Yemen delays bond issuance due to spreading turmoil
DUBAI - Bloomberg | 4/25/2011 12:00:00 AM | DANA EL BALTAJI
Yemen, where protests against the regime entered a third month, may cancel the sale of a $117 million Islamic bond, threatening to deepen the country’s deficit.
Yemen, where protests against the regime entered a third month, may cancel the sale of a 25 billion-rial ($117 million) Islamic bond, threatening to deepen the country’s deficit.
The central bank delayed the sale of the one-year Shariah-compliant bills by two months to May 1 and may abandon the plans if banks do not have enough liquidity following customer withdrawals during the unrest, said Kamal Al-Rabie, general manager at the bank’s Islamic unit. The bonds were part of a program to sell 100 billion rials in the securities this year to help plug the country’s deficit.
Demonstrators in Yemen, the poorest country in the Middle East, are calling for an end to President Ali Abdullah Saleh’s three-decade rule. Saleh agreed to a Gulf Cooperation Council-brokered plan that allows him to cede power in exchange for immunity.
Foreign debt in the Arab nation rose to $6.49 billion as of September from about $6 billion a year earlier, state-run news agency Saba reported Dec. 29, citing a central bank report.
“The sukuk sale was going to help address the short- to medium-term financing needs of the government,” John Sfakianakis, chief economist at Riyadh-based Banque Saudi Fransi, said in an interview. “Yemen is facing twin challenges, liquidity and a fiscal gap which is not easily resolved unless outside help or domestic confidence returns back to the market.”
[HH] Growth slowing down
Economic growth in Yemen will slow to 3.4 percent this year from 8 percent in 2010, according to the International Monetary Fund’s World Economic Outlook on April 11. Oil accounts for 60 percent of government revenue and 90 percent of exports. Oil reserves are expected to be depleted within a decade, the IMF says.
Yemenis have removed their deposits from banks on concern that financial institutions will close, leaving them without access to their money.
“We are discussing the sale of the bonds now with banks to see whether we can issue in May, and how much we can issue,” Al-Rabie said in an April 20 interview from Sana’a.
The central bank issued its first Islamic bonds in February, raising 3.25 billion rials with a profit rate ranging from 17 to 21 percent, according to data compiled by Bloomberg. The capital was used to fund development projects, including the construction of roads, Al-Rabie said, without providing further details. The delayed 12-month notes would have yielded in the same range, he said.
Global sales of sukuk, which pay returns based on asset flows, rose 12 percent to $4.6 billion so far this year, Bloomberg data show.
Yemen’s central bank is auctioning 91-day, 182-day and 364-day non-shariah compliant treasury bills, according to data on its website. The bank on April 14 sold three-month, 182-day bills and 364-day securities at profit rates ranging from 22.92 percent to 22.94 percent.
“Many people have changed their money into dollars, and others have put their money in their houses,” Moneer Saif, suspended chief executive officer of Sana’a-based CAC Islamic Bank, said on April 20. “They worry that if banks close, they won’t have any money.”
Saif said the bank suspended him from his role last week because he “belongs to the protesters.”
About 43 percent of Yemen’s 23 million citizens live below the poverty line, according to IMF data. The Arab country’s Council of Ministers recently approved economic changes to reduce poverty and invest in new projects. These include a plan to prevent the budget deficit from widening more than 3 percent from 2011 to 2015.
“The economic plight in Yemen is serious and requires essential fine turning,” Sfakianakis said. “The issue is not only to address the deficit, but also now its liquidity challenge.”