The Yemeni government and the International Monetary Fund (IMF) have reached a staff-level agreement on an 18-month economic reform program aimed at supporting economic stability, advancing fiscal and monetary reforms, and improving the management of public resources. The program is intended to help Yemen establish a credible reform track record that strengthens confidence among donors and international financial institutions.
The agreement followed talks between an IMF mission and Yemeni officials in Amman, Jordan, from July 5 to 16. The IMF stressed that the proposed program still requires approval by the Fund's management, noting that it is designed to preserve macroeconomic stability amid the continuing impact of the regional conflict while advancing economic and institutional reforms.
The IMF projects that Yemen's economy will contract by 1.5 percent in 2026, marking a fifth consecutive year of economic decline. The downturn is attributed to deteriorating terms of trade caused by the regional conflict, the ongoing energy crisis, and weak domestic demand. However, the Fund expects the economy to begin regaining stability in 2027 as regional conditions improve and economic activity gradually recovers.
The IMF also noted that Yemen will continue to rely heavily on remittances from expatriate workers and donor support to finance imports, particularly humanitarian assistance, given the country's weak public finances and declining traditional sources of revenue. It forecasts that the current account deficit will remain at around 3.4 percent of gross domestic product, while foreign exchange reserves are expected to stay at inadequate levels.
The reform program seeks to reduce the budget deficit during 2026 and 2027 by increasing domestic revenue, following a sharp decline in government spending after oil exports were suspended in 2022.
Fiscal and Monetary Reforms
The IMF said the Yemeni government has already implemented a number of measures, including the liberalization of the customs exchange rate in May, a step expected to increase customs duties and goods and services tax revenues. The authorities have also moved to strengthen tax compliance, particularly among large taxpayers and state-owned enterprises.
The program further includes measures to improve fiscal transparency by bringing previously off-budget revenues and expenditures into the official public accounts, strengthening oversight of government spending, and establishing a Treasury Single Account to improve the management of public resources.
Monetary Policy
On the monetary front, the program focuses on maintaining price stability and gradually rebuilding foreign exchange reserves. It also calls for greater exchange rate flexibility to help absorb external shocks, while reducing reliance on monetary financing of the budget deficit and improving the efficiency of the foreign exchange market.
The program also includes reforms to the financial and banking sector, including the adoption of new bank risk management frameworks, expanded supervision to cover all deposit-taking institutions, publication of audited financial statements for banks, and stronger measures to combat money laundering and terrorist financing.
The IMF said these measures will strengthen Yemen's ability to improve its fiscal position, meet its financial obligations, and create the conditions for broader discussions with international partners on debt restructuring, helping to support more sustainable economic growth in the years ahead.
Electricity Sector
In the electricity sector, the IMF called for the gradual implementation of a cost recovery plan to improve the financial position of electricity utilities and reduce their reliance on government budget support. It also encouraged efforts to attract new investment to expand power generation capacity and improve the reliability of electricity supplies.
The Fund emphasized that sustained implementation of the agreed reforms will be critical to strengthening Yemen's economic recovery. It said the program represents an important step toward building a track record that would help strengthen confidence among international financial institutions and donors.
At the conclusion of the talks, the IMF mission praised what it described as constructive dialogue and close cooperation with the Yemeni authorities, reaffirming its commitment to continue working with them throughout the implementation of the reform program.
