Yemen Economic Forecast

In April, a Saudi delegation traveled to Yemen to engage in talks with the Houthis, possibly setting the stage for conflict resolution; a major prisoner swap took place mid-month, as the warring parties seemed to renew their commitment to reaching a ceasefire. However, the economy remains in a dire state, amid a severe humanitarian crisis and widespread food insecurity. Additionally, in April and May, heat waves and flooding hampered agricultural production, further damaged infrastructure and exacerbated the electricity crisis; power outages are weighing on activity. In addition, on 19 May, a 250-kilometer-long oil spill was detected in the Red Sea, threatening both the environment and the economy. More positively, a UN conference on 4 May unlocked the final funds needed to start unloading oil from the supertanker Safer; the operation began on 30 May.

Although inflation is set to cool from 2022’s level, it will remain among the highest in the region this year, largely driven currency weakness, goods shortages and deficit monetization. Upside risks to the outlook include goods shortages, the conflict flaring up again, and a steeper-than-expected weakening of the currency.