poverty is imprecise without a more thor- ough, data-borne understanding of the REPUBLIC OF Key conditions and significant changes to both inflation and challenges economic activity and the effects of forced displacement. Even though poverty esti- YEMEN mates cannot be produced, the welfare The fallout of COVID-19 has hit the peo- situation in the country is dire, where ap- ple and the economy of Yemen in a state proximately 80 percent of respondents of Table 1 2020 of extreme fragility after seven years of a monthly mobile phone survey conduct- Population, million 29.8 conflict. Socio-economic conditions deteri- ed by the WFP in 2020 had difficulty ac- GDP, current US$ billion 1 9.9 orated further in 2020, affected by com- cessing either food or basic services. GDP per capita, current US$ 668.2 pound conflict, health, and climate events The overarching socio-economic risks a and depleted coping capacity. Distortions derive from fragility and conflict. Near- School enrollment, primary (% gross) 93.6 created by the fragmentation of institu- term macroeconomic risks are closely tied Life expectancy at birth, yearsa 66.1 tional capacity and the divergent policy to improving external accounts. In the Source: WDI, M acro Poverty Outlook, and official data. decisions between the areas of control government-controlled areas, there is a Notes: (a) WDI for School enrollment (2016); Life expectancy (2018). have led to acute shortages of basic in- difficult trade-off between salary pay- puts, including fuel. ments and macroeconomic stability, in the Without stable sources of foreign ex- absence of other financing sources besides change, expansionary monetary policy has monetary expansion. In the non- accelerated the depreciation of the Yemeni government controlled areas, the private rial. Given Yemen’s high dependence on sector faces enormous challenges due to An unprecedented protracted humani- imports, the weakening of the currency an arbitrary and sometimes coercive busi- tarian crisis, aggravated by COVID-19, has passed through to domestic prices, ness environment and numerous interrup- leaves many Yemenis mostly dependent eroding purchasing power of households tions to the inflow of commercial imports. and businesses. Recovery of oil produc- Fragmentation of institutional capacity on relief and remittances. Socio- tion and exports remain slow, limiting and the lack of policy coordination risks economic conditions are deteriorating government revenue. Collection of non- deepening the divisions in the financial rapidly, driven by a currency deprecia- hydrocarbon revenue has been limited. sector and further aggravation of market tion, trade disruptions, rising food Regular salary payments to public sector distortions (e.g., smuggling and arbitrage workers continue to experience recurring of goods and currency). prices, severe fuel supply shortages, delays and uneven geographical coverage. disruption and downsizing of humani- Accurate poverty projections are unable to tarian operations. Intensifying violence be produced in the current environment. Recent developments and fragmentation of macroeconomic The latest national poverty rate was esti- policies add further strains on the frag- mated using data prior to the conflict, and provides a difficult base from which to The economy contracted sharply from an ile economic conditions, and the popu- estimate how poverty has changed since already low base. The oil sector—the only lation is at risk of famine in 2021. given the profound impacts the conflict large export earner—was hard-hit by low has had on the country. Any projection of global oil prices. Non-oil economic activity

FIGURE 1 Republic of Yemen / Parallel market exchange FIGURE 2 Republic of Yemen / Share of respondents with rate poor food access

Daily Average, YR to US$ Percent 950 39

850 37

35 750 33 650 31 550 29 Sana'a 450 27 Aden

350 25 Sep-18 Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21

Sources: World Bank staff estimates. Sources: WFP Mobile Vulnerability Analysis and Mapping Survey.

MPO 180 Apr 21 suffered significantly from COVID-19 relat- depreciated in Aden) at the end of the prices in the government-controlled areas ed trade slowdown and exceptionally January 2021. The divergence between and fuel prices in the non-government heavy rainfalls, which caused intense flood- exchange rates, and tightening of ex- areas surged, households increasingly ing, damage and loss of life. Foreign ex- change controls and payment networks on struggled to maintain adequate access to change shortages deepened further with the both sides have increasingly fragmented food. By the end of 2020, approximately 40 near depletion of Saudi Arabia’s basic im- local financial markets, impeding domes- percent of households reported having port finance facility, reduced oil revenues, tic transfer services. The cost of financial either poor or borderline consumption, and downsizing of humanitarian assistance. transfers through commercial banks and and the trend is getting worse. Inflation has accelerated quickly in 2020. exchange bureaus from new to old bank- The weakening of the rial played a major notes saw a gradual increase in recent role; other factors such as COVID-19 relat- months and associated fees reached more ed disruptions, insecurity, trade re- than 40 percent at end-January 2021, all Outlook strictions and associated fuel shortages eroding the value of remittances. While no have also influenced price dynamics. The recent remittance data is available, global Economic and social prospects in 2021 and national average cost of the Minimum/ evidence is that formal channel remittanc- beyond are highly uncertain. A gradual Survivable Food Basket increased by 4 es have held up well. recovery of global oil prices with increas- percent in December 2020 (m-o-m) and by In addition to the decreasing purchasing ing national production and export capac- 30 percent (y-o-y). Hodeidah port, a major power, the humanitarian response sup- ity, would help ease the strain on public port of entry for much of the country, porting households through years of con- finances in the government-controlled showed a 6 percent volume reduction of flict was significantly scaled back during areas; means to support the government imported food products during 2020, es- 2020. Projections between January and in payment of civil salaries would also pecially flour (30 percent decline) and June 2021 from the latest Integrated Food reduce the recourse to central bank financ- wheat (20 percent decline). Fuel shortages Insecurity Phase Classification (IPC) re- ing. Urgent progress to implement past also contribute to domestic price increases leased in December 2020 suggest that agreements concerning access to supplies and disruptions in basic services delivery. 16.2 million people are expected to fact and fuel imports through Hodeidah The total volume of discharged diesel and high levels of acute food insecurity, and would improve prices and access to food, gasoline imported through Hodeidah UN OCHA is warning of a potential fam- the provision of public services and the have declined by an estimated 34-40 per- ine in 2021 if humanitarian assistance is operational environment for humanitarian cent in 2020. The divergence in cash ex- not increased. operations. A cessation of hostilities and change rates between Sana’a and Aden Initially during 2020, households were eventual political reconciliation remain have widened in early 2021 reaching near- able to maintain their food access at the prerequisites for the reconstruction of the ly YR 268 (approximately 45 percent more start of the pandemic. However, as food economy and rebuilding of social fabric.

TABLE 2 Republic of Yemen / Macro poverty outlook indicators (annual percent change unless indicated otherwise)

2018 e 2019 e 2020 f Real GDP growth, at constant market prices 0.8 2.1 -5.0 Inflation (Consumer Price Index) 27.6 10.0 26.4 Current Account Balance (% of GDP) -2.0 -3.9 -2.4 Fiscal Balance, cash basis (% of GDP) -8.0 -5.5 -9.6

Source: World Bank, Poverty & Equity and M acroeconomics, Trade & Investment Global Practices. Notes: e = estimate, f = forecast.

MPO 181 Apr 21