Yemen Faces Mounting Economic Challenges as Conflict Continues, Regional Tensions Escalate

Washington, October 31, 2024 - Yemen's economy continues to confront deepening challenges as prolonged conflict, political fragmentation, and escalating regional tensions drive the country into an even more severe humanitarian and economic crisis, according to the World Bank's latest Yemen Economic Monitor (YEM). The Fall 2024 edition, "Confronting Escalating Challenges", reveals that Yemen's GDP is projected to contract by 1 percent in 2024, following a 2 percent decline in 2023, exacerbating the 54 percent drop in real GDP per capita since 2015. The conflict has pushed most Yemenis into poverty, while food insecurity has reached historic levels, with over 60 percent of the population now facing inadequate access to food.

The report underscores the significant economic hardships caused by the continued Houthi blockade on oil exports, which contributed to a 42 percent drop in fiscal revenues for the Internationally Recognized Government (IRG) in the first half of 2024, preventing it from providing essential services to the population. The suspension of IRG oil exports, combined with a heavy reliance on imports, has intensified external pressures, leading to a depreciation of the Yemeni Rial in the Aden market from 1,619 per US dollar in January 2024 to 1,917 by the end of August.

Since 2023, living conditions have deteriorated drastically for the majority of the population. In July 2024, World Bank phone surveys indicated that severe food deprivation more than doubled in some governorates. Economic fragmentation between Houthi- and IRG-controlled areas continues to worsen, with disparities in inflation and exchange rates undermining both stability and future recovery efforts. Simultaneously, regional tensions, especially in the Red Sea, have led to a more than 60 percent reduction in traffic through the strategic Bab El-Mandeb Strait and the Suez Canal. However, these disruptions have not yet resulted in significant increases in consumer prices.

"Yemen's economic and humanitarian challenges are growing more acute, yet the opportunity remains to reverse this downward trend with the right support," said Dina N. Abu-Ghaida, World Bank Country Manager for Yemen. "Immediate action is required, including addressing fiscal and external imbalances, mitigating food insecurity, and fostering greater stability. We remain committed to working closely with partners to support Yemen's recovery and pave the way for a sustainable future."

The YEM further details the potential risks to Yemen's banking sector, which faced mounting tensions between the Houthis and IRG over regulatory control in the first half of the year. While regional and international mediation efforts have helped ease some tensions, the situation remains fragile, and the report recommends strengthening institutional resilience to manage inflation and fiscal challenges. The report also suggests improving trade routes and access to financial services to ease economic pressures and prevent further fragmentation.

Yemen's economic outlook for 2025 remains bleak, with the continuation of regional conflict and internal strife threatening to deepen the fragmentation and worsen the social and humanitarian crisis. However, a potential peace dividend could spur rapid economic recovery, should a durable peace agreement be reached. This would pave the way for vital external assistance, reconstruction, and reforms necessary to stabilize the country and its economy.