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.”
