Press Release No. 22/336

IMF Staff Concludes Visit to Yemen

October 5, 2022

• Yemen continues to face a major humanitarian crisis with food insecurity rising amid higher global commodity prices and a shortfall in humanitarian assistance.
• The truce and key policy reforms, including to improve the foreign exchange market, have contributed to greater macroeconomic stability.
• Consolidating these hard-won gains requires further strengthening the fiscal position while prioritizing pro-growth spending, and improving governance and transparency, together with continued progress in conflict resolution.
• Additional external financing is critically needed to support the reform process and macroeconomic stability.

Washington, DC : An International Monetary Fund (IMF) team, led by Brett Rayner, conducted a virtual and in-person mission in Amman, Jordan with the Yemeni authorities from September 27 to October 6. Discussions covered recent economic developments in Yemen, the outlook, and progress on key reforms. At the end of the mission, Mr. Rayner made the following statement:

“Higher global commodity prices have compounded inflationary pressures and exacerbated food insecurity. Annual inflation in August was estimated around 45 percent, with food inflation around 58 percent. Yemen has also faced a decline in wheat import volumes and has been unable to fully substitute for imports from Russia and Ukraine, which constituted around 40 percent of Yemen’s wheat. Meanwhile, humanitarian assistance has continued to fall short of Yemen’s needs. As a result, food insecurity is on the rise with the UN projecting the number of people in need of humanitarian assistance to reach 23.4 million by end-2022, with 19 million facing acute food insecurity.

“Despite the challenging headwinds, some encouraging developments have been paving the way to greater macroeconomic stability. In particular, the truce has supported a period of relative calm, including reduced conflict casualties and greater exchange rate stability. Moreover, the authorities have introduced an FX auction system and eliminated the administered budget exchange rates, including for oil revenues, helping reduce the budget deficit and recourse to financing from the central bank. Looking ahead, a more stable exchange rate and the recent decline in global food prices are expected to translate into lower inflation towards the end of the year. Economic output is expected to broadly stabilize with modest economic growth of around 2 percent in 2022 and 3.2 percent in 2023, albeit with considerable uncertainty regarding the evolution of the conflict and availability of external financing.

“Consolidating these gains requires further economic reforms together with continued progress in conflict resolution. In particular, improving durably the fiscal position and reducing financing from the central bank would alleviate pressures on the exchange rate and protect the purchasing power of households. In this regard, the mission encouraged the authorities to adopt the market exchange rate for customs revenues and revisit electricity subsidies. It also highlighted the need to make the composition of expenditures more equitable and growth friendly.

“The mission stressed the need to further raise transparency and accountability in the use of scarce public resources, which would help to reduce corruption vulnerabilities and eventually help catalyze additional donor financing. Specifically, continuing the extensive tax administration and public financial management reforms with technical and financial support from partners, including to strengthen tax audits, increase digitization, improve public debt management, and implement an Integrated Financial Management Information System (IFMIS) would support better budget planning, budget execution, and reporting at the Ministry of Finance.

“Discussions also covered ongoing efforts by the Central Bank of Yemen to enhance its operational capacities and transparency with support from the IMF and other partners. In particular, the mission highlighted the need to strengthen reserve management, improve financial reporting, complete outstanding audits, and regularly publish key statistics and reports, on which the authorities have already made very good progress. It also advised the authorities to continue work to rebuild financial sector regulatory and supervisory frameworks, including on AML/CFT.

“The mission underscored the importance of external support as a critical lifeline for Yemen. In particular, additional external assistance is needed to finance essential food imports, help meet urgent social spending needs, and address pressing infrastructure gaps. Such financing would also reinforce macroeconomic stability and the reform momentum.

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