Yemen: Economic Outline

Economic Indicators

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Yemen has been involved in a conflict since early 2015. For many years the poorest country in the Middle East and North Africa (MENA), it is now experiencing the world's worst humanitarian crisis. The country is currently divided into two territories: the north and the capital Sana'a are controlled by Houthi rebels; whereas in the south there are two entities, the loyalists guided by the internationally recognised government of President Hadi and the autonomist Southern Transitional Council, led by Aidarous al-Zubaid and supported by Saudi Arabia. In April 2022, President Hadi resigned and transferred power to a leadership council formed of eight members, tasked with negotiating with the Houthis to agree on a permanent ceasefire and a political solution to the war. Yemen suffers from structural deficiencies and the current conflict exacerbates the situation. The ongoing war has destroyed Yemen's economy: it has essentially eliminated the country's exports, weakened the national currency, exacerbated inflation, limited food and fuel imports, and damaged infrastructure. The IMF estimated that GDP growth was negative by 8.5% in 2020 and by 1% in 2021 as private consumption, by far the main economic component, has constantly weakened because of shortages of basic goods and a steep rise in inflation. Economic output stabilized with modest economic growth of around 2% in 2022, which should slightly accelerate to 3.3% in 2023, albeit with considerable uncertainty regarding the evolution of the conflict and the availability of external financing.

Since the outbreak of the conflict, Yemen has lost more than half of its GDP. Hydrocarbon production and export were largely suspended, as well as investments. At the same time, low foreign reserves severely reduced Yemen's import capacities, causing a shortage of food, medicine and fuel. In 2022, the fiscal deficit remained unchanged at 2.2% of GDP, as the expiration of the truce and subsequent oil export constraints curbed revenues in the last quarter of the year, offsetting the balanced budget recorded in the first three quarters. Meanwhile, Saudi Arabia and the UAE announced a USD 3.3 billion financing assistance package, including USD 2 billion in deposits at the Central Bank of Yemen. 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 (IMF). The debt-to-GDP ratio, estimated at 54% in 2022, is expected to follow a downward trend over the forecast horizon (48.4% in 2023 and 45.3% in 2024). According to the World Bank, economic stability both in the short and medium term remains contingent on mobilizing additional and sustainable external financing. The conflict has heavily jeopardized oil sector activity as well as Yemen's capability to attract foreign investment. The spike in global commodity prices affected Yemen’s inflation rate, which rose to more than 40% in 2022, though unevenly across the territory. A more stable exchange rate and the recent decline in global food prices are expected to translate into lower inflation in 2023 (17.1% as per the IMF projections).

The country has one of the lowest GDP per capita (PPP) in the world, estimated at USD 2,042 in 2023 by the IMF. The country has long been one of the poorest in the MENA region and the conflict caused one of the world’s worst humanitarian crises: the UN estimated that 24.1 million people in 2023 were at risk of hunger and disease, and roughly 14 million were in acute need of assistance. Approximately 18 million of its citizens lack access to safe water and sanitation; moreover, an alarming 16.2 million people urgently require emergency aid due to food insecurity and malnutrition, leading to recurring outbreaks of preventable diseases like cholera, diphtheria, measles, and dengue fever (World Bank).

Monetary Indicators	2016	2017	2018	2019	2020
Yemeni Rial (YER) - Average Annual Exchange Rate For 1 GHS	53.86	49.39	46.86	94.81	132.42

Source: World Bank - Latest available data.

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Latest Update: November 2023