Leveraging Fuel Subsidy Reform for Transition in Yemen

Clemens Breisinger (), Wilfried Engelke and Olivier Ecker
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Wilfried Engelke: The World Bank, 1818 H Street, NW Washington, DC 20433, USA

Sustainability, 2012, vol. 4, issue 11, 1-26

Abstract: Yemen is currently undergoing a major political transition, yet many economic challenges—including fuel subsidy reform—remain highly relevant. To inform the transition process with respect to a potential subsidy reform, we use a dynamic computable general equilibrium and microsimulation model for Yemen; we show that overall growth effects of subsidy reduction are positive in general, but poverty can increase or decrease depending on reform design. A promising strategy for a successful reform combines fuel subsidy reduction with direct income transfers to the poorest one-third of households during reform, and productivity-enhancing investment in infrastructure, plus fiscal consolidation. Public investments should be used for integrating economic spaces and restructuring of agricultural, industrial and service value chains in order to create a framework that encourages private-sector-led and job-creating growth.

Keywords: fuel subsidy reform; development; poverty; Middle East; Northern Africa; Yemen (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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