 6 Education ............................................................ 8 Labor Force Activities ............................................................ 9 Summary Household Charactei istics ........................................................... 10 Groups of Poor ........................................................... 10 AN OVERVIEW: REGRESSIONANALYSIS ........................................................... POOR .................................................... 12 SHORT-TERM IMPLICATIONS OF ECONOMIC POLICIES ON THE ........................................................... 12 THE GOVERNMENT'SSOCIAL SAFETY NET: UNIVERSALSUBSIDIES 14 WHEATSUBSIDY ............................................................ 14 Major Issues ........................................................... 16 Options ........................................................... 17 SOCIAL SAFETYNETS: PUBLICOR PRIVATEINITIATIVE? ...................................................... 17 Major Issues ........................................ 20 Options ........................................ POOR.................................................. 22 MEDIUM-TERM IMPLICATIONS OF ECONOMIC POLICIES ON THE 22 THE FOUNDATIONSFOR ECONOMICDEVELOPMENT .............................................................. 23 Major Issues .............................................................. 26 Options .............................................................. ON THE POOR ............................ ................. 29 LONG-TERM IMPLICATIONS OF SOCIAL SECTOR POLICIES 30 T HEALHE THSECTOR ............................................................... 32 Major Issues .............................................................. 34 Options .............................................................. 36 THE EDUCATIONSECTOR .............................................................. 36 Major Issues.............................................................. 41 Options .............................................................. 43 CONCLUSION .............................................................. 45 ANNEXES .............................................................. 59 REFERENCES .............................................................. Peter Heywood, Arun Joshi, Donald This report is the work of Sarosh Sattar (Task Manager), Nabil Alnawwab (ESCWA), by Bahjat Achikbache, Jacqueline Baptist, Mitchell, Hussein Shakhatreh, and Kamar Yousuf. Additional support was provided visited Sana'a during September 1995 and were Sharon Beatty, Tahir Qassim, and Mona Said. Most members of the team was assisted by the generous and industrious received under the auspices of the Ministry of Planning. In Sana'a the mission Office, Ministry of Finance, Ministry of counterparts throughout the Yemeni govemment, in particular the Central Statistical Chu (IMF) and Martin Ravallion were peer Education, Ministry of Health, and Ministry of Labor and Social Affairs. Ke-young reviewers. EXECUTIVESUMMARY 1. Poverty is widespread in Yemen, affecting one out of every five persons. By definition, the poor's expenditures are below socially acceptable norms, but in Yemen the poor also suffer more than the nonpoor from ill health and lower educational attainment. This raises the concern of whether public policies and expenditures are adequate for promoting economic and social development since such a large share of the population is excluded from participating in the benefits. 2. The options available to the Government for assisting the poor are limited by two characteristics of Yemen. First, the poor live mostly in rural areas (81 percent of all poor) which makes it difficult to reach them through public assistance programs. Second, public institutions are weak and the Gevernment must choose options which are easily implementable and involve partners from the private and nonprofit sectors in order to alleviate poverty. 3. The poverty reduction strategy for Yemen has three components: (i) policies which encourage broad-hased economic growth, (ii) increased provision of social services, and (iii) development of the iiongoverninental sector. The main steps the Government must take are to (a) phase out the universal subsidy program, (b) improve the effectiveness of public expenditures, and (c) revisit the strategies in the health and education sectors. Macroeconomic stability is a prerequisite for the success of these actions. OVERVIEW OF THE POVERTY PROFILE 4. Yemen's growth rate of 3.3 percent per annum is one of the highest in the world. Among the countries in the Middle East and North Africa, Yemen has the lowest life expectancy (51 years), the lowest adult literacy rate (38 percent), the highest fertility rate (TFR 7.5), and the highest infant mortality rate (11.7 percent of live births). 5. Poverty in Yemen is measured by establishing minimum food and nonfood expenditure requirements for each governorate and rural and urban areas. Analysis of a recent household survey indicates that over half of Yemen's poor live in four governorates (Sana'a, Taiz, Ibb, and Dhamar) and an additional 21 percent live in Hodeidah, Hadramout, and Al-Beida. The greatest concentration of poverty is in Dhamar, Al-Beida, and Al-Mahwit where one-third of the governorates' population live below the poverty line. 6. Though poverty is widespread in Yemen, it is primarily a rural phenomenon. Most of the population lives in the rural areas. In 1995 .he population was 15.3 million of which about 0.6 million were urban poor (4 percent) and 2.4 rmillion(15 percent) rural poor.1 7. The labor force participation rates of the poor and nonpoor are similar at about 53 percent though poor men join the labor force at a younger age and exit at an older age than nonpoor men. In 1992 accoiding to the Household Budget Survey an estimated 9 percent of the poor were unemployed compared to 7 percent of the nonpoor. The (employed) poor work mostly (82 percent) in the private sector either as self-employed or employees compared to 76 The total populationfor 1995 is a World Bank estimate. The proportion of the rural population is estimated at 80 percent of total population using census data from 1986 and 1988. Updated informationfrom the 1994 censusis not yet available. - 11 - percent of the nonpoor. The public sector employs a significant share of the labor force (25 percent). In 1992, 13 percent of all public sector employees fell below the poverty line compared to 18 percent of private sector workers. 8. Poor persons are less likely to be literate than the nonpoor in Yemen: 66 percent of the poor are illiterate compared to 59 percent of the nonpoor. Analysis of the Household Budget Survey (1992) shows that (i) adult men are more likely to be literate - poor or nonpoor - than women by a factor of four times on average; (ii) literacy among younger men - whether poor or nonpoor - is greater than among older men which implies that the Government has been successful in delivering education services to the male population; and (iii) literacy and school enrollments vary greatly among governorates with Aden having the largest proportion of literate adults (72 percent) and Hajjah the lowest (17 percent). GOVERNMENTACTIONS TO REDUCEPOVERTY 9. Since the Government has initiated a stabilization and structural adjustment program, the economic policy foundation presents an opportunity for improving public expenditures and sector strategies. Over the next several years, Yemen can reduce poverty if it improves the environment for private investment, foilows sensible fiscal and monetary policies, and wisely uses its oil revenues (estimated at about 22 percent of GDP in 1995). However, if the Government continues to use this income