IMF Staff Concludes Visit on Yemen

December 13, 2018

• There was agreement that better economic policies supported by increased donor grants could contribute to mitigating the humanitarian crisis in the short run.
• The Yemeni Government needs to step up efforts to control and rationalize its spending, especially on the public wage bill, and improve revenue collections.
• The IMF team and the authorities agreed to review economic and policy developments again in about three months.

An International Monetary Fund (IMF) team led by Albert Jaeger visited Amman from December 5-12, 2018, to discuss with officials from the Government and Central Bank of Yemen (CBY) recent developments and economic measures to mitigate the humanitarian crisis in 2019. At the end of the visit, Mr. Jaeger made the following statement:

“Almost four years of armed conflict have severely weakened Yemen’s economy. With hydrocarbon exports largely suspended, shortage of foreign exchange continued to compress the availability of basic imports—foremost food, fuel, and medicines.

“At the same time, the population’s purchasing power has been crippled, especially by the conflict’s adverse impact on economic activity and high inflation. Stepped up humanitarian aid has so far forestalled outright famine conditions, and aid agencies are warning that the humanitarian crisis remains at a tipping point.

“While the armed conflict remains the ultimate cause of the humanitarian crisis, there was agreement that better economic policies supported by increased donor grants could appreciably contribute to mitigating the humanitarian crisis in the short run.

“Increased donor grants would help relax the shortage of foreign exchange that compresses basic imports. Donor grants channeled through the CBY would not only contribute foreign exchange resources for essential food imports but also provide a sterilization tool to help stabilize the exchange rate and reduce inflation.

“At the same time, the Government needs to step up efforts to control and rationalize its spending, especially on the public wage bill, and improve revenue collections.

“Strengthening the transparency of the Government’s fiscal operations, including by publishing regular reports on budgetary developments, could help catalyze more donor support.

“Reducing the fragmentation of Yemen’s policy making institutions would help alleviate the humanitarian crisis.

“In particular, reversing the fragmentation of the central bank system would facilitate pooling of fiscal revenue across governorates and paying civil service salaries and transfers in all of Yemen.

“Resuming full payment of civil service salaries would also help restore public services, including health and basic education services, to pre-conflict levels.

“There is also a need to follow up on the recommendations of a report by the recent IMF technical assistance mission on how to improve the capacity of the central bank system.

“The package of economic measures discussed will only provide a stopgap solution mitigating the humanitarian crisis in the short run. Restoring the sustainability of the country’s external and fiscal positions beyond 2019 will require additional economic stabilization efforts.

“The mission team and the authorities agreed to review economic and policy developments again in about three months.”