World Bank Report Highlights Challenges and Opportunities for Yemen’s Economic Recovery and Growth
WASHINGTON — The World Bank has released a new Country Economic Memorandum on Yemen, highlighting challenges faced by the country and opportunities for recovery and growth. The report, titled “Al Mustaqbal (The future): Glimmers of Hope in Dark Times,” uses innovative ways to gather data and thus provide a comprehensive analysis of Yemen’s current economic situation. The report shows that if Yemen attains a lasting peace agreement, there could be a large “peace dividend” for the Yemeni population, a 6 percentage point increase in GDP growth trajectory which would result in a cumulative increase in real GDP by one third over the next five years compared to the status quo. This would be accompanied by a significant growth in public and private investment, employment, and productivity, as well as a reduction in poverty. This would need to be accompanied by external donor assistance at scale for accelerated reconstruction and recovery.
Even before the outbreak of war in late 2014, Yemen was a poor country with weak governance. The war wrecked Yemen’s fragile economic equilibrium, touching upon every aspect of life. The compounded shocks of the COVID-19 pandemic and rising global food and energy prices further deepened the economic and humanitarian crisis created by the war.
According to the report, the conflict led to a contraction in real GDP by approximately 50 percent between 2011 and 2022. The conflict has damaged or destroyed more than one-third of the country’s homes, schools, hospitals, and water and sanitation facilities. While productivity indicators were already weak before the conflict, productivity plummeted as violence intensified.
Oil production, which is crucial to the economy, was severely disrupted by the war and has undermined the government’s ability to support the population through the provision of basic services, and affected public employment, as many civil servants have been paid only partially or not on a regular basis.
“While there is cautious optimism about prospects for economic recovery, we must remain clear-eyed about the realities on the ground – the hardships faced by the Yemeni people are immense,” said Tania Meyer, World Bank Country Manager for Yemen. “High inflation, poor job quality, and an unstable public sector persist as major hurdles. Peace is a must to enable inclusive growth, foster sustainable development, and above all, improve the living conditions for the people of Yemen.”
The report also highlights the household-level impacts of declining economic activity since 2015, with most of the population experiencing a steep drop in living standards. The depreciation of the rial since the beginning of the war, physical barriers and constraints to market access, along with a shift in agricultural production patterns from food to cash crops are among the factors that contributed to rising living costs.
Despite these challenges, there are important glimmers of hope. The report’s in-depth political economy analysis coupled with innovative data analytics suggest that Yemen’s de facto decentralization could help support its future growth, corroborating a perspective consistently voiced in informant interviews. There are also other reasons for guarded optimism about the potential recovery once an inclusive peace agreement is in place. These include the strong entrepreneurial spirit of the Yemeni people, including, importantly, women, the proximity of the high-income neighboring markets of the Gulf states, and Yemen’s economic potential of agricultural, agro-processing and light manufacturing production, and exports. The report also provides lessons from specific country examples and a roadmap for restoring the economy to a sounder footing and advancing the ambition of the Yemeni people to achieve renewed prosperity and a brighter future.
The report comes at a critical time for Yemen, as the country faces an unclear future and a highly uncertain economic situation. The World Bank hopes that this report will serve as a valuable resource for policymakers and other stakeholders in our joint efforts to assist Yemen and create a peaceful, stable, and prosperous future for its people. The Country Economic Memorandum received support from the Yemen Resilience, Recovery and Reconstruction Trust Fund (Yemen Fund), which the Bank established in 2022 with the government of the United Kingdom as a seed Contributing Partner.