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Cablegate: Yemen Input for Foaa-08 Report

VZCZCXYZ0282
RR RUEHWEB

DE RUEHYN #0396/01 0681408
ZNR UUUUU ZZH
R 081408Z MAR 08
FM AMEMBASSY SANAA
TO SECSTATE WASHDC 9115

UNCLAS SANAA 000396

SIPDIS

SIPDIS

STATE FOR EEB/IFD/OMA (ANDREW SNOW AND RICHARD FIGUEROA)
STATE FOR NEA/ARP (FRANCESCHI)
STATE FOR NEA/PI (GROSS AND FRANCESKI)
STATE FOR NEA/RA (JULIA PALLARES AND JOSEPH SCOVITCH)

E.O. 12958: N/A
TAGS: EAID ECON KMPI PREL YM
SUBJECT: YEMEN INPUT FOR FOAA-08 REPORT

REF: STATE 16737

SUMMARY
-------

1. In response to reftel, Post's input for the FY 2008
Department of State, Foreign Operations, and Related
Appropriations Act (FOAA-08) report follows.

2. The budget is made public in Yemen through written
publications, the mass media and the internet. Nevertheless,
many observers believe that the ROYG budget is plagued by a
lack of transparency in allocations to line ministries and
also in the phenomena of supplemental budgets. In order to
improve transparency, in 2006 the ROYG Ministry of Finance
embarked on a multi-donor-financed Public Finance Management
Reform Agenda. END SUMMARY.

LIMITED PUBLIC DISCLOSURE OF BUDGET
-----------------------------------

3. Articles 61, 73, and 87 of the Yemeni Constitution
address fiscal processes within Yemen. The Yemeni fiscal
year lasts from January 1 to December 31. A national
committee chaired by the Prime Minister and composed of
members from the Ministry of Finance, Ministry of Planning
and International Cooperation, Ministry of Oil, Customs
Authority, Tax Authority and Central Bank, is responsible for
devising the budget. The committee then submits the budget
to the Cabinet for approval, which in turn submits it to the
Parliament by November for final approval. Parliament does
not have the power to amend the proposed budget, only to
approve or reject it. The budget requires a majority vote
from Parliament of 51 percent (i.e. 151 votes) in order to
pass. If the budget is not approved before the new fiscal
year, the previous budget is enacted until such time as the
new one is approved. If the budget is passed, information
about it (both projected revenues and expenditures) is
advertised in bulletins, local newspapers and broadcast on
radio and television stations and on the internet.

4. The Ministry of Finance controls the actual disbursement
of the budget through the Central Bank of Yemen. Some
payments to line ministries (ministries other than the
Ministry of Finance) are made on a monthly basis and other
payments are made on a quarterly basis. All revenues
generated from line ministries and revenue agencies,
including the Oil Ministry, are transferred to a single
Central Bank of Yemen Consolidated Fund. In a March 5
meeting with Econoff, Deputy Minister of Finance for the
Budget Fadhl Al-Shoaiby said that the Ministry of Finance
(MOF) publishes 22 volumes of budgetary statistics during the
fiscal year which are available to the public upon request.
He added that the MOF submits quarterly, semi-annual and
annual reports on the budget to the Shura Council, Parliament
and Central Organization of Control and Audit (COCA). Under
Finance Law 1990 (amended 1999), the MOF is required within
nine months of the close of each fiscal year (i.e. September)
to submit accounts showing the ROYG's financial position to
the Cabinet and Parliament.

PERSISTENT LACK OF FISCAL TRANSPARENCY
--------------------------------------

5. There has been intense public debate about the level of
transparency in the Yemen national budget. Yemen has not
volunteered for the IMF to report on the country's compliance
with standards and codes covering fiscal transparency. Many
believe that Yemeni laws governing the public disclosure of
revenues and expenditures of the national budget are not
adequately implemented or enforced. For example, the amounts
earmarked for a particular ministry, like education, in the
national budget may not be the amounts actually allocated.
Line ministries are forced to bargain for every expenditure,
and perhaps bribe or otherwise bypass MOF officials stationed
in the line ministry.

