World Bank reports deepening crises for Yemen's economy amid ongoing conflict

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Ajay Banga 14th President of the World Bank Group | https://encrypted-tbn1.gstatic.com

Yemen’s economy continues to face significant hurdles as ongoing conflict and regional tensions exacerbate the nation's economic and humanitarian crises, according to the World Bank’s latest Yemen Economic Monitor. Yemen's GDP is projected to contract by 1.0% in 2024, following a 2.0% contraction in 2023 and modest growth of 1.5% in 2022. Between 2015 and 2023, Yemen experienced a 54% decline in real GDP per capita, leaving the majority of Yemenis in poverty. Food insecurity affects half the population, and youth mortality rates have surged.

The fiscal situation of the Internationally Recognized Government (IRG) deteriorated significantly in 2023. Fiscal revenues declined by over 30%, driven by a substantial drop in oil revenues and diminished customs revenues due to the redirection of imports from Aden to Houthi-controlled ports. In response, the IRG implemented severe expenditure cuts, impacting essential public services and long-term economic growth.

The current account deficit widened to 19.3% of GDP in 2023, up from 17.8% in 2022. The blockade on oil exports significantly impacted the trade deficit, while foreign reserves remained relatively stable due to financial support from partners, including the conversion of IMF Special Drawing Rights (SDRs).

The resumption of monetary financing by the IRG heightened inflationary pressures. However, inflation rates varied across regions, with Sana'a experiencing deflation at -11.8% and Aden facing elevated inflation at 7.0% due to currency depreciation. Additionally, the cost of essential goods has surged in Aden, with many families now spending over 60% of their income on food alone.

"Yemen's economic and humanitarian challenges are intensifying, yet the potential for recovery remains with the right support and strategies," said Dina N. Abu-Ghaida, World Bank Country Manager for Yemen. "The report underscores critical areas for action, including tackling fiscal pressures, alleviating trade disruptions, and stabilizing the currency."

Additionally, the report notes that continued fiscal pressures and economic fragmentation between northern and southern areas threaten to deepen the divide and further complicate recovery efforts. For example, the redirection of imports has led to a substantial decrease in customs revenues for Aden compared to northern regions under Houthi control.

The report also highlights escalating regional tensions' severe impact on international shipping and trade due to Houthi attacks in the Red Sea. This has led to increased shipping costs and insurance premiums.

The economic outlook for Yemen remains highly uncertain without a lasting peace agreement or resumption of oil exports crucial for broader economic recovery.