Promoting Economic Resilience in Yemen

Introduction 

The Economic context in Yemen 

From the outset of the project, it was clear that Yemen’s economy faces significant challenges, and that any engagement of technical assistance would require a long-term perspective. Considered the poorest country in the Middle East and North Africa (MENA) region, Yemen’s economy reflects the impact of over nine years of relentless violence and conflict (UNDP, 2023[1]). Escalated in 2015, the civil war has caused widespread damage to vital economic infrastructure, severely limited food and fuel imports, accelerated inflation and halted Yemen’s exports. Since 2015, Yemen’s Real Gross Domestic Product (GDP) has contracted by more than 40% (The World Bank, 2025[2]), while an estimated 40% of households have lost their primary source of income (Sana’a Center, 2023[3]). At the same time, competing factions in the conflict have left the country and its institutional landscape with a de facto division between the North and the South. The political influence of the government of Yemen has further receded and essential economic institutions remain fragmented.

Yemen’s economy reflects the impact of over nine years of relentless violence and conflict. Prior to the eruption of civil war in 2014, Yemen already grappled with low living standards, indicative of its fragile socioeconomic equilibrium. As a result, today multidimensional poverty affects 82.7% of Yemen’s population, with an average of 46.7% of deprivations faced by multidimensionally poor individuals (Seif, 2025[4]). In addition, the onset of conflict shattered whatever semblance of stability remained, plunging the nation into a severe humanitarian disaster. This crisis, characterised by poverty rates, malnutrition, food insecurity, and physical threats, has left virtually no facet of life untouched (World Bank, 2023[5]). Approximately, 4.95 million people have been facing crisis-level food insecurity or worse, including 1.5 million facing emergency-level food insecurity (United Nations, 2025[6]). The struggling economy now faces further challenges, intensifying the plight of its populace and magnifying the urgency for comprehensive solutions to alleviate the suffering endured by Yemen’s people.

In addition to these socio-economic challenges, Yemen is also confronting significant climate-related challenges that exacerbate the humanitarian crisis. The country is highly vulnerable to climate change impacts such as prolonged droughts, severe water shortages, and extreme weather events. These climatic conditions further strain Yemen’s already limited natural resources, reduce agricultural productivity, and contribute to food insecurity. The increasing frequency of floods and rising temperatures also threaten infrastructure and livelihoods, pushing more people into poverty and displacement. Addressing climate resilience is therefore crucial for any sustainable economic recovery strategy in Yemen. 

The challenges facing Yemen’s economy have worsened as the conflict persists. Among them, three are particularly relevant for the project:  

• Institutional Fragmentation: The competing economic policies from Sana’a and Aden have had an adverse effect on the economy as a whole. The split in the Central Bank of Yemen, and the resulting dual currency system, have disrupted the formulation and execution of cohesive fiscal and monetary policies, undermining the stability required for sustainable economic growth. Furthermore, the central bank branches in Sana’a and Aden undercut each other’s efforts to gain control over the sector, leading to regulatory fragmentation (Sana’a Center, 2023[3])​. 

• Polarisation and Private Sector Impact: The polarised landscape between the internationally recognised government (IRG) based in Aden and the De Facto Authority (DFA) in Sana’a has harmed the private sector. The private sector grapples not only with pre-existing challenges but it also faces new obstacles due to the ongoing conflict, the internationally imposed sanctions on the DFA, and the restrictive regulatory measures imposed on the banking sector by the DFA. This has caused disruptions to value chains, capital flight, liquidity shortages and increased informality, limited access to finance, and barriers to trade and investment. 

• Capacity Constraints in the IRG: Despite ongoing efforts to instigate economic reforms, the Yemeni government’s limited capacity hampers effective implementation. This is partially due to the nascent nature of many of the economic institutions following the government’s relocation to Aden. As such, deeper reforms depend on strong and effective state institutions, which have been absent from Yemen for an extended period. To overcome this constraint, concerted efforts are needed to co-ordinate interventions and prioritise policies based on the urgent needs of the government and their potential to enhance economic resilience. Only through cohesive action can Yemen hope to chart a path towards economic stability and recovery. 

