ABU DHABI, Sept 29 (Reuters) - Yemen's government may issue a local-currency Islamic bond this year to finance its imports of petroleum products, its central bank governor Mohammed Awad bin Hamam said on Sunday.
"We might issue a sukuk during the coming short period," Hamam told Reuters on the sidelines of a meeting of Arab central bank governors in Abu Dhabi.
He said the sukuk could be worth about 50 billion Yemeni rials ($233 million) and use a salam structure, which resembles a forward contract in conventional finance.
"It will be around the prevailing interest rate, maybe even less. Maybe it will be around 10 percent, something like that," Hamam said, adding that the maturity would be more than one year, perhaps three or five years.
Yemen's economy has improved since 2012 after years of political instability and violence, but the recovery is fragile and the country remains the second-poorest Arab state after Mauritania.
Asked whether the central bank might cut interest rates again in coming months, Hamam replied: "Of course, yes, but we have to look at that. We have to watch inflation. Inflation is only one factor. We have look at more than one factor."
The central bank last cut its key interest rate in February, by 3 percentage points to 15 percent, but inflation hit a 15-month high of 14.2 percent in May.
"I guess inflation when you look at it from the commodity aspect, it is not that high. By the end of the year it will amount to something around 6-8 percent, I guess," Hamam said.
"From December to June it is not more than 12 percent, so maybe by the end of the year it will be around 6-8 percent."
Yemen's recovery plans are heavily dependent on foreign aid; Saudi Arabia provided a $1 billion loan to beef up Yemen's foreign reserves last year but other foreign aid, out of $7.9 billion pledged by donors in 2012, has been slow to arrive.
Hamam said the Saudi Arabian deposit was the only major, recent boost to foreign reserves. The central bank's gross foreign assets fell to a 10-month low of $5.7 billion in June, or 6.1 months of imports.
That level of reserves is comfortable and "when the donor money will be flowing in, the level of reserves will be increasing," he said.
Hamam said the International Monetary Fund expected Yemen's gross domestic product to grow around 6 percent this year, a prediction with which he agreed.