Yemen: Concluding Statement of the 2025 IMF Article IV Mission

Yemen: Concluding Statement of the 2025 IMF Article IV Mission

October 9, 2025

The IMF welcomes the opportunity to resume Article IV consultations with Yemen after an 11-year hiatus. The conflict that began in 2014 halted a three-year Extended Credit Facility (ECF) arrangement, suspended the production of key economic indicators, and disrupted policymaking.

The renewed consultation reflects enhanced institutional capacity and improved data provision.

Yemen is facing an acute humanitarian crisis and deep economic vulnerabilities

Years of civil war have left Yemen as one of the world's most fragile states, facing a severe humanitarian crisis and significant macroeconomic vulnerabilities. Over the past decade, real GDP contracted by approximately 27 percent, per capita income plummeted, and currency depreciation and inflation depressed real incomes. After the Houthis' attacks on oil facilities halted oil exports in 2022, Yemen became an oil importer. Yemen's humanitarian crisis ranks among the world's worst, with over half the population in urgent need of humanitarian assistance. The ongoing conflict has caused widespread food insecurity, disease outbreaks, mass family displacement, and limited access to clean water-leaving children especially at risk. Although international organizations and bilateral partners have provided aid, the scale of the crisis is far bigger than the available resources.

Government finances and external positions deteriorated sharply over the past decade. Government revenues declined from 22.5 percent of GDP in 2014 to below 12 percent in 2024, while public debt surged to over 100 percent of Internationally Recognized Government (IRG) GDP, with arrears accumulating to most external creditors. In parallel, the current account deficit expanded from 2.1 percent of GDP in 2014 to almost 11 percent of GDP by 2024, and international reserve coverage declined to less than one month of imports-despite extensive financial support from Saudi Arabia totaling about $2 billion over 2023-24.

In 2024, Yemen's economy contracted for the third year in a row, with GDP contracting by 1.5 percent due to falling oil and LPG production, exports, and domestic consumption amidst public wage containment and high inflation. Inflation hit 27 percent in 2024 and rose above 35 percent year-on-year by July 2025 due to the weakening of the Yemeni rial by 30 percent since the beginning of the year, as a result of limited FX inflows and reduced confidence, which prompted the adoption of FX stabilization measures in August by the IRG. The current account deficit improved from 40.6 percent of GDP in 2022 to an average of 14.5 percent over 2023-24, due to import compression, robust remittances, and bilateral grants. Staff project a moderate GDP contraction of 0.5 percent in 2025, mainly due to reduced government spending and electricity services amidst limited available financing. Inflation is expected to ease later this year as the Yemeni rial has appreciated and stabilized in response to FX measures adopted in August, although private consumption will likely remain subdued despite stronger remittances.

The halt in oil revenues prompted the IRG to implement tight policies

The IRG's policy response and substantial financing support from regional partners have lessened the economic impact of halted oil exports:

• Significant fiscal adjustment. Since 2022, government revenues fell by more than 8 percentage points of GDP due to (i) halted oil exports, (ii) trade shifting to northern ports, (iii) rising smuggling, and (iv) governorates unduly retaining central government revenue. Additionally, competition among governorates for port traffic led to differing tax rates, varied customs tariffs, and reduced IRG overall revenue potential. Government spending was accordingly reduced by 5.4 percentage points of GDP, and with strong Saudi grant support, the deficit dropped by over 10 percentage points of GDP since 2022, reaching 1.9 percent of GDP in 2024. Government financing relied mainly on Treasury overdrafts, which the Central Bank of Yemen (CBY) sterilized primarily using Saudi deposits to sell foreign exchange (FX) reserves and control money supply growth and inflation.

• FX management. As FX supply declined and currency speculation grew in 2025, the government established a National Committee for the Regulation and Financing of Imports (NCRFI) in July to enhance import transparency and channel FX into the formal banking sector. Additional temporary measures included limits on foreign currency exchanges, a prohibition on using foreign currency for local transactions, and the revocation of licenses for money exchangers suspected of currency manipulation. These measures have been welcomed by the private sector and humanitarian organizations. They have also led to a notable appreciation and stabilization of the Yemeni rial and helped to lower inflation.

Cautiously Optimistic Outlook Amid Uncertainty

Yemen's economy is expected to recover moderately over the medium term. Growth is expected to gradually increase from 0.5 percent in 2026 to approximately 2.5 percent by 2030, supported by rising non-oil exports, remittances, and production of refined oil products for electricity generation and consumption. The authorities' Agriculture Plan and envisaged accelerated execution of ongoing development projects are key enabling factors for reducing import dependence. Inflation is expected to ease further, aided by lower global food and oil prices and strictly limited monetary financing.