Despite the challenges faced, two areas of positive impact have emerged that can support the promotion of economic resilience. First, the international community has shown effective mobilisation in delivering crucial economic support. Through avenues such as budgetary assistance, programmatic reforms, capacity building, and policy recommendations, their efforts have significantly contributed to macroeconomic stability and paved the way for more comprehensive reforms to be implemented in the future. Second Yemen's private sector has displayed remarkable resilience despite adversities. In a World Bank study (IBRD/World Bank, 2023[7])​, approximately 70% of surveyed firms confirmed as having managed to stay operational despite the challenging environment. Yemeni businesses have proactively adjusted their strategies to cope with disruptions, with over 60% of firms reporting adaptations to their product offerings and exploration of new markets. Faced with limited access to international trade, businesses have shifted their focus to local and regional markets, with nearly 70% primarily selling within Yemen or neighbouring countries. This resilience underscores the significant role the private sector can play in promoting economic stability within Yemen, even amidst adversity. 

The EU-OECD Project “Promoting Economic Resilience in Yemen” 

At the heart of Yemen’s recovery lies the urgent need to strengthen its economic resilience. Economic resilience refers to the capacity of institutions, markets, and communities to absorb shocks, adapt, and transform in the face of persistent crisis. In order to grapple with Yemen’s complex economic reality, the project adopted a multisectoral approach that has emphasised economic resilience in three intertwined pillars all essential for safeguarding macroeconomic stability and enabling sustainable development:

1) building resilient economic institutions

2) strengthening public-private dialogue

3) enhancing donor co-ordination and financing strategy.  

During the first phase of the project, the OECD delivered targeted support through a wide variety of tools, including workshops, surveys, peer-to-peer exchanges, reports and trainings. The project engaged with 12 different public institutions, targeting over 200 officials on various work streams and providing action-oriented policy analysis. The selection of beneficiaries has paid attention to the continuity and sustainability of the effort. On a strategic level, the project has worked closely with senior officials to develop policy recommendations aimed at supporting the overall resilience of the economy. At the same time, it has endeavoured to support mid-level technocrats to effectively execute their day-to-day activities with practical and demand-driven trainings.  

Through capacity-building activities and stakeholder consultations, the first phase of the project has followed a two-fold approach. First, it has looked towards the challenges and immediate needs of the Yemeni institutions with the aim of providing actionable solutions to help stabilise the economy. Second, it has leveraged the OECD’s core expertise to facilitate the alignment of Yemen’s economy with international best practices, thereby facilitating the country’s integration in the regional and world economy. This approach is closely connected with the IRG’s strategy, outlined in its 2024 Plan for Economic Developments and Urgent Priorities. The IRG affirmed its aim to achieve sustainable economic stability, build confidence in the national economy, enhance growth and recovery, and improve living conditions. The government has decided to prioritise the most feasible reforms, focusing on policies that are impactful, can be implemented in the short- to medium-term, and are enforceable within the current legal and political frameworks. This set of policies, whose implementation follows a time-bounded matrix, was identified based on an analysis of the current situation to understand the nature of the problems facing the economy.  

Outcomes of the first phase of the project, presented in this publication, will be instrumental for the government’s plan deployment and the country’s path towards economic resilience and inclusive growth. More specifically, the provided insights will support the IRG in achieving the six objectives outlined in its plan, which include enhancing the sustainability of public finance and reducing the budget deficit, strengthening banking stability and implementing solutions to curb currency depreciation, enhancing and improving the capacities of the electricity sector and other vital productive and service sectors, as well as establishing a genuine partnership with the private sector. 

The publication is structured around the three abovementioned pillars. The first section focuses on enabling the effective functioning of key central economic institutions, covering topics such as domestic resource mobilisation and taxation, financial sector, financial inclusion, literacy and consumer protection, and strengthening capacity for economic data collection and analysis. The second section discusses the creation of a more conducive environment for private sector development through the establishment of an effective Public-Private Dialogue (PPD).

Chapter 1 is on Domestic Resource Mobilisation and Public Deficit Reduction. 

