Yemen's Economic Outlook - October 2018

from World Bank
Published on 03 Oct 2018 View Original

Violent conflict has caused a dramatic deterioration of the economic and social conditions in the country. Output is estimated to have contracted by about 50 percent; household incomes have been declining since 2015, poverty has dramatically increased with an estimated 52 percent of the population living below US$1.90 a day PPP (or 81 percent at an income rate of US$3.20 a day). UNOCHA estimates that 22.2 million people in Yemen—approximately three-quarters of the entire population—are in need of some kind of humanitarian assistance. The risk of massive famine has been latent since 2017, and cholera, diphtheria, and other communicable diseases have been ravaging the country. US$1.8 billion in humanitarian assistance could barely provide relief. Tentative negotiations to end the conflict, which were set to begin in Geneva on September 6, failed to materialize.

Recent Developments

Since the escalation of violent conflict in March 2015, the economy has deteriorated sharply the estimated contraction amounts to approximately 50 percent cumulatively. The decline in GDP growth is bottoming out in 2018 with an estimated reduction of 2.6 percent compared to 5.9 percent in 2017. Conflict related adverse economic impacts and distortions show equally negative impact for the supply response and demand side, the latter being much driven by reduced household incomes. Employment opportunities have significantly diminished.

Economic prospects in 2018 and beyond will critically depend on rapid improvements of the political and security situation, and ultimately whether an end to the ongoing conflict will allow for rebuilding the economy and social fabric. If violence can be contained by late 2018, GDP is projected to begin to recover in 2019, with double-digit GDP growth. Inflation is like-ly to decline in such a case as supplies will increase. Less conflict might also help to stabilize further the exchange rate and bring back more options for monetary policy. Restoration of more peaceful conditions will allow for resumption of hydrocarbon production, which in turn will help restore government revenues and the balance of payments.