In terms of GDP per capita, Yemen is the poorest country in the Arab world. Remittances from Yemenis working abroad and foreign aid paid for perennial trade deficits. Substantial Yemeni communities exist in many countries of the world, including Yemen's immediate neighbors on the Arabian Peninsula, Indonesia, India, East Africa, and also the United Kingdom, Israel, and the United States, especially in the area around Detroit, Michigan and in Lackawanna, New York. Beginning in the mid-1950s, the Soviet Union and China provided large-scale assistance. For example, the Chinese are currently involved with the expansion of the International Airport in Sanaa.
In the south, pre-independence economic activity was overwhelmingly concentrated in the port city of Aden. The seaborne transit trade, which the port relied upon, collapsed with the closure of the Suez Canal and Britain's withdrawal from Aden in 1967.
Since unification, the government has worked to integrate two relatively disparate economic systems. However, severe shocks, including the return in 1990 of approximately 850,000 Yemenis from the Gulf states, a subsequent major reduction of aid flows, and internal political disputes culminating in the 1994 civil war hampered economic growth. Yemen, the fastest growing democracy in the Middle East, is attempting to climb into the middle human development region through ongoing political and economic reform.
Since the conclusion of the war, the government entered into agreement with the International Monetary Fund (IMF) to implement a structural adjustment program. Phase one of the IMF program included major financial and monetary reforms, including floating the currency, reducing the budget deficit, and cutting subsidies. Phase two will address structural issues such as civil service reform.
In early 1995, the government of Yemen launched an economic, financial and administrative reform program (EFARP) with the support of the World Bank and the IMF, as well international donors. The First Five-Year Plan (FFYP) for the years 1996 to 2000 was introduced in 1996. The World Bank has focused on public sector management,including civil service reform, budget reform and privatization. In addition, attracting diversified private investment, water management and poverty-oriented social sector improvements has been made a priority for the implementation of the programs in Yemen. These programs had a positive impact on Yemen’s economy and led to the reduction of the budget deficit to less than 3% of GDP during the period 1995-99 and the correction of macro-financial imbalances.
The World Bank is active in Yemen, with twenty-two active projects in 2004, including projects to improve governance in the public sector, water, and education. In 1996 and 1997, Yemen has lowered its debt burden through Paris Club agreements and restructuring U.S. foreign debt. In 2003, government reserves reached $5 billion. The government has recently done a number of regulatory reforms and Yemen now ranks 113 on the World Bank's "Ease of Doing Business" index.
