More specifically, for the rec+ scenarios, the increases in government health and education spending (split into consumption [current] and investment [capital]) during the period 2023-2026 are defined to permit the country to deliver services typical of the 90<sup>th</sup> LIC percentile starting from 2026.<sup>9</sup> It is assumed to generate a more gradual increase in Yemen’s human-capital index (HCI) to the 90<sup>th</sup> LCI percentile during the period 2023-2030 as a growing part of the labor force benefits from improved health and education. In its turn, labor productivity grows relative to the 2022 level at a rate that, according to cross-country evidence, is expected given the HCI increase.<sup>10</sup> For infrastructure, the rec+ scenarios impose gradual increases in consumption (operations and maintenance) and investment spending that, on average may be sufficient for low- and middleincome countries to achieve the infrastructure-related sustainable development goals (SDGs; Rozenberg and Fay 2019; Foster et al. 2022). Drawing on cross-country estimates (Gupta et al. 2014, p. 171), it is assumed that the infrastructure capital stock has a marginal productivity (MP) of 0.30 for rec+t and rec+ta, and 0.60 for rec+ta+. The gains are realized in the form of increases in total factor productivity (TFP); more specifically, once installed and other things being equal, value-added increases by 0.30 (0.60) YER for every additional YER of infrastructure capital with the gains spread across all sectors in proportion to their initial shares in value added. Finally, the scenarios rec+ta and rec+ta+ deviate from rec+t in that additional foreign grant aid is received: in each year 2023-2026 foreign grants increase by 1 percent of 2022 GDP (i.e., reaching 4 percent in 2026); the increases are reversed during the period 2027-2030 so that, in 2030, foreign grants are back at the level of the base scenario.

Similarly, the assumed increase in social transfers from the government to households would permit Yemen to reach the 90<sup>th</sup> percentile among LICs in terms of spending on social safety nets, assuming that Yemen’s initial level was in the bottom half among LICs (more specifically in the 25<sup>th</sup> percentile).<sup>11</sup> For remittances (i.e., transfers to Yemeni households from abroad expressed in foreign currency), the base scenario assumes that they grow at the same rate as the population, 2 percent, i.e., that they are unchanged in per-capita terms. For the rec+ scenarios, it is assumed that, starting from 2023, the annual growth rate (in foreign currency) increases by 1 percentage point. Such a development may require that the Gulf Cooperation Council (GCC) countries give preferential

> 9 More specifically, in each year the health and education spending increases for the rec+ and rec- scenarios are computed relative to base GDP and translated into increase in real service provision and real additions to the capital stock. Thus, the real changes are the same for all rec+ (rec-) scenarios, not depending on changes in GDP or prices in the individual rec+ (rec-) scenarios.

> 10 More specifically, the spending levels by LIC percentile were computed using World Development Indicators data for 2019 (World Bank 2020). The link between the spending percentile, the HCI, and labor productivity is based on data in World Bank (2021).

> 11 LIC percentile data for spending on social safety nets were computed on the basis of data in the World Bank’s ASPIRE dataset (World Bank 2018). For FDI, discussed in the following paragraph, the calculation was based on World Bank (2021).

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