Yemen Economic Monitor, Fall 2023: Peace on the Horizon? [EN/AR] – Yemen

Yemen Economic Monitor highlights ongoing challenges amid renewed optimism

WASHINGTON, October 26, 2023 – Yemen’s economy showed modest signs of recovery in 2022, but significant challenges remain as the six-month UN Security Council from April to October An assessment of Yemen’s economy.

The Yemen Economic Observatory estimates that real growth will reach 1.5 percent in 2022, following two years of economic contraction. The non-oil sector was the driving force behind this improvement, while the oil sector faced a significant contraction due to the Houthi-imposed blockade on oil exports, which reduced average daily hydrocarbon production from 61,600 barrels in 2021 to 51,400 in 2022. The non-oil sector was boosted by increased household and government consumption spending, which contributed 1.1 and 1.3 percentage points to overall real GDP growth, respectively.

However, 2023 is proving to be a challenging year for Yemen’s economy as the expiration of the UN-sponsored agreement triggered a series of adverse economic events. This series of events is expected to push the economy back into recession. The blockade imposed by the Houthis has had a profound impact on oil production and exports. Additionally, a strategic move to import domestic butane gas into Houthi-controlled areas has reduced demand for gas from non-Houthi areas. Challenges such as fluctuating currency values, high inflation and high social unrest hamper the non-oil sector, especially the private sector. As a result, projections indicate that Yemen’s GDP will shrink by 0.5% in 2023, a sharp contrast to the 1.5% growth seen in the previous year.

Another economic challenge arose from a decline in imports and the diversion of residual imports from Aden to Houthi-controlled ports, reopened as part of a UN-backed ceasefire. Data from the Assessment Capability Project (ACAPS) revealed a significant 61% reduction in imports through Aden port from January to August 2023, while Hodeida port saw an 8% drop. This change significantly affected Aden’s contribution to Yemen’s total imports.

Financial pressures increased in regions controlled by the internationally recognized Yemeni Government (IRG), mainly due to stagnant oil exports. A pronounced drop in IRG revenue in the first half of 2023 represents a potential 40% drop for the year. This decline, largely stemming from the oil embargo, has been exacerbated by reduced customs revenues due to the diversion of imports from the port of Aden. In response to declining revenues, the IRG implemented significant spending cuts to protect public finances. However, these measures may pose further challenges to maintaining essential public services and fostering long-term economic growth. Despite these efforts, the fiscal deficit is expected to remain at 2.9 percent of GDP in 2023.

These financial challenges prompted the IRG to tap the overdraft facility at CBY-Aden, leading to a 10% increase in government claims in the first half of 2023, and 5% inflation in the currency cycle. While overall inflation eased following the fall in global commodity prices, it varied significantly across regions. Sanaa saw a more pronounced decline in consumer price inflation, while Aden’s prices were boosted by currency depreciation.

Looking ahead, 2024 holds uncertainty for Yemen’s economic landscape due to oil export embargoes and ongoing political negotiations. Economic stability depends on stable foreign currency inflows and political developments. However, a lasting ceasefire or peace deal could quickly strengthen Yemen’s economy. Using innovative nighttime light (NTL) emissions data to estimate economic activity during the 2022 UN-brokered ceasefire, the World Bank report reveals a sharp increase in economic activity during the temporary ceasefire. Yet achieving Yemen’s long-term prosperity depends on resolving the political disputes that have fractured its economy. An equitable peace settlement that addresses economic sanctions, conflict-related grievances, and structural issues will be critical to Yemen’s recovery.

contacts
In Washington
Ibrahim al-Harazi
[email protected]