6. Parliament has no control or oversight over the budget
once it is approved. Parliamentarians, in general, lack the
basic skills and knowledge to effectively review and evaluate
the national budget. Two budgets actually exist in Yemen, a
public budget released on January 1 and a supplementary
budget released at the end of the year. Supplementary or
"hidden" discretionary budgets may make up 50 percent of the
value of the public budget. In February 2007, a controversy
erupted when the media discovered that the ROYG underreported
oil revenues by USD 1.36 billion. (Note: Oil constitutes 70
percent of national revenues. End note). According to many
observers, the "extra" revenues finance special interests
(including the military, tribal sheikhs and powerful
businessmen) through supplementary budgets.

GOVERNMENT AND DONOR EFFORTS TO INCREASE TRANSPARENCY
--------------------------------------------- --------

7. In order to reduce corruption and increase transparency,
in 2006 the ROYG embarked on a series of economic and
political reforms under the National Reform Agenda (NRA).
The NRA focuses on increasing political participation,
improving governance, fighting corruption, enhancing public
administration and improving the business enabling
environment. In the field of anticorruption, the Parliament
passed a financial disclosure law in July 2006 which aims to
enhance transparency and accountability of ROYG agencies and
officials and to upgrade the stature of the civil service at
large by enacting mechanisms that ensure the protection of
public funds. In July 2007, the ROYG established an
11-member Supreme National Authority for Combating Corruption
(SNACC). In order to increase transparency in the oil and
gas industry, the ROYG joined the Extractive Industries
Transparency Initiative (EITI) in March 2007 and established
a multi-stakeholder EITI committee in August. (Comment: The
level of effectiveness and implementation of these programs
remains to be seen. End Comment.) The ROYG Ministry of
Civil Service has undertaken a Civil Service Modernization
Program. Since implementation begun in 2007, the program has
eliminated thousands of "ghost workers" or "double
dippers"(i.e., where one person holds multiple jobs and
receives multiple salaries) through the issuance of biometric
identity cards and the creation of a civil service
identification system.

8. In the field directly related to implementation of the
national budget, the Ministry of Finance signed a Public
Finance Management (PFM) Reform Agenda Partnership Agreement
and Action Plan in May 2006. A number of bilateral and
multilateral donors are involved in the implementation of PFM
reform, including DFID, the Dutch, GTZ, UNDP, the World Bank
and the USG. PFM reform has focused on a) improving policy
prioritization and budget decision making and budget
preparation; b) improving national budget execution
management systems; c) enhancing control and financial
accountability; d) improving bidding and procurement systems
laws, and e) improving the efficiency and skills of public
finance workers and auditors. PFM activities have included
the establishment of an Accounting and Financial Management
Information System (AFMIS) within the Ministry of Finance, an
assessment financed by the World Bank on Public Expenditure
and Financial Accountability (PEFA), preparation of a Medium
Term Expenditure Framework (MTEF) and development of the
capacity of the Central Organization of Control and Audit
(COCA).

9. In a February 12 meeting, the PFM Donor Group opined that
much work still needs to be done, donor coordination is
fragmented and there has been an absence of strong leadership
from the Ministry of Finance to drive PFM reforms forward.
The MOF also complained that there was a lack of coordination
between the MOF and line ministries on PFM reform issues.
The MOF stated that PFM reform maintains too much of a focus
on the MOF and not enough focus on the line ministries.

10. AmEmbassy Sanaa has actively promoted fiscal
transparency and good governance through several projects.
USAID, through an anti-corruption LSGA grant, is developing
the capacity of the newly formed SNACC. The State
Department's MEPI Program has provided technical assistance
to the ROYG for drafting the public procurement law. (Note:
The level of effectiveness of these programs in promoting
fiscal transparency of public revenues and expenditures
remains to be seen. End note.)

SECHE

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