Fiscal institutions and macroeconomic management in resource rich economies : the case of Yemen

Abstract EN

The link between natural resource outcomes and the quality of institutions has attracted considerable attention in natural resource literature.

But only very recently has its link to fiscal rules and institutions been discussed, focusing mainly on developed economies.

We conduct an assessment of the role fiscal rules and institutions play in Yemen, both an oilproducing and developing country.

The analysis attempts to evaluate fiscal discipline and the resulting fiscal side of macroeconomic policies in this populous Arab country.

The structure and quality of fiscal institutions in Yemen, and the rules governing them, are central in determining the developmental impact of the country's oil and natural gas endowments.

We show that Yemen's economic volatility, and hence poor development experience, was in fact a natural result of the two-way interaction between fiscal institutions and natural resource rents.

On one hand, realizing the benefits from natural resource endowments in Yemen requires adopting an appropriate set of working rules that reduce the unfavorable effects of resource abundance on the quality of institutions.

On the other hand, high quality institutions and rules may help improve resource management, contributing to the realization of better economic performance in the future.