The International Monetary Fund is discussing fresh financial aid to Yemen with the government of the country, a senior IMF official said on Tuesday.

Masood Ahmed, director of the IMF's Middle East and Central Asia department, told reporters that the talks focused on a new financial programme for Yemen.

"We have a team that has been working with authorities over the last couple of weeks and they made good progress in those discussions," he said ahead of a meeting of Arab finance ministers and central bank governors in Dubai.

"We are working with the authorities to see how we can support Yemen over the coming years," he added, without saying when agreement on the aid might be reached, or how much money might be involved.

The IMF resumed lending to Yemen in April last year, approving the payment of a $93.7 million loan to help the country with its balance of payments deficit, which had been worsened by a year of political turmoil.

GROWTH

In an interview with Reuters late on Monday, Yemen's central bank governor said he was comfortable with the current level of interest rates and that he expected economic growth to accelerate to about 7 percent this year.

The central bank slashed its main interest rate by 3 percentage points to a three-year low of 15 percent in February, helped by a sharp fall of inflation, in an effort to support economic recovery in the volatile Arab state.

Asked whether he expected to cut interest rates again in coming months, Governor Mohammed Awad bin Hamam said: "Will see, wait and see."

February's rate cut was the first since October, when the central bank began an easing cycle. Yemen's economy improved last year but recovery remains fragile in the second-poorest Arab state after Mauritania; a third of Yemen's 25 million people live on less than $2 a day.

Hamam said he expected the Yemeni economy to pick up speed this year after it grew 4.5 percent in 2012; the non-oil sector expanded about 6 percent last year.

"I expect this year will be better, maybe it will be 7 percent," he said of economic growth.

That is more optimistic than the IMF's latest public forecast of 4 percent growth for Yemen.

The IMF said in January that Yemen's central bank had room to reduce interest rates gradually to support growth, but warned that the political transition after the overthrow of president Ali Abdullah Saleh in February 2012, and security concerns - particularly attacks on key oil and electricity facilities - were risks to the economic outlook.

Inflation in Yemen dived to 5.8 percent in the final quarter of 2012 from a peak of 25 percent in October 2011.

Hamam said the central bank's foreign currency reserves currently stood at $6 billion, adding that he expected $2 billion worth of aid to arrive this year from international donors. Last year wealthy Gulf Arab states, Western governments and other donors pledged $7.9 billion in aid over several years to Yemen, but only a small fraction has so far arrived.

"Now, we are at the start and we have not received that much. We are waiting for the amount to be collected by the ministry of planning," Hamam said. – Reuters