Parallel financing arrangement Country assistance strategy 2010-2013 The poorest country in the Middle East North Africa (MNA) region Yemen is facing daunting challenges in an uncertain global and regional environment. Significant progress has been made over the last few years but living conditions for most of the 22 million Yemenis remain difficult. Yemen's governance structures are complex and recent events have heightened concerns over security issues. Yemen is unlikely to reach most Millennium Development Goals (MDGs) by 2015 and the situation is particularly dire for women. The Government is implementing a program of economic and governance reforms but time is of the essence as oil resources are rapidly depleting while the population continues to grow at a fast pace. The sharp fall in world oil prices and the consequent shrinking in public expenditure is depressing economic activity. Moreover while the financial sector has remained relatively unscathed due to its relative insulation the impact on the real sector is expected to be significant through declines in Foreign Direct Investment (FDI) remittances (especially from the Gulf) and external financing. The Government realizes the pressing need for a comprehensive fiscal adjustment but the risks of a deterioration of the economic situation is high. Over the last decades Yemen's economy has been based on oil with the redistribution of corresponding rents through civil service salaries and a generous subsidy system. Hydrocarbon output (oil and gas) represents about one third of Gross Domestic Product (GDP) almost three quarters of Government revenues and 90 percent of exports. However Yemen's oil reserves are rapidly depleting: in the absence of new discoveries and based on current exploitation rates (about 300 000 barrels per day) crude oil reserves are expected to be exhausted in the next 10 to 12 years.