The economy of Yemen is weak and underdeveloped, even more so since the breakout of the Yemeni Civil War which led to instability and a growing humanitarian crisis.

In the ensuing years, Yemen's government attempted to implement recommended reforms: reducing the civil service payroll, eliminating diesel and other subsidies, lowering defense spending, introducing a general sales tax, and privatizing state-run industries.

A key component of the $2.3 billion package — $300 million in concessional financing — was withheld, pending the renewal of Yemen's PRGF with the IMF, which was under negotiation.

Despite possessing significant oil and gas resources and a considerable amount of agriculturally productive land, Yemen remains one of the poorest of the world's low-income countries.

[22] The influx of an average 1,000 Somali refugees per month into Yemen looking for work was an added drain on the economy, which already coped with a 20 to 40 percent rate of unemployment.

Yemen remained under significant pressure to implement economic reforms, lest it face the loss of badly needed international financial support.

[21] In the north, disruptions of the civil war (1962–1970) and frequent periods of drought dealt severe blows to a previously prosperous agricultural sector.

Coffee production, formerly the north's main export and principal form of foreign exchange, declined as the cultivation of khat increased.

Low domestic industrial output and a lack of raw materials made the Yemeni Arab Republic dependent on a wide variety of imports.

[26][27][28] This is a chart of trend of gross domestic product of Yemen (since unification) at market prices estimated by the International Monetary Fund with figures in millions of Yemeni Rials.

Only extensive Soviet aid, remittances from south Yemenis working abroad, and revenues from the Aden refinery (built in the 1950s) kept the PDRY's centrally planned Marxist economy afloat.

However, severe shocks — including the return of approximately 850,000 Yemenis in 1990 from the Persian Gulf states, a subsequent major reduction of aid flows, and internal political disputes culminating in the 1994 civil war — hampered economic growth.

In December 2005, the World Bank approved a US$25 million credit for a Fisheries Management and Conservation Project in all coastal governorates along the Red Sea and the Gulf of Aden.

In September 1995, the Yemeni Government signed an agreement that designated TotalEnergies of France to be the lead company for a project for the export of liquefied natural gas (LNG).

In August 2005, the government gave final approval to three LNG supply agreements, enabling YLNG to award a $2 billion contract to an international consortium to build the country's first liquefaction plant at Balhat on the Arabian Sea coast.

The project is a $3.7 billion investment over 25 years, producing approximately 6.7 million tons of LNG annually, with shipments likely to go to the United States and South Korea.

In October 2006, the U.S. Department of State reiterated warnings to U.S. citizens, strongly urging them to carefully consider the risks of traveling to Yemen.

[21] According to the World Bank, Yemen's civil service is characterized by a large, poorly paid work force and inadequate salary differential between high and low skilled jobs to attract and retain qualified workers.

In 2004, the government increased civil service salaries by 20 to 40 percent in order to alleviate the impact of anticipated economic reforms that were never implemented.

[21] The economic assistance package that the International Monetary Fund (IMF) pledged to Yemen is contingent on the implementation of civil service reform, which the government has resisted because of the country's estimated 20 to 40 percent unemployment rate.

In 2004, the government claimed to have reduced the civil service labor force through retirements and layoffs, but it appears that the large salary increases have lessened the impact of any reforms.

In 2004, efforts by the Central Bank of Yemen to tighten the money supply were offset by a weakening U.S. dollar - to which the Yemeni riyal is linked in a managed float - and by rising global commodity prices, resulting in an inflation rate of 12.5%.

[21] The large volume of non-performing loans, low capitalization, and weak enforcement of regulatory standards hamper Yemen's banking sector as a whole.

That same month, Germany pledged to increase its annual aid to Yemen to US$83.6 million over the next two years; funding will go primarily to education and water improvement projects.

At a mid-November 2006 meeting in London, a group of bilateral and multilateral donors pledged US$4.7 billion over four years (2007–10) to fund economic development in Yemen.

[21] Yemen's import and export values have increased and decreased dramatically in the past 10 years owing to shifts in global oil prices.

[21] In 1990 the newly unified Republic of Yemen inherited an unsustainable debt burden amounting to roughly 106 percent of gross domestic product.

A five-year US$3 billion liquid natural gas (LNG) construction project involving a consortium of foreign companies is planned following government approval in August 2005.

[citation needed] 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 as international donors.

These programs had a positive impact on Yemen's economy and led to the reduction of the budget deficit to less than 3% of gross domestic product during the period 1995–1999 and the correction of macro-financial imbalances.