- IMF staff and the Yemeni authorities have reached a staff-level agreement on the key economic policies and reforms that could underpin a Staff-Monitored Program. The proposed 18-month SMP aims to consolidate recent stabilization gains, strengthen policy implementation, and build a credible reform track record.
- Yemen's economy is projected to stabilize in 2027 as regional conditions improve, and domestic demand gradually recovers. However, reserve buffers are expected to remain limited, and the outlook will continue to depend heavily on remittances and donor support
- Key priorities include prudent fiscal and monetary management, stronger revenue collection, more effective use of scarce public resources to finance essential spending, rebuilding reserve buffers, and advancing financial sector and electricity reforms
Washington, DC: An International Monetary Fund (IMF) staff team led by Ms. Esther Pérez-Ruiz held discussions with the Yemeni authorities in Amman from July 5 to 16, 2026. Discussions focused on ongoing policies and reforms that could be supported by a SMP, aimed at maintaining macroeconomic stability amid the war in the Middle East, strengthening policy implementation, and building a reform track record. This staff-level agreement is subject to approval by IMF Management.
At the conclusion of the discussions, Ms. Pérez-Ruiz issued the following statement:
We are pleased to announce that the Yemeni authorities and the IMF team have reached a staff-level agreement on the key economic policies and reforms that could underpin a SMP. The proposed 18-month program seeks to consolidate recent stabilization gains, further strengthen fiscal and monetary policy frameworks, and advance institutional reforms to support stronger and more inclusive growth.
Yemen's economic prospects remain challenging. GDP is projected to contract for the fifth consecutive year by 1.5 percent in 2026, reflecting worsening terms of trade stemming from the war in the Middle East, energy shortages, and weak demand. Yemen's external position will continue to depend heavily on remittances and sustained donor support to finance its largely humanitarian-related import bill, with the current account deficit projected to remain around 3.4 percent of GDP and reserve coverage below adequate levels. While stronger tax and customs collection efforts and increased Saudi budget support are expected to move the fiscal position into a small deficit, Yemen's fragile debt position and limited access to external financing underscore its continued reliance on international support in the near term.
Against this background, the SMP aims to strengthen public finances and substantially reduce the budget deficit over 2026-27. Because government spending has already been significantly reduced since oil exports stopped in 2022, these efforts will focus mainly on increasing domestic revenue collections. To help finance essential spending, the authorities liberalized the customs exchange rate in May 2026, bringing customs duty and GST revenues more in line with the actual value of imports, and plan to strengthen tax compliance under the program, particularly among large taxpayers and state-owned enterprises.
To improve transparency and make better use of limited public resources, the authorities are bringing previously off-budget revenues and expenditures into the central government budget starting in 2026 and strengthening expenditure controls across central and local government entities. The SMP will also seek to reduce idle cash balances and improve visibility over public resources by consolidating the balances of various government entities as part of ongoing efforts to establish a Treasury Single Account.
Monetary and exchange rate policies under the SMP are aimed at preserving price stability and strengthening external resilience. Monetary policy implementation will be guided by clear quantitative anchors, with money supply growth aligned to underlying demand and strict limits placed on budgetary monetary financing. Greater exchange rate flexibility will support external adjustment by allowing the exchange rate to play an increasing role as a shock absorber while improving the alignment of FX supply and demand. The program also aims to place priority on gradually rebuilding international reserves from critically low levels, supported by prudent liquidity management and stronger FX-market functioning.
Strengthening financial sector intermediation, stability, and integrity is a central objective of the program. To support this goal, the authorities have agreed to adopt comprehensive risk management regulations for the banking sector, while expanding oversight to cover all deposit-taking institutions. The program also seeks to improve transparency through the publication of banks' audited financial statements and adopt a risk-based anti-money laundering and combating the financing of terrorism (AML/CFT) supervision.
The program also seeks to support a broad structural reform agenda aimed at enhancing public sector efficiency, improving private sector competitiveness, and reinforcing social protection for the most vulnerable. A key component of these efforts is the adoption of a phased plan to gradually increase cost recovery in the electricity sector, helping to improve the financial viability of the sector entities, reduce overreliance on budget subsidies, and attract much-needed investment to expand generation capacity and enhance the provision and reliability of electricity services. In parallel, the authorities plan to protect social spending and lay the foundations for rebuilding a targeted social protection system.
Sustained reform implementation supported by the SMP, coupled with stronger policy credibility and enhanced transparency, would strengthen Yemen's fiscal position and enhance its capacity to repay, thereby laying the foundation for substantive discussions with international partners on meaningful debt restructuring. Over time, sustained government efforts, supported by the international community, will help lay the foundations for stronger, more sustainable, and inclusive growth.
The IMF staff team expresses sincere appreciation to the Yemeni Authorities for the constructive dialogue and strong cooperation. We look forward to continuing close engagement as the authorities advance the agreed reform agenda.
