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publication April 16, 2020

Yemen's Economic Update — April 2020

The old city of Sanaa, the capital of Yemen.

Download Yemen report: English

After almost five years of escalating conflict, Yemen continues to face an unprecedented humanitarian, social and economic crisis. Significant damage to vital public infrastructure has contributed to a disruption of basic services, while insecurity has delayed the rehabilitation of oil exports — which had been the largest source of foreign currency before the war — severely limiting government revenue and supply of foreign exchange for essential imports. The bifurcation of national capacity, including the Central Bank of Yemen (CBY), between the conflicting parties, and adhoc policy decisions by them further compound the economic crisis and humanitarian suffering from violence.

Economic and social prospects in 2020 and beyond are uncertain and hinge critically on the political and security situations. Affordability of food is a rapidly emerging threat to household welfare, as preexisting global food price increases and rial depreciation is now interacting with COVID-19 related trade restrictions by food exporters. Yemen’s import dependence is exacerbated by the impact of desert locusts on the cropping season. A cessation of the ongoing violence and eventual political reconciliation, including the reintegration of vital state institutions, would improve the operational environment for the private sector, facilitating the reconstruction of the economy and rebuilding of social fabric.

Yemen continues to face significant risks of renewed macroeconomic volatility. Without stable sources of foreign exchange, the Yemeni rial is vulnerable to downward pressures. KSA’s deposit, which financed essential imports, is close to depletion and increased hydrocarbon exports are highly uncertain due to the bleak outlook of the global oil market, and the fragmented multiple exchange rate regimes. A further rial depreciation would immediately have a knock-on effect on the prices of imported commodities with dire economic and humanitarian consequences. A COVID-19 related global and regional economic slowdown may affect Yemen through reduced remittances from the GCC.