World Bank Warns Yemen Faces Deepening Economic Crisis Amid Conflict and Blockade

The report paints a stark picture of an economy battered by years of violence and institutional division, now facing one of its most difficult periods in nearly a decade.

Yemen’s economy suffered further deterioration in the first half of 2025, with conflict-driven fragmentation, a blockade on oil exports, rising inflation, and dramatically reduced humanitarian assistance converging to push millions of Yemenis into deeper hardship. These findings come from the World Bank’s Fall 2025 Yemen Economic Monitor, titled “Navigating Increased Hardship and Growing Economic Fragmentation.” The report paints a stark picture of an economy battered by years of violence and institutional division, now facing one of its most difficult periods in nearly a decade.

GDP Contraction and Rising Hardship

The World Bank projects Yemen’s real GDP to decline by 1.5 percent in 2025, a setback with serious implications for food security and livelihoods. Conflict has fractured the economy between areas controlled by the Internationally Recognized Government (IRG) and territories under Houthi authority, leaving economic policy uncoordinated and institutions under strain.

Across the country, rising prices, limited job opportunities, and shrinking household incomes have created a severe humanitarian emergency. Food insecurity—already among the highest in the world—is projected to worsen, with more than 60 percent of households reporting inadequate food consumption.

Inflation Surge and a Currency Crisis in IRG Areas

Economic pressures are particularly acute in IRG-administered regions. A sharp depreciation of the Yemeni rial intensified inflation throughout 2024 and early 2025. By July, the currency had collapsed to an unprecedented YER 2,905 per US dollar, causing the cost of essential goods to soar.

Prices for a basic food basket rose 26 percent year-on-year as of June, squeezing already vulnerable households. Although government stabilization measures—including cash injections, limited monetary tightening and foreign exchange interventions—temporarily strengthened the rial to YER 1,676 per US dollar by early August, the currency remains volatile.

The IRG’s fiscal capacity has weakened dramatically. Revenues fell by 30 percent compared with the same period in 2024, largely due to the ongoing blockade on oil exports, which historically provided the bulk of government income. As a result, public spending cuts have disrupted services in health, education, electricity and water, while thousands of civil servants have experienced salary delays or non-payment.

Mounting Strain in Houthi-Controlled Areas

Economic conditions are similarly difficult—but for different reasons—in Houthi-controlled territories. Airstrikes on strategic ports have disrupted supply routes, limiting imports of fuel, food and medicine. Liquidity shortages in the banking system have restricted financial transactions, leading several commercial banks to relocate operations from Sana’a to Aden to avoid sanctions and Houthi-imposed regulatory controls.

The report warns that Yemen’s financial sector is fragmenting, creating structural risks that could exacerbate economic collapse. In Houthi areas, households and businesses face increasing difficulty accessing cash, loans, and basic banking services.

Collapse in Humanitarian Funding

One of the most alarming trends highlighted in the Monitor is the steep decline in international aid. As of September 2025, only 19 percent of the USD 2.5 billion sought under the UN Humanitarian Response Plan had been funded—the lowest level seen in over ten years.

Humanitarian organizations report that without additional support, life-saving programs—including food assistance, nutrition treatment for children, and cholera prevention—will be forced to scale back or shut down entirely.

Rising Poverty and Desperate Coping Strategies

With limited work opportunities, high food prices and the collapse of social protection programs, many families are adopting desperate measures to survive. According to surveys cited in the report, families in both IRG- and Houthi-held areas are increasingly resorting to:

• Begging,

• Selling household assets,

• Reducing meals,

• Forced displacement, and

• Sending children to work.

These negative coping mechanisms signal a rapid worsening of poverty and vulnerability.

Calls for Stabilization and Governance Reforms

Dina Abu-Ghaida, the World Bank Group Country Manager for Yemen, stressed that improving the economic outlook depends on rebuilding the systems that sustain essential services and protect livelihoods.

“Economic stabilization in Yemen depends on strengthening the systems that keep services running and livelihoods protected,” she said. “Restoring confidence requires effective institutions, predictable financing, and progress toward peace to allow economic activity to resume and recovery to take hold.”

The report urges the IRG to prioritize:

• Strengthening public financial management,

• Improving revenue collection,

• Protecting delivery of electricity, water and health services,

• Safeguarding the banking sector, and

• Implementing reforms under the IRG’s 2024 “Plan for Economic Developments and Urgent Priorities.”

Preserving currency stability and rebuilding foreign exchange reserves are identified as crucial steps for averting deeper economic collapse.

Outlook and Risks

The economic outlook for 2025 remains highly uncertain. The blockade on oil exports is expected to continue, depriving the IRG of its primary source of funding. Foreign exchange shortages will persist, limiting the ability to import food, fuel and medicine. Meanwhile, the decline in humanitarian support will place millions at risk of acute hunger.

Most critically, the World Bank warns that without meaningful progress toward peace, Yemen’s recovery will remain out of reach. Even with a reform agenda in place, fragmentation and conflict undermine the foundations needed for growth and stability.

Yet the report maintains that if reforms are implemented effectively—particularly in public finance, electricity, and financial sector governance—Yemen could stabilize key systems and begin laying the groundwork for long-term economic revival once conflict conditions improve.