- IMF Management approved an 18-month Staff-Monitored Program (SMP) with Yemen to help consolidate recent economic stabilization gains, strengthen policy frameworks, and enhance institutional capacity.
- Yemen's economy is projected to stabilize in 2027 assuming a more favorable external environment and a gradual recovery in domestic demand. However, the outlook will remain reliant on remittances and donor support amid limited fiscal and external buffers.
- Maintaining prudent fiscal and monetary management, by mobilizing additional revenues and prioritizing essential spending to ease the acute humanitarian crisis, are immediate priorities.
Washington, DC: IMF Management has approved an 18-month non-financing Staff-Monitored Program (SMP) for Yemen. The program seeks to preserve macroeconomic stability amid the war in the Middle East, reinforce fiscal discipline and maintain a prudent monetary policy stance while protecting the most vulnerable, strengthen institutional capacity, and enhance data quality.
Yemen's economic outlook remains challenging. Real GDP is projected to contract for a fifth consecutive year, declining by 1.5 percent in 2026 amid deteriorating terms of trade linked to the conflict in the Middle East, persistent energy shortages, and weak domestic demand. The external position remains heavily reliant on sustained remittance inflows and donor assistance to finance a largely humanitarian-driven import bill. As a result, the current account deficit is projected at around 3.3 percent of GDP in 2026, while international reserve coverage is projected to stay below adequate levels. Although improvements in tax and customs administration, coupled with increased Saudi budget support, are expected to significantly narrow the fiscal deficit, Yemen's fragile debt dynamics and constrained access to external financing continue to require substantial international support in the near term. Looking ahead, activity is expected to stabilize in 2027, supported by easing global prices, the normalization of monetary conditions, continued external financing, and strong policy implementation that improves confidence.
Against this backdrop, the SMP seeks to strengthen public finances during 2026-27. Given the significant compression of government spending since the suspension of oil exports in 2022, fiscal consolidation will focus primarily on strengthening domestic revenue mobilization through enhanced tax compliance and customs administration, while prioritizing spending necessary for government operations, to support demand, and to ease the acute humanitarian crisis. The program will also seek to strengthen public resource management and transparency by consolidating government accounts and improving spending efficiency.
Monetary and exchange rate policies under the SMP are designed to preserve price stability and bolster external resilience. Monetary policy implementation will be anchored by clear quantitative targets, including limits on central bank financing of the budget. A market-determined exchange rate will act as a shock absorber and protect external buffers. Strengthening financial sector intermediation and integrity also constitutes a key pillar of the program. To this end, the authorities have committed to implementing risk-based supervision for anti-money laundering and combating the financing of terrorism (AML/CFT).
The program also seeks to support the authorities' efforts at core services and reinforcing social protection for the most vulnerable. A key component of these efforts is the adoption of a phased plan to reform the electricity sector, starting with a gradual increase in cost recovery. In parallel, the authorities plan to protect social spending and lay the foundations for rebuilding a targeted social protection system.
Sustained implementation of the SMP would help reinforce policy credibility, strengthen Yemen's fiscal and external positions, and create conditions for substantive engagement with international partners on comprehensive debt restructuring, thereby laying the foundations for stronger, more sustainable, and inclusive growth.
