IMF Staff Concludes Visit on Yemen

IMF News, June 3, 2021

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"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-19 effects highlighted: "a sharp decline in remittances and lower oil prices and revenues."
The UN estimates "more than 24 million people—some 80 percent of the population—are now in need of humanitarian assistance."
Conflict-related institutional impacts: "weakened and fragmented Yemen’s policy capacity, limiting the authorities’ ability to respond effectively to the crisis."

Near-term prospects: "Absent a quick resolution to the conflict, Yemen’s near-term economic prospects are dim."
Growth and contraction projections:
- "Output is expected to contract a further 2 percent in 2021 after declining 8.5 percent in 2020."
Inflation and exchange rate pressures:
- "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."
Balance of payments and reserves: "Rising international prices will also increase pressure on the balance of payments and reserves."
Critical imports: "Significant additional external financing will be needed just to maintain a basic level of critical imports."

Primary drivers of the crisis: conflict, collapse of external support, exhausted reserves, fiscal pressures, COVID-19 impacts on remittances and oil revenues.
Humanitarian severity: more than 24 million people—some 80 percent of the population—need humanitarian assistance.
Institutional constraint: fragmentation and weakened policy capacity limit effective crisis response.

Mobilize additional resources:
- "Securing additional external support would help to close the large financing gap, thereby curbing depreciation and inflation."
- "Significant additional external financing will be needed just to maintain a basic level of critical imports."
Raise domestic revenues:
- "Raising domestic revenues would support macroeconomic stability by reducing the need for financing from the central bank."
- Revenue increases would also "allow the authorities to meet urgent social spending needs, including on basic goods, healthcare, and education."
Rebuild institutions and governance:
- "To stabilize the macroeconomy and underpin a recovery, Yemen needs to mobilize additional resources and accelerate the process of rebuilding institutions."
- Rebuilding institutional and policy capacity through "strengthened governance frameworks, and increased transparency and accountability" would "help to catalyze greater financial assistance and underpin economic growth."
Conflict resolution and policy coordination:
- "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."

Mission type and leadership: An IMF team led by Brett Rayner conducted a virtual mission with the Yemeni authorities.
Mission dates: May 24-June 3.
Publication date: June 3, 2021.
IMF contact: PRESS OFFICER: Wafa Amr — Phone: +1 202 623-7100 Email: MEDIA@IMF.org
Note on nature of release: "End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion."
Closing remark from mission: "The mission team would like to thank the authorities for the productive discussions and looks forward to continued close engagement."

IMF Staff Concludes Visit on Yemen — Press Release No. 21/156, June 3, 2021.