Yemen’s Economy Continues to Decline Amid Conflict, Aid Shortfalls and Rising Regional Pressures

Yemen’s economy remains trapped in a deep and prolonged crisis, with new World Bank findings warning that continued conflict, falling humanitarian support, and growing regional instability are pushing millions of people closer to economic collapse and severe hardship.

According to the latest Yemen Economic Monitor released by the World Bank, the country’s economy contracted again in 2025 and is expected to shrink further in 2026 as persistent structural problems and external shocks continue to undermine recovery efforts.

The Spring 2026 edition of the report, titled “Pushing Against the Tide,” reveals that Yemen’s real GDP declined by 1.5 percent in 2025 and is projected to contract by another 0.5 percent in 2026.

The report paints a bleak picture of an economy struggling under the combined weight of conflict, declining revenues, weak institutions, and worsening humanitarian conditions.

Economic activity across multiple sectors remains severely constrained by an extremely difficult business environment, limited access to finance, weak consumer demand, and the continued blockade of oil exports — once one of Yemen’s most important sources of national income.

The World Bank noted that Yemen’s already fragile economy has also been weakened by a dramatic fall in humanitarian funding.

In 2025, funding for the United Nations humanitarian response plan covered only 28 percent of identified needs, compared with 56.5 percent in 2024, leaving millions of vulnerable Yemenis with reduced access to food assistance, healthcare, and basic services.

The decline in aid has intensified pressure on households already facing widespread poverty and food insecurity.

According to estimates cited in the report, nearly three-quarters of Yemen’s population now live below the poverty line, while a large proportion of people continue to struggle to secure enough food for daily survival.

The fiscal situation has also deteriorated sharply.

Government revenues dropped to just 5.6 percent of GDP, largely because of reduced external grants and the ongoing disruption of oil export revenues.

As a result, authorities have been forced to cut public spending, affecting:

• Government salary payments

• Fuel and commodity subsidies

• Essential public services

• Social and development spending

The report warns that Yemen’s fiscal space remains extremely limited, leaving the country with few resources to respond to additional economic or humanitarian shocks.

Monetary conditions in Yemen were heavily influenced by efforts from the Central Bank to stabilise the exchange rate.

In Aden, the Yemeni rial experienced a sharp appreciation in August 2025 before stabilising with the support of Central Bank interventions and external financial inflows, including assistance from Saudi Arabia.

While currency stabilisation measures have helped ease inflationary pressures to some extent, the World Bank cautioned that the situation remains highly fragile.

Yemen’s economy continues to depend heavily on remittances, aid flows, and imports, all of which remain under pressure.

The country is also highly vulnerable to the broader escalation of conflict across the Middle East.

Because Yemen imports most of its essential goods, including food, fuel, and medicine, rising global prices, shipping disruptions, and higher transportation costs are expected to further increase inflation and reduce household purchasing power.

Experts warn that worsening regional instability could deepen economic suffering by disrupting already fragile supply chains and increasing import costs for basic necessities.

World Bank Group Country Manager for Yemen Dina Abu-Ghaida said the country has very limited capacity to absorb additional shocks.

“Yemen’s economy continues to face profound challenges, with minimal buffers available to manage new crises,” Abu-Ghaida said.

She stressed that maintaining macroeconomic stability, protecting basic services, and supporting livelihoods will require continued international support as well as progress toward peace and institutional stability.

Despite the difficult conditions, the report notes that Yemen’s internationally recognised government has undertaken several efforts aimed at stabilising the economy.

These include:

• A comprehensive reform agenda for 2026

• A budget framework focused on maintaining fiscal discipline

• Measures intended to improve economic management and governance

The World Bank said these reforms could provide a possible pathway toward gradual recovery if implementation continues and international partners maintain financial and technical support.

However, analysts warn that long-term recovery remains heavily dependent on political stability and progress toward ending Yemen’s prolonged conflict, which has devastated the economy and created one of the world’s largest humanitarian crises.

More than a decade of conflict has destroyed infrastructure, disrupted public institutions, weakened healthcare and education systems, and displaced millions of people across the country.

The report highlights that without sustained international engagement and meaningful political progress, Yemen’s economic decline could continue, further worsening poverty, unemployment, and humanitarian suffering.

Development experts say rebuilding Yemen’s economy will ultimately require a combination of peacebuilding, institutional reform, investment in public services, and renewed economic activity capable of generating jobs and restoring household incomes.

For now, however, the country remains highly vulnerable to both domestic instability and broader regional shocks, with millions of Yemenis continuing to face an uncertain future.