Economy of Yemen

The economy of Yemen is weak and underdeveloped, even more so since the breakout of the Yemeni Civil War which led to instability and a growing humanitarian crisis. At the time of unification, South Yemen and North Yemen had different but equally struggling underdeveloped economic systems. Since unification, the economy was further harmed by Yemen's support for Iraq during the 1990–91 Persian Gulf War: Saudi Arabia expelled almost 1 million Yemeni workers, and both Saudi Arabia and Kuwait significantly reduced economic aid to Yemen. The 1994 civil war further drained Yemen's economy. As a consequence, Yemen has relied heavily on aid from multilateral agencies to sustain its economy. In return, it pledged to implement significant economic reforms. In 1997 the International Monetary Fund (IMF) approved two programs to increase Yemen's credit significantly: the enhanced structural adjustment facility (now known as the poverty reduction and growth facility, or PRGF) and the extended funding facility (EFF). In the ensuing years, Yemen's government attempted to implement recommended reforms: reducing the civil service payroll, eliminating diesel and other subsidies, lowering defense spending, introducing a general sales tax, and privatizing state-run industries. However, limited progress led the IMF to suspend funding between 1999 and 2001.

In late 2005, the World Bank (which extended Yemen a four-year US$2.3 billion economic support package in October 2002, together with other bilateral and multilateral lenders) announced that, as a consequence of Yemen's failure to implement significant reforms, the World Bank would reduce financial aid by one-third over the period July 2005 through July 2008. A key component of the $2.3 billion package — $300 million in concessional financing — was withheld, pending the renewal of Yemen's PRGF with the IMF, which was under negotiation. However, in May 2006 the World Bank adopted an assistance strategy for Yemen providing for $400 million in International Development Association (IDA) credits in 2006-2009. In November 2006, at a meeting of Yemen's development partners, a total of $4.7 billion in grants and concessional loans was pledged for the period 2007–2010. Despite possessing significant oil and gas resources and a considerable amount of agriculturally productive land, Yemen remains one of the poorest of the world's low-income countries. In 2018, more than 80 percent (2018) of the population lived in poverty. The influx of an average 1,000 Somali refugees per month into Yemen looking for work was an added drain on the economy, which already coped with a 20 to 40 percent rate of unemployment. Yemen remained under significant pressure to implement economic reforms, lest it face the loss of badly needed international financial support.

In the north, disruptions of the civil war (1962–1970) and frequent periods of drought dealt severe blows to a previously prosperous agricultural sector. Coffee production, formerly the north's main export and principal form of foreign exchange, declined as the cultivation of khat increased. Low domestic industrial output and a lack of raw materials made the Yemeni Arab Republic dependent on a wide variety of imports.

The Yemeni Civil War and air bombing campaign by the coalition during the Saudi-led intervention devastated the Yemeni economy further.

As a result of civil war, Yemen suffered from inflation and devaluation of the Yemeni rial, and Yemen's economy contracted by 50% from the start of the civil war on 19 March 2015 to October 2018.