- The halt in oil exports and high domestic prices continue to weigh on economic activity while straining the government budget and foreign reserves.
- Economic outlook depends on the progress on the Yemen pea¬¬¬ce talks, continued commitment to reforms, and the evolution of regional tensions.
- External financing will be essential to maintain macroeconomic stability, fund humanitarian needs, and support the reform process.
Washington, DC: An International Monetary Fund (IMF) team, led by Joyce Wong, conducted a mission in Amman, Jordan with the Yemeni authorities from April 28th to May 2nd. Discussions covered recent economic developments in Yemen, the economic outlook, and progress on key policy reforms. At the end of the mission, Ms. Wong made the following statement:
"The halt in oil exports since the attack on oil facilities in October 2022 continues to weigh on Yemen's economy. Growth is estimated to have contracted by 2 percent in 2023 while inflation remained high, despite declining global food prices. The loss of oil exports, which represented more than half of the government's revenues (4 percent of GDP), is estimated to have widened the fiscal deficit to 4.5 percent of GDP in 2023, adding to pressures on reserves and the exchange rate. The humanitarian situation remains difficult with 17 million people facing food insecurity. Disbursements of the GCC support package and stable remittances have been mitigating factors.
"In 2024, Yemen's already fragile situation could be exacerbated by regional tensions. An escalation of the Red Sea tensions could adversely affect economic activity through trade and financial channels, and lower external support including humanitarian assistance.
"Despite the challenging situation, the authorities remain steadfastly committed to reforms, including further aligning multiple exchange rates for government transactions and refining the FX auction system. Cash management has been strengthened with better expenditure control and prioritization. These measures have contributed to limiting the budget deficit, recourse to monetary financing, and associated inflationary pressures.
"Amid high uncertainty, the mission urged the further acceleration of fiscal reforms, including improving revenue administration while enhancing expenditure reprioritization and control. Ensuring consistency and predictability in FX auctions will help the central bank preserve hard-won credibility amidst constrained FX resources. Strengthening central bank governance while improving data collection will enhance transparency and accountability. The mission also stressed the importance of continuing to preserve stability in the financial sector and further strengthen compliance in line with international frameworks, including AML/CFT, and national standards. This will further facilitate trade and remittances, which are key lifelines for the Yemeni population.
"External financial support remains critical to help ease fiscal pressures, limit monetary financing, and preserve price stability. To this end, active engagement with donors to address outstanding needs, together with improving the availability and consistency of financing will be crucial. The IMF will continue to provide comprehensive technical assistance to Yemen to further enhance institutional capacities. The mission also held discussions with partners and key stakeholders to enhance synergies and improve coordination of external assistance.
"The mission team expresses deep appreciation to the Yemeni authorities, technical staff, and all counterparts for their excellent cooperation and candid discussions and looks forward to continued close engagement."
