International Monetary Fund experts: Yemen is in urgent need of external support to ensure stability and bridge the financial deficitEnglish - Saturday 10 June 2023 الساعة 05:02 pm
Economists from the International Monetary Fund confirmed that Yemen is in urgent need of external support in order to relieve pressure on financing and reduce monetary financing, in order to protect the exchange rate and price stability, which has been achieved with great difficulty.
Experts said further improvements in governance are necessary, along with efforts to address gaps in data, particularly in terms of domestic and external debt, to enhance transparency and ultimately help stimulate more financing.
A team of IMF staff, led by Joyce Wong, conducted a virtual and face-to-face mission in Amman, Jordan, with the Yemeni authorities from May 25 to June 8. The mission's discussions included discussing the latest economic developments, the future outlook, and the progress achieved by major reforms in Yemen.
The government side participated in the discussions, represented by the Ministry of Finance, the Central Bank of Yemen, and representatives of the Ministries of Planning and International Cooperation, Electricity, Energy, Oil and Minerals.
The mission held extensive discussions with the authorities and donors to improve coordination of activities and prioritization and sequencing, stressing that the International Monetary Fund continues to provide comprehensive technical assistance to Yemen to further strengthen institutional capacities.
The mission reaffirmed the importance of continuing close communication with donors on capacity development to fill remaining gaps while increasing the availability of funding and expediting support.
The mission issued a statement after the end of the mission's visit and its meeting with the Yemeni authorities that the economic and humanitarian crisis is present in Yemen despite cautious optimism about the ongoing peace process, explaining that current estimates indicate that 17 million people will face acute food insecurity.
The statement stressed that, despite the recent decline in global food and fuel prices, domestic prices are still high, as the inflation rate in food prices reached 45 percent in 2022.
Experts explained that the risks of macroeconomic stability in the short term depend heavily on developments in the conflict and the availability of financing, pointing out that the attacks on oil export facilities in October 2022 deprived the government of most of its foreign currency revenues, which equal about half of its total revenues. This - along with the rise in global oil prices - led to a widening deficit in public finances, reaching 2.5 percent of GDP in 2022. This deficit is expected to widen further in 2023 if oil exports are not resumed despite the necessary spending cuts.
The statement indicated that the Yemeni authorities continued their efforts to strengthen institutions, including improving control over spending, budget planning, tax administration, and financial reporting. The authorities have also taken further steps towards adopting market exchange rates for customs revenue while at the same time curbing inflation by maintaining zero growth in the monetary base.
The statement stressed that the IMF expert mission encouraged the Yemeni authorities to maintain this welcome reform momentum, including advancing electricity sector reforms to reduce costs and increase revenue collection. Experts noted the need to maintain the continuation of the weekly foreign currency sale auction system, which provides foreign currency to finance basic imports in a transparent manner, at market exchange rates, in order to reduce inflation and support the stability of the exchange rate by absorbing liquidity. Moreover, progress in financial reporting and finalization of pending audits should help to strengthen the central bank's governance.