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publication October 11, 2017

Yemen's Economic Outlook - October 2017

The violent conflict in Yemen has caused a dramatic deterioration of the economic and social conditions in the country. Output has contracted sharply. FAO estimates that over 7 million people are at risk of famine in 2017, and cholera outbreaks are ravaging the country with nearly 450,000 suspected cases having resulted in nearly 2,000 deaths per end of August.

Recent Developments

Since the escalation of violent conflict in March of 2015, Yemen’s economy has deteriorated sharply. Although official statistics are no longer available, evidence suggests that Yemen’s GDP contracted by about 37.5 percent cumulatively since 2015 while employment opportunities in the private sector have significantly diminished. Economic activity in agriculture services, and oil and gas production—the largest components of GDP, remains limited due to the ongoing conflict. Furthermore, the commensurate dramatic decrease in government revenues, especially from the much reduced oil and gas production, have contributed to the implosion of the formal social safety net and infrequent payment of public salaries.

In addition, the conflict has led to increasing inflation and pressure on the exchange rate, which further undermined household income at a time when approximately 40 percent of households reported to have lost their primary income source (according to the 2016 Gallup World Poll). Imports have greatly contracted given the dwindled foreign reserves of the Central Bank of Yemen (CBY). Critical food and energy imports are facilitated exclusively through private channels without support from financial trade services offered earlier by the CBY. Additionally, the involvement of Yemen’s key ports in the conflict have further undermined the ability to import key commodities including food, fuel, and medical supplies to parts of the country. These hurdles are particularly challenging given that Yemen had previously imported approximately 90 percent of its food, and the conflict has exacerbated the need for fuel and imported medical equipment.