Press Release No. 19/290

IMF Staff Concludes Visit on Yemen

July 19, 2019

• The government’s resumption of payments to a large number of workers and all pensioners in areas outside its control was a welcome step toward restoring household purchasing power, and the government is urged to take further steps to pay all civil service salaries.
• Additional donor financing, enhanced revenue collection, and further expenditure prioritization will be needed to maintain economic stability.
• Building on recent progress in strengthening administrative capacity, it will be critical to overcome institutional fragmentation and harmonize policy implementation across the country.

An International Monetary Fund (IMF) team led by Koshy Mathai visited Amman during July 10-18, 2019, to meet with a Yemeni delegation including government and central bank representatives. The team also met private-sector participants. The discussions covered recent economic developments in Yemen, the outlook, and economic policies. At the end of the visit, Mr. Mathai made the following statement:

“Conflict has crippled Yemen’s economy and pushed the country into a humanitarian crisis. A sharp contraction in economic activity and hydrocarbon exports, along with a wide suspension of basic public services, have left some 17 million people in acute need of food aid and other forms of assistance. Public institutions, including the central bank, have been fragmented, contributing, among other problems, to coordination difficulties on import financing and nonpayment of salaries for many civil servants in areas outside government control.

“Macroeconomic pressures have abated recently but remain considerable. Following the sharp output declines of 2014-17, growth has moved back into positive territory, albeit now from a much lower per capita income level. Donor financing and increased hydrocarbon receipts were key factors in quelling last year’s dramatic volatility in the exchange rate and food prices, and basic food imports increased toward prewar levels, supported also by humanitarian aid. The government’s resumption of payments to a large number of workers and all pensioners in areas outside its control was a welcome step toward restoring household purchasing power. We urge the government to pay all civil-service salaries throughout the country.

“Additional donor financing, enhanced revenue collection, and further expenditure prioritization will be needed to maintain economic stability. Despite the expected increase in hydrocarbon revenues, the fiscal deficit will likely remain too large to be financed via non-inflationary means. Spending restraint while protecting priority spending, including transfers to the poor and salary payments across the country, will thus be necessary. Additional financing will also be needed, both to avoid resorting to central bank financing of the deficit and to support essential imports. The IMF is very concerned about the humanitarian and economic costs of the conflict, and is working with donors to urgently finance basic imports and support the payment of public-sector wages and social assistance.

“The government has already made significant progress in rebuilding its technical cadre and improving data collection and analysis, enabling it to take the important step of preparing a national budget for 2019—the first in five years. Further capacity building, however, will be needed and could be supported by donors in a range of areas including central bank operations and supervision, the payments system, and public financial management. Increased transparency and strengthened internal controls would also help build the confidence required to catalyze much-needed financial support from donors.

“Building on recent progress in strengthening administrative capacity, it will be critical to overcome institutional fragmentation and harmonize policy implementation across the country. Strengthened supervisory capacity over the entire financial system, including in terms of further promoting compliance with anti-money laundering and combating the financing of terrorism (AML/CFT) standards, will also be needed, as will improvements in statistics, public financial management, and other areas. All this would also enhance the absorption of capacity building support from donors, ensuring harmonized upgrading of the central bank systems across all its branches.

“The mission team would like to thank the authorities for the frank policy dialogue and looks forward to continued close engagement.”