Yemen’s economic environment is entering a more fragile phase as currency pressures, declining revenues and weakened aid flows intensify the strain on households and institutions across the country. The latest assessment signals that real GDP is expected to contract further in 2025, reflecting the impact of a prolonged halt in oil exports and persistent fragmentation of administrative functions. These conditions have translated into wider structural stress, including steep price increases for basic goods, shrinking purchasing power and a growing imbalance between fiscal needs and available resources. Inflation has eroded household resilience across regions, leaving families exposed to volatile food and fuel markets. Exchange rate instability earlier in the year amplified these pressures, pushing prices sharply higher before temporary stabilization efforts helped partially restore the currency. Revenue collection remains under pressure as well, limiting the authorities’ ability to meet operational spending needs, maintain public services or clear salary arrears that have accumulated across multiple sectors. Together these constraints frame an environment where economic deterioration continues to outpace the limited corrective measures available.
Conditions in northern regions show additional challenges where disruptions at key ports, liquidity shortages and financial sector fragmentation have restricted essential imports and constrained commercial activity. Banks relocating from Sana’a to Aden to avoid regulatory and sanctions related complications illustrate the widening operational divide that is complicating payments, credit access and currency channels. The downturn in international assistance heightens these pressures, as humanitarian programs face the lowest level of donor funding in more than a decade. With insufficient support to offset rising food and energy costs, most households across both major administrative areas report worsening access to adequate nutrition and income stability. Many are turning to negative coping behaviors, reflecting the severity of financial stress and the absence of reliable economic buffers. The banking system is also operating under growing uncertainty which weighs on the ability of firms and families to manage liquidity or secure stable financial services. These conditions collectively weaken the prospects for near term stabilization.
The outlook for the remainder of 2025 suggests that risks will continue to accumulate as limited foreign exchange reserves, weakened infrastructure and declining fiscal space challenge routine economic operations. Policy priorities now emphasize rebuilding institutional capacity, improving public financial management and safeguarding essential sectors such as electricity that underpin daily life and future recovery. Strengthening revenue systems and preserving currency stability are central to this effort, as is protecting the banking sector from further fragmentation. These steps form part of a broader reform agenda designed to support resilience while the political environment remains unsettled. The possibility of economic stabilization depends heavily on progress toward reducing conflict related disruptions, restoring predictable financing channels and reestablishing confidence in administrative systems. Without these foundations, Yemen’s recovery trajectory is likely to remain uncertain and vulnerable to further shocks.
