February 14, 2018

Yemen’s Cratered Economy: Glimmers of Hope?

Yemen Aid
A child in Marib, Yemen holds a Yemeni riyal note worth $2, Feb. 3. (AP Photo/Jon Gambrell)

Yemen’s humanitarian crisis is now the world’s largest in terms of the number of people in need. The crisis is the result of long-simmering structural issues in Yemen’s economy, the civil war, and the politicization of the economy during the three-year-old conflict.

The crisis cannot be resolved through humanitarian aid alone. Any improvement in the humanitarian environment will require an intervention in Yemen’s macroeconomy, particularly its banking system. Presently, the human capacity required to run Yemen’s central bank and Ministry of Finance is divided between rival institutions controlled by the de facto authorities in Sanaa and the government of President Abd Rabbu Mansour Hadi, based between Riyadh and Aden. International legitimacy lies with the Hadi government, but experience and technocratic capacity lies in large part in Sanaa-based institutions. If the two cannot be married, there is a real risk of systemic collapse.

These institutions face similar problems: a lack of foreign exchange reserves, poor access to the international banking system, a lack of revenue with which to pay an estimated 1.25 million public sector salaries, the falling value of the Yemeni riyal, and an internal debt crisis.

All too often, however, events on the ground impede progress made toward an improvement in the macroeconomic environment. A thaw in relations between the Hadi government, Sanaa-based technocrats, and commercial banks made in late 2017 has largely been undone by the death of Ali Abdullah Saleh, Yemen’s former president, in December 2017. A mooted $2 billion injection of hard currency into the Central Bank of Yemen by Saudi Arabia, announced in January, has similarly been delayed due to infighting between rival factions in Aden.


  • The United States, United Nations, and other international stakeholders in Yemen must move quickly to stage a meaningful intervention in the macroeconomy.
  • An intervention would require addressing the lack of foreign currency reserves, a nearly nonexistent revenue base for salary payments, and the deep divisions between rival parallel institutions, along with a mounting internal and external debt crisis and rapidly depreciating Yemeni riyal.
  • A new coordinating body should be formed with Yemeni officials and technocrats from across the political divide, with assistance and oversight from neutral international staff, based in a third country, most likely Jordan.
  • The coordinating body should develop a detailed plan to address the concurrent crises in foreign exchange, revenue, debt service, and inflation, in coordination with international donors. Such a plan would include a detailed budget for 2018, and realistic mechanisms for oversight of currency management and salary distribution.
  • In the longer term, the macroeconomy cannot and will not recover absent a meaningful, sustainable political solution to the conflict in Yemen.
  • Failure to intervene, either due to ennui or overconfidence in other actors’ willingness to act, can only lead to a deepening crisis.

About the Workshop

The humanitarian crisis in Yemen is the worst on the planet in sheer numbers, according to the United Nations. On October 18, AGSIW hosted a roundtable discussion on Yemen’s economy. The discussion focused on policy options at a macroeconomic and local level to alleviate the suffering of Yemenis, as the war continues and a political deal is nowhere in sight.