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.”