Yemen faces significant challenges in domestic resource mobilisation and taxation, with limited tax collection capabilities and a weak tax and customs administration, limiting revenue generation. Additionally, poor cashflow management and budget planning within central-level economic institutions result in the deterioration of the country’s public deficit. Reducing dependence on oil revenues, developing Yemen's tax and customs administration, and enhancing tax capacity through short- and long-term measures are critical to enhancing tax collection and domestic resource mobilisation. The Yemen Tax Authority (YTA) and Yemen Customs Authority (YCA) are already focusing on capacity-building efforts, including training workshops and peer-learning exchanges, to improve their technical skills and efficiency. Addressing governance challenges and improving sovereign cashflow and account management through institutional and legal reforms will also play a key role in ensuring fiscal sustainability. These efforts will bolster Yemen's economic resilience and ensure more consistent and effective tax and customs operations. 

Chapter 2 is on the Financial Sector. 

The current conflict in Yemen has further weakened the already fragile formal banking sector. The bifurcation of the Central Bank of Yemen (CBY) into competing institutions based in Aden and Sana’a and gaps in regulatory and supervisory frameworks are among the most serious challenges facing Yemeni banks. Additionally, Yemeni banks face problems of liquidity, solvency and foreign exchange access, as well as their isolation from regional and international financial networks.

Banks’ limited capacity to perform international financial transactions, combined with the domestic liquidity crisis, has eroded public trust in the banking sector and increased dependency on informal money exchange companies. This poses threats to the sector’s stability and consumer’s protection as money exchangers are governed by an incomplete supervisory framework and vulnerable to money laundering and terrorism financing.  

Improving Yemen’s financial sector entails strengthening banks and licensed money exchangers’ intermediation capacities and resilience. Relevant policy considerations include strengthening AML/CFT supervision and correspondent banking capacities, developing strategies to unfreeze bank accounts and reinforce the Deposit Guarantee Scheme (DGS), improving financial institutions’ regulatory and supervisory frameworks, and restructuring financial intermediation. Moreover, MSMEs’ access to finance should be enhanced through a holistic approach. Targeted credit approaches to strategic sectors, sound governance and business conduct practices, complementary public support measures, and the use of digital technologies and Fintech will support are key initiatives to implement the recommendations mentioned above. 

For promoting financial inclusion, literacy, and consumer protection, key priorities include targeted financial education programmes and increased access to transaction accounts. Ensuring the enforcement of the recently adopted Regulatory Instructions by strengthening CBY-Aden’s capacities and addressing remaining regulatory gaps will be essential to increase financial consumer trust and establish a comprehensive framework for financial consumer protection.    

Chapter 3 is on Strengthening Capacity for Economic Data Collection and Analysis. 

Yemen's statistical system faces significant challenges, leading to an almost complete cease in statistical production and analysis during the current war. Gaps in the legislative framework, human resources and financial constraints, lack of infrastructure and incoordination resulting from the weak role of the Central Statistics Organisation (CSO) hinder effective data collection, analysis, and dissemination. As a result, essential national account data are currently lacking.  

The OECD, through its PARIS21 initiative, has been actively involved in addressing these issues by conducting a Data Gap Assessment to identify deficiencies in Yemen's economic statistics infrastructure. The establishment of the Statistics Task Force and the development of a Statistical Priority Action Plan (SPAP) aim to address capacity gaps and improve data production and dissemination. Capacity-building initiatives, such as training workshops on data gap assessment and data visualisation, have been conducted to enhance statistical planning and co-ordination.  

Opportunities for improvement include collecting and analysing priority data to support decision makers, building capacity towards a strong and unified statistical system, and fostering better co-ordination and governance of the National Statistical System through the CSO. Overall, the OECD's efforts aim to support Yemen in building a resilient and sustainable statistical system, enabling evidence-based decision making and fostering socio-economic development. 

Chapter 4 is on Developing an effective Public-Private Dialogue (PPD).   

A robust and resilient economy requires the empowerment of the private sector and their active involvement in the assessment, design, implementation, and monitoring of policymaking. This entails establishing a sustainable public-private dialogue. In close collaboration with national stakeholders and international partners, the OECD adapted its proven PPD Methodology to Yemen’s specific context, focusing on three specific sectors considered catalyst for private sector development: Energy, Trade, and Investment.