- The ongoing regional conflict has deepened Yemen's already acute humanitarian and economic conditions, leading to further contractions in GDP and rising inflation.
- The economic outlook hinges on the progress of the Yemen peace talks and a continued commitment to reforms. Key priorities for economic stabilization include continuing to enhance fiscal discipline, unifying the currency, and resuming oil exports.
- External financing will be essential for maintaining macroeconomic stability, addressing humanitarian needs, and supporting the reform process.
Washington, DC: An International Monetary Fund (IMF) team, led by Ms. Esther Pérez Ruiz, conducted a mission in Amman, Jordan with the Yemeni authorities from January 19 to 23, 2025. Discussions covered recent economic developments in Yemen, the economic outlook, and progress on key policy reforms. At the end of the mission, Ms. Pérez Ruiz made the following statement:
"Over the past year, the conflict in the Middle East, including tensions in the Red Sea, has worsened Yemen's already critical humanitarian crisis. Declining aid and disrupted humanitarian operations have left over 17 million people facing food insecurity, widespread malnutrition, and a rise in preventable diseases. Economic conditions have continued to deteriorate, with GDP and real incomes further contracting in 2024 due to the significant depreciation of the Yemeni rial amid halted oil exports and limited external financing, and rising inflation. Fiscal and external positions remain under strain, reserves are critically low and arrears continuing to grow. The authorities have demonstrated a commitment to maintaining macroeconomic stability and advancing structural reforms in this challenging environment. Progress has been made in containing government spending to partly offset the revenue shortfall in 2024, despite ongoing tax and customs administration efforts. These efforts have also limited the monetary financing of the budget and inflationary pressures.
"The ongoing political stalemate clouds Yemen's near-term economic outlook, with the economy still expected to contract in 2025. However, the recently announced ceasefire in Gaza has cautiously raised hopes for an easing of regional geopolitical tensions. Capitalizing on these developments and resuming internal dialogue to achieve lasting peace together with continued policy reforms would help improve Yemen's economic outlook. Key priorities for reviving growth, generating revenue, and increasing foreign reserves include unifying the currency and resuming oil exports, which generated more than half of government revenues before their suspension in 2022 and are necessary for addressing critical human capital and physical infrastructure needs, together with external financing.
"The mission encouraged the authorities to accelerate envisaged reforms towards economic recovery and strengthen fiscal discipline to create space for necessary capital and social spending, including by prioritizing electricity sector reforms. Preserving financial sector stability and facilitating essential capital inflows underscore the need for enhanced oversight and adherence to international standards, particularly regarding AML/CFT measures. A unified currency will reduce economic divisions by simplifying trade and finance as well as support the resolution of liquidity constraints. More consistent and predictable FX auctions will help improve efficiency, enhance price discovery, and stabilize the exchange rate. Furthermore, efforts to enhance data collection and compilation remain necessary to improve transparency and guide economic policy going forward.
"External assistance remains vital to addressing Yemen's humanitarian and developmental needs. Predictable and consistent financial support would provide the policy space necessary for implementing critical reforms. The mission engaged with international partners to galvanize support and align efforts in support of Yemen. The IMF will continue to help Yemen strengthen its policies and institutions.
"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 continuing close engagement."
