IMF to support push for economic reforms in war-torn Yemen

• Aims to preserve macro stability
• Fund sees 2026 GDP down 1.5%
• Yemeni forces battling Houthis

The International Monetary Fund is providing Yemen with non-financial support to bolster its public finances after the country became an active front in the Iran conflict.

The 18-month programme aims to help Yemen’s internationally recognised government “preserve macroeconomic stability… reinforce fiscal discipline and maintain a prudent monetary policy stance”, the IMF said on Wednesday.

Yemeni forces backed by Saudi Arabia are battling a fresh offensive by the Houthi militia at the country’s southeastern tip, overlooking the Bab al-Mandab Strait between the Gulf of Aden and the Red Sea.

The Houthis have repeatedly struck energy and civilian infrastructure in Saudi Arabia in recent weeks.

Yemen has been split between areas controlled by the UN-sanctioned government and zones held by the Iran-aligned Houthis for more than a decade, leading to economic collapse and widespread poverty.

Real GDP is expected to shrink by 1.5 percent in 2026, its fifth consecutive contraction, the IMF said.

Worsening terms of trade stemming from the Middle East war, energy shortages and weak domestic demand ensure the Yemeni economy remains “heavily reliant” on remittances and donor assistance to finance “a largely humanitarian-driven import bill”.

Fragile debt dynamics

The IMF expects Yemen’s current-account deficit to be 3.3 percent of GDP this year and projects that international reserves will remain below appropriate levels.

“Although improvements in tax and customs administration, coupled with increased Saudi budget support, are expected to significantly narrow the fiscal deficit, Yemen’s fragile debt dynamics and constrained access to external financing continue to require substantial international support in the near term,” the IMF said.

The World Bank, US, UK, EU, Japan and the UAE are among the largest donors to Yemen besides Saudi Arabia.

Some stabilisation is possible in 2027 if global energy prices ease, monetary conditions normalise and external finances and domestic reforms continue, according to the IMF.

Its staff-monitored programme (SMP), agreed upon in July, will focus on improving tax compliance and customs administration to increase revenues, and on targeting spending to cover necessary government operations and meet “acute” humanitarian needs.

“Monetary and exchange rate policies under the SMP are designed to preserve price stability and bolster external resilience,” the IMF said. “Monetary policy implementation will be anchored by clear quantitative targets, including limits on central bank financing of the budget.”

A phased reform of the electricity sector to increase receipts is also part of the programme.

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