Press Release No. 21/156

IMF Staff Concludes Visit on Yemen

June 3, 2021

• The six-year long conflict has crippled Yemen’s economy, divided the country, and resulted in an acute economic and humanitarian crisis, which has been compounded by the COVID-19 pandemic.
• Absent a quick resolution to the conflict, Yemen’s near-term economic prospects are dim. Without additional external resources, food price inflation is likely to continue, exacerbating the crisis.
• To stabilize the macroeconomy and underpin a recovery, Yemen needs to mobilize additional resources and accelerate the process of rebuilding institutions.

Washington, DC: An International Monetary Fund (IMF) team led by Brett Rayner conducted a virtual mission with the Yemeni authorities from May 24-June 3. Discussions covered recent economic developments in Yemen, the outlook, and economic challenges and policies. At the end of the mission, Mr. Rayner made the following statement:

“The six-year long conflict has crippled Yemen’s economy, divided the country, and resulted in an acute economic and humanitarian crisis, which has been compounded by the COVID-19 pandemic. External support has collapsed, foreign exchange reserves are nearly exhausted, and pressures on the budget have increased. COVID has only exacerbated the crisis, primarily through a sharp decline in remittances and lower oil prices and revenues. As a result, the exchange rate has depreciated rapidly and food prices have soared. The UN estimates that more than 24 million people—some 80 percent of the population—are now in need of humanitarian assistance. The conflict has also weakened and fragmented Yemen’s policy capacity, limiting the authorities’ ability to respond effectively to the crisis.

“Absent a quick resolution to the conflict, Yemen’s near-term economic prospects are dim. As the global pandemic continues, and without additional external financing, output is expected to contract a further 2 percent in 2021 after declining 8.5 percent in 2020. Continued financing of the fiscal deficit by the central bank and resultant exchange rate depreciation, together with rising international food and fuel prices, will contribute to further rapid inflation. Rising international prices will also increase pressure on the balance of payments and reserves. Significant additional external financing will be needed just to maintain a basic level of critical imports.

“To stabilize the macroeconomy and underpin a recovery, Yemen needs to mobilize additional resources and accelerate the process of rebuilding institutions. Securing additional external support would help to close the large financing gap, thereby curbing depreciation and inflation. Raising domestic revenues would support macroeconomic stability by reducing the need for financing from the central bank. It would also allow the authorities to meet urgent social spending needs, including on basic goods, healthcare, and education. Resolving the conflict and steps to coordinate policies across Yemen, including on monetary, exchange rate, financial and fiscal issues, would help to end the economic and humanitarian crisis. Moreover, rebuilding institutional and policy capacity, including through strengthened governance frameworks, and increased transparency and accountability would help to catalyze greater financial assistance and underpin economic growth.

“The mission team would like to thank the authorities for the productive discussions and looks forward to continued close engagement.”