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For years already the poorest country in the Middle East and North Africa (MENA), Yemen now suffers from worst humanitarian crisis in the world. Embroiled in conflict since early 2015, fighting has devastated its economy—leading to serious food insecurity—and destroyed critical infrastructure. The UN has estimated that 24.3 million people in 2021 were “at risk” of hunger and disease, of whom roughly 14.4 million were in acute need of assistance. 

The value of the Yemeni riyal continues to depreciate to new historic lows, driving large increases in food prices and pushing more people into extreme poverty. Socio-economic conditions are deteriorating rapidly, affected by declining remittances, trade disruptions, severe fuel supply shortages, and reduced humanitarian operations. Growing violence and fragmented macroeconomic policies have added additional strain to already fragile economic conditions. An unprecedented humanitarian crisis persists, aggravated by COVID-19, leaving many Yemenis dependent on relief and remittances.

Distortions created by fragmented institutional capacity and diverging policy decisions across areas of control have compounded a crisis created by protracted conflict, the interruption of essential services, and acute shortages of basic inputs, including fuel. Rising fuel and food prices have also had a devastating impact on Yemen’s population.

On top of this, some 20.5 million Yemenis are without safe water and sanitation and a staggering 16.2 million people require urgent emergency assistance because of food insecurity and malnutrition. As a result, Yemen has been grappling in recent years with mass outbreaks of preventable diseases, such as cholera, diphtheria, measles, and Dengue Fever. Waves of currency depreciations in 2018 and 2019 have created lasting inflationary pressure on the Yemeni riyal that has exacerbated the humanitarian crisis. The disruption of infrastructure and financial services has severely affected private sector activity. The more than 40% of Yemeni households that find it difficult to buy even the minimum amount of food may have also lost their primary source of income. Poverty is worsening: whereas before the crisis it affected almost half Yemen’s total population of about 29 million, now it affects an estimated three-quarters of it—71% to 78% of Yemenis. Women are more severely affected than men.

Economic prospects in 2021 and beyond will critically depend on rapid improvements in the political and security situation, and ultimately on whether a cessation of hostilities and eventual political reconciliation will allow for rebuilding Yemen’s economy and social fabric. Improved monetary supervision and policy controls could reduce currency exchange volatility and temporarily limit speculative activities, with possible moderate gains in the relative value of the US dollar in the south. A more durable stabilization of the exchange regime will require solutions to tackle the root causes of volatility.

In the absence of stable sources of foreign currency, expansionary monetary policy risks accelerating the depreciation of the Yemeni riyal. Inflation is anticipated to continue accelerating rapidly in 2021, to an estimated 45% compared to 35 % in 2020. Progress in implementing past agreements on access to fuel imports and other supplies through Hodeida’s port, as well as the scaling up of humanitarian funding, would improve prices and access to food. It should also enhance the provision of public services and the operational environment for humanitarian operations.

Last Updated: Nov 01, 2021

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