2013 Index of Economic Freedom

Yemen

overall score55.9
world rank113
Rule of Law

Property Rights30.0

Freedom From Corruption21.0

Limited Government

Government Spending72.8

Fiscal Freedom91.5

Regulatory Efficiency

Business Freedom61.3

Labor Freedom55.3

Monetary Freedom65.7

Open Markets

Trade Freedom81.5

Investment Freedom50.0

Financial Freedom30.0

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Quick Facts
  • Population:
    • 25.1 million
  • GDP (PPP):
    • $58.0 billion
    • -10.5% growth
    • 1.4% 5-year compound annual growth
    • $2,307 per capita
  • Unemployment:
  • Inflation (CPI):
    • 17.6%
  • FDI Inflow:
    • $-712.8 million
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Yemen’s economic freedom score is 55.9, making its economy the 113th freest in the 2013 Index. Its score is 0.6 point higher than last year, reflecting notable improvements in the control of government spending, fiscal freedom, and investment freedom that outweigh declines in four other areas, including a significant drop in business freedom. Yemen is ranked 12th out of 15 countries in the Middle East/North Africa region, and its overall score is lower than the world and regional averages.

Economic freedom has fluctuated erratically in Yemen, which remains mired in economic stagnation and political instability. Severely hampered by state interference, the formal economy lacks much-needed dynamism, and informal economic activity is expanding. Monetary stability remains fragile, and there are price controls on almost all goods and services. Government interference in the financial sector further distorts price levels and constrains private-sector growth by allocating credit on non-market terms.

Systemic corruption and deficiencies in the judicial regime continue to undermine the rule of law, which remains uneven and fragile across the country. Contracts and property rights are not well respected, and the threat of government expropriation remains high.

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Background

Yemen is one of the Arab world’s poorest countries. The government faces chronic challenges from secessionists, unruly tribes, and Islamist extremists opposed to its moderate foreign policy and cooperation with the United States against al-Qaeda. In early 2011, important members of President Ali Abdullah Saleh’s government defected to a growing coalition of opposition forces. Saleh, forced to resign in a deal brokered by the Gulf Cooperation Council, transferred power to Vice President Abd Rabbuh Mansur al-Hadi after a February 2012 election. The government initiated an economic reform program in 2006, but declining oil production, terrorist attacks, kidnappings, clashes between Sunni and Shia Muslims, tribal rivalries, a strong al-Qaeda presence, and growing water shortages have undermined tourism, foreign investment, and growth.

Rule of LawView Methodology

Property Rights 30.0 Create a Graph using this measurement

Freedom From Corruption 21.0 Create a Graph using this measurement

The judicial system is subject to political pressure. Enforcement of contracts is weak, and private property rights are not strongly respected. Foreigners may own property, but foreign firms must operate through Yemeni agents. The civil service is overstaffed, underpaid, and highly vulnerable to corruption. Government officials at every level solicit bribes from foreign companies at every step of a project.

Limited GovernmentView Methodology

The top income tax rate is 20 percent, and the top corporate tax rate is 20 percent. Other taxes include a general sales tax (GST) and a property tax. The overall tax burden equals 7.1 percent of total domestic income. Government spending has risen to 30.1 percent of GDP. The budget has been chronically in deficit, and public debt equals 42.5 percent of GDP. Two Arab Monetary Fund loans have helped the fiscal situation in the wake of civil unrest.

Regulatory EfficiencyView Methodology

The regulatory efficiency needed to develop a more dynamic private sector has not been established. Given the level of ongoing political and economic volatility, it is difficult to gauge the lasting effectiveness of earlier regulatory reforms aimed at broad-based economic expansion and dynamic job creation. The weakness of the private sector results in chronically high underemployment as well as unemployment. Inflation has spiked.

Open MarketsView Methodology

The trade-weighted average tariff rate is 4.2 percent, and some additional non-tariff barriers further limit trade freedom. Officially, the government permits foreign investment in most sectors and grants equal treatment to domestic and foreign investors. In practice, the inefficient investment regime inhibits dynamic growth in new investment. The economy is largely cash based, and the small financial system remains dominated by the state.

Country's Score Over Time

Bar Graph of Yemen Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Yemen to other economic country groups

Regional Ranking

rank country overall change
1Bahrain75.50.3
2Qatar71.30.0
3United Arab Emirates71.11.8
4Jordan70.40.5
5Oman68.10.2
6Israel66.9-0.9
7Kuwait63.10.6
8Saudi Arabia60.6-1.9
9Morocco59.6-0.6
10Lebanon59.5-0.6
11Tunisia57-1.6
12Yemen55.90.6
13Egypt54.8-3.1
14Algeria49.6-1.4
15Iran43.20.9


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