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• Engelke, W
• Ecker, O
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Sustainability 2012, 4(11), 2862-2887; doi:10.3390/su4112862

Article

Leveraging Fuel Subsidy Reform for Transition in Yemen

Clemens Breisinger ^1,* , Wilfried Engelke ²  and Olivier Ecker ¹

¹ International Food Policy Research Institute, Development Strategy and Governance Division, 2033 K St, NW Washington, DC 20006-1002, USA ² The World Bank, 1818 H Street, NW Washington, DC 20433, USA

* Author to whom correspondence should be addressed.

Received: 28 September 2012; in revised form: 17 October 2012 / Accepted: 17 October 2012 / Published: 30 October 2012

Download PDF Full-Text [406 KB, uploaded 30 October 2012 13:57 CET]

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

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