The outlook is nfluenced by various domestic and external risks. Domestically, renewed internal conflict and possible social unrest from economic precarity could hinder reforms and destabilize the economy. On the upside, successful peace efforts could pave the way for the resumption of oil exports. The main external risks include rising global commodity prices leading to currency depreciation and inflation, further eroding real incomes, or decreased grant support resulting in budget shortfalls, further import compression, and worsened humanitarian conditions. If these risks materialize, the authorities should intensify revenue mobilization and spending rationalization. However, due to already minimal reserves and a challenging humanitarian context, additional support from the international community would be required to address any significant adverse scenario.

Policy Priorities and Additional External Support for Achieving Macroeconomic Stability

To tackle immediate vulnerabilities and structural challenges, the IRG launched an Economic Recovery Plan (ERP) earlier this year. The mission welcomes the ERP emphasis on enhancing public finance sustainability, controlling inflation, and strengthening governance and institutions. Implementation of these measures would help support macroeconomic stability. Additional external financial support remains crucial as Yemen navigates this critical phase.

Restoring fiscal sustainability requires further efforts, including:

• Restoring revenue integrity and increasing collections. Three priorities emerge. First, governorates' withholding of tax and customs revenues has significantly increased revenues under settlement in 2023-24, affecting essential public services across the IRG territory and raising concerns over tax and customs transparency and accountability. Starting in 2026, the authorities should link expenditure authorizations to timely revenue remittances by the governorates. Second, improving port oversight, unifying and remitting taxes and customs duties by governorates, and integrating revenue institutions are key steps to restore revenues. Implementing the Short-Term Emergency Revenue Plan, created with IMF support, will assist in achieving this goal. Third, high-impact tax policy measures are a top priority, especially valuing customs at market exchange rates, updating customs duties, and improving compliance.

• Optimizing expenditures. After hasty spending reductions prompted by revenue shortfalls since 2022, the government should focus on strategically streamlining expenditures through upstream consultation during budget planning, reallocating funds to priority areas, cutting inefficiencies, and safeguarding essential services. Electricity subsidies can be reduced by gradually aligning tariffs with costs while ensuring social protection for lifeline users, better bill collection, discontinuing unfavorable Purchasing Power Agreements, and tackling corruption. Important public financial management reforms include implementing rigorous expenditure controls across IRG governorates, enhancing cash management, improving fiscal transparency by digitalizing tax administration, and addressing payroll irregularities to contain the wage bill.

• Unlocking additional financing and engaging with creditors. While the above measures are necessary to place Yemen on a fiscally viable path, they will not be enough to restore fiscal sustainability. External financing is essential to sustain government operations, maintain critical public services, avert a deeper humanitarian deterioration, and support exchange rate stability. The $368 million Saudi financing package announced in September 2025 for budget, energy, and health support, in addition to the support provided by the United Arab Emirates, is a positive step and, with ongoing IRG policy efforts, may attract additional aid. Furthermore, fiscal consolidation efforts notwithstanding, public debt remains unsustainable at over 100 percent of IRG GDP as of mid-2025. This high debt burden underscores the need for comprehensive creditor negotiations to restore debt sustainability.

The CBY should maintain its focus on controlling inflation, upholding a market-driven exchange rate, and ensuring financial integrity:

• Controlling inflation. The CBY's current strategy of limiting monetary financing of fiscal deficits and sterilizing excess liquidity generated from such financing through the sale of FX assets has proven effective. With official reserves at critically low levels, discontinuing monetary financing is necessary for price stability.

• Pursuing a market determined exchange rate. While recent FX measures appear to have curbed speculation and supported the rial, reliance on administrative controls to stabilize currency markets may not be sustained without adequate reserve buffers and strict fiscal discipline. While further assessment is needed to determine these measures' alignment with Article VIII of the IMF's Articles of Agreement, it is essential that the rate used for imports by the NCRFI remains closely aligned with the market rate in order to prevent potential distortions in the foreign exchange market.

• Safeguarding financial stability and integrity. Expanding financial sector oversight to cover all deposit-taking institutions will help bring liquidity to the banking sector and reduce the potential buildup of financial stability risks. Following the United States' designation of the Houthis as a Foreign Terrorist Organization (FTO) in early 2025, major banks relocated their headquarters to Aden to safeguard their corresponding banking relationships. Continued priorities for financial integrity include improved bank supervision, know-your-customer practices, and close monitoring of Houthi-linked transactions.

Over time, Yemen needs substantial structural reforms to unlock its economic potential. Priorities include strengthening institutions to improve governance. Alongside stricter AML/CFT policies, this entails improving fiscal management by implementing expenditure controls across the public sector, a treasury single account, and enhancing tax and customs transparency and accountability. Reducing barriers to business activity and facilitating exports would further support job creation. And electricity sector reforms, including by building out renewable energies and enhancing the grid for transmission and distribution, would improve access and service delivery. Enhanced governance would spur investor confidence and private sector growth, raising medium-term prospects. These reforms, contingent on political stabilization and external support, are vital for economic recovery and social cohesion, ultimately improving the well-being of all Yemenis.

The mission would like to thank the Yemeni authorities and various stakeholders for their excellent cooperation, and candid and constructive discussions.