The World Bank, in its latest issue of the "Economic Monitoring Report for Yemen," has stated that the Yemeni economy continues to face escalating challenges, with the prolonged conflict, political fragmentation, and rising regional tensions pushing the country toward a deeper and more dangerous economic and humanitarian crisis.
According to the report titled "Facing Rising Challenges," Yemen's GDP is expected to contract by 1% in 2024, continuing the decline from a 2% drop in 2023. This will further deteriorate Yemen's per capita real GDP, which has fallen by 54% since 2015.
Poverty and Economic Hardships
The ongoing conflict has driven most of the Yemeni population into poverty, with food insecurity reaching unprecedented levels, as more than 60% of the population struggle to access adequate food.
There is an urgent need to strengthen institutional resilience to manage inflation and address public finance challenges. The World Bank suggests improving trade routes and facilitating access to financial services to alleviate economic pressures and prevent further fragmentation.
Several major economic difficulties persist due to the ongoing blockade imposed by the Houthis on oil exports, which has led to a 42% drop in the revenues of the internationally recognized government in the first half of 2024. This has affected the delivery of essential services to the population, alongside the rapid collapse of the local currency in the internationally recognized government-controlled areas.
The cessation of oil exports, combined with heavy reliance on imports, has exacerbated external pressures, causing the Yemeni riyal’s value to drop significantly in Aden, from 1,619 riyals per dollar in January 2024 to 1,917 by the end of August, surpassing the 2,000 riyal since October 2024.
Urgent Actions Needed
Since 2023, the living conditions for the majority of the population have sharply deteriorated. In July 2024, phone surveys conducted by the World Bank indicated that extreme food deprivation had more than doubled in some governorates. Economic fragmentation continues to worsen between areas controlled by the Houthis and those under the internationally recognized government, where differences in inflation rates and exchange rates undermine the foundations of stability and recovery efforts.
At the same time, regional tensions, especially in the Red Sea, have reduced shipping traffic by more than 60% through the strategic Bab Al-Mandab Strait and the Suez Canal. However, these disruptions have yet to cause a significant rise in consumer prices.
In this regard, World Bank experts see an increase in the severity of Yemen's economic and humanitarian challenges. Nonetheless, there is still an opportunity to reverse this downward trajectory with providing the appropriate support.
However, urgent actions are required, including addressing public finance and external account imbalances, mitigating food insecurity, and achieving greater stability. The World Bank affirms its commitment to working closely with partners to support recovery efforts and pave the way for a sustainable future in Yemen.
Gains from Achieving Peace
The report provides further details on the potential risks to Yemen's banking sector, which has faced increasing tensions between the Houthis and the internationally recognized government over regulatory oversight in the first half of the year. While regional and international mediation efforts have helped ease some of these tensions, the situation in the country remains fragile.
International economic institutions stress the need to enhance the resilience of institutions in order to manage inflation and tackle public finance challenges. The World Bank suggests improving trade methods and facilitating access to financial services to alleviate economic pressures and prevent further fragmentation.
The report underscores that Yemen's economic outlook for 2025 remains bleak due to the continued regional and internal conflict, which threaten to deepen the country's fragmentation and exacerbate its social and humanitarian crisis. However, If a permanent peace agreement is reached, the potential peace dividends could drive rapid economic recovery. This would pave the way for Yemen to receive vital foreign aid, reconstruction support, and the implementation of necessary reforms to stabilize the country and its economy.
