OVERVIEW OF SOCIAL AND POLITICAL CONTEXT
Yemen’s economic and social fabric continues to suffer from disintegration as the conflict enters its fourth year. While official statistics remain unavailable, partial information and anecdotal evidence suggests that Yemen’s GDP contracted by an accumulated 39 percent since end of 2014. The conflict has caused widespread disruptions of economic activities, with substantial reduction in jobs, private sector operations and business opportunities. Operating costs rose severely due to insecurity and lack of supplies and inputs, leading to massive layoffs to the country’s workforce in both formal and informal sectors. Oil and gas production and exports have come to a near halt since 2015, except for some limited production at the SAFER field and the MASILA basin. Remittances fell as a result of restrictions imposed on transfers and immigration policies in the GCC since 2016 but also because of uncertainties and high costs of money transfers. Imports have contracted sharply amongst dwindling foreign reserves while foreign debt obligations have not been served since May 2016, except for obligations to the IMF and to IDA.
The fragmentation of existing central economic institutions like the Central Bank of Yemen in combination with the conflict condition have repeatedly impaired normal distribution of food imports and aid, essential to Yemenis. Operations of the country’s largest seaports (Hodeidah and Saleef) were adversely affected by escalating conflict and destruction of infrastructure (roads, facilities, etc.) during thend half of 2018. Since August, local markets have therefore witnessed several waves of increasing shortages of essential commodities with many importers and trading outlets temporarily suspending or postponing business operations due to lack of supplies and prevailing uncertainties. Essential central bank functions remained until recently largely fragmented and disrupted, adding to the economic and humanitarian challenges
The dramatic deterioration of country conditions has translated into a significant worsening of the incidence of poverty. The headcount poverty rate defined using the World Bank’s International Poverty Line of a daily per capita consumption of $US1.90 PPP is projected to have increased since 2014 by 33 percentage points, to approximately 52 percent of the population in 2019. Furthermore, the commensurate dramatic decrease in government revenues, especially due to the much-reduced oil and gas production, have further contributed to the implosion of the formal social safety nets for poor households. Repeated waves of exchange rate devaluations, most recently in October 2018, have further undermined household income, although recent currency revaluations compensated somewhat for earlier losses. For many, joining a militia or other conflict-related economic activities remains the only gainful opportunity in a “war economy.”
The conflict and the ensuing economic crisis are among the main drivers for Yemen’s deepened food insecurity. According to latest Integrated Food Security Phase Classification (IPC) of December 2018, approximately 20.1 million people in Yemen, 67 percent or the population, are facing severe and acute food insecurity in the absence of humanitarian food assistance (HFA). The analysis estimates that a total of 15.9 million (53 percent of the population) will be severely and acute food insecure despite of ongoing humanitarian food assistance, including nearly 5 million people on the brink of famine under IPC Phase-4 (‘People in Emergency’) and 63,500 that are qualified as suffering from a famine catastrophe (IPC hase5). According to the 2018 Global Hunger Index (GHI), Yemen is among the top three most food insecure countries in the world.
The recent momentum for peace coming from the consultations in Sweden last December are promising but require continuous constructive attention by all parties to bring peace. While the consultations are a step in the right direction there is still a longer way to go to bring peace. The first 4 weeks post the Sweden consultations demonstrated the challenges for the mediation process keeping the conflict parties engaged and peace focused (see also: https://www.un.org/press/en/2019/sc13659.doc.htm).
Economic prospects in 2019 and beyond depend on rapid improvements of the political and security situation, and ultimately whether an end to the on-going conflict will allow for rebuilding the economy and Yemen’s social fabric. If cessation of hostilities can be agreed upon soon, GDP could see gradual recovery in 2019, but three quarters of the population will remain in poverty by standards of lower middle income countries (WB line of US$3.20 per day) and nearly half below the low income poverty line (WB line of US$1.90 per day). Given the bleak outlook for Yemenis, massive foreign assistance would continue to be required for recovery and reconstruction in a post-conflict period. In particular, foreign assistance would be needed to help restore basic services and help rebuild confidence in Yemen’s institutions