In the closing months of 2024, Yemen's economic crisis reached its peak, leaving the internationally recognized government unable to pay employee salaries for several months. Desperate, the Yemeni government appealed to the international community for aid. Following a series of meetings held by the Yemeni Presidential Leadership Council in Riyadh, Saudi Arabia announced on Friday, December 27, 2024, a new economic support package for Yemen worth $500 million.

The Saudi aid includes a $300 million deposit to Yemen's Central Bank and an additional $200 million as the fourth installment to address the government's budget deficit, salaries, operational costs, and food security in Yemen. Yemeni Prime Minister Ahmed Awad Bin Mubarak stated that this support would enable the government to pay state employees' salaries, halt the currency depreciation, and persistently pursue financial and administrative reforms while combating corruption.

Heavy Challenges

In this report, Barran Press examines Yemen's economic situation in the upcoming year, coinciding with the arrival of the new Saudi support to address the government's budget deficit and the Yemeni government's announcement of restructuring the Central Organization for Control and Auditing, forming the Supreme Committee for Tenders and Auctions, and establishing the Supreme Authority for Control over Tenders and Auctions.

The report discusses potential scenarios with experts based on the government's past economic performance, the trajectory of announced comprehensive reforms, and the impact of the new Saudi financial grant on currency value and commodity prices. Additionally, it evaluates necessary government actions to tackle economic challenges and improve performance, as well as the mechanism for utilizing regional and international support to enhance the economic situation.

Dr. Mohamed Kahtan, an economics professor at Taiz University, believes that "the economic conditions will be worse than last year if the current situation persists, peace is not achieved, and the legitimate government does not take serious measures to address corruption in state revenue streams." Based on current data, Kahtan predicts that "2025 will be burdened with difficult economic challenges."

Kahtan asserts that most of the issues that have plagued Yemen's economy, severely affecting Yemenis' livelihoods, remain unresolved, such as institutional fragmentation, monetary division, resource looting, oil export disruption, and the non-payment of employee salaries for the ninth year in Houthi-controlled areas. He therefore expects that "the new year's features may be similarly bleak for citizens."

Root Causes and Solutions

Economic journalist Wafiq Saleh agrees that "economic problems and imbalances remain, and thus the new year's outlook will not differ from the previous year." In an interview with Barran Press, Saleh suggested that without "serious efforts to address the crises and challenges facing the national economy, the coming period will witness severe economic crisis repercussions on citizens' living conditions." Saleh believes that unless unexpected events improve the situation, the living and humanitarian conditions will continue to deteriorate.

Saleh emphasized that "Yemen's economy is in a critical stage, deteriorating at all levels, particularly with the disruption of key exports, fragmentation of local resources, and the absence of reforms and prudent plans." In such cases, "the country is in dire need of financial support to revitalize the economy, address crises, and achieve living stability."

Saleh also mentioned that the announced support for the government "does not match the magnitude of the economic crises facing Yemen," stressing that "solving the economic problem requires radical solutions and greater support coupled with comprehensive reforms in financial institutions and the activation of dormant exports."

Pessimistic Expectations and Challenges

Mustafa Nasr, head of the Economic Media Center, expressed a similarly bleak outlook for Yemen's economy in the coming year, citing the suspension of many government revenue sources, delayed employee salaries, the Yemeni rial's declining purchasing power, decreased individual income, and rising living costs. Regarding the measures announced by the government for addressing the crisis in 2025, Nasr said that they "lack clear outlines and that there is no government program presented to parliament for approval and a clear budget."

Nasr highlighted that the government faces "revenue shortages, possibly reaching bankruptcy." This situation prompted Saudi Arabia to provide support through the deposit and the $200 million assistance. Nasr noted that this assistance "will cover the government's needs for several months to pay salaries and maintain currency stability in 2025, unless changes and measures are taken to mitigate liquidity and foreign exchange crises."

Economist Abdul Wahed Al-Obali believes that Yemen's economic situation in the new year will continue to face significant challenges despite the Saudi deposit support. Al-Obali predicted that "local economic pressures will persist due to key factors, including ongoing conflicts and reduced foreign investments. Moreover, the central government's weakness in implementing effective economic policies and the persistent inflation and reduced purchasing power will remain the biggest challenges."

Imbalances and Uncertainty

Economic expert Mustafa Nasr told Barran Press that "there is an imbalance in the trade balance, especially with the halt in oil and gas exports, as well as significant problems with the cessation of agricultural and fishery product exports." He explained that "this adds to the economic challenges facing the government." Nasr highlighted that "the continuous decline in the currency is due to the country's shortage of foreign exchange resulting from the halt in many sources such as exports, the decline in foreign grants and aid, and the suspension of many international programs supporting Yemen."

Additionally, Nasr discussed the "migration of many Yemeni investments to other countries, leading to the outflow of substantial funds." He noted that "this has affected the country's foreign currency reserves and its ability to meet import bills, as Yemen imports 90% of its needs from abroad. This puts significant pressure on the currency, leading to its continuous decline."

Nasr described the current economic scene as a reflection of "the political uncertainty." He explained that "there is no actual war, and the conflict has shifted to an economic war." This economic war is characterized by "currency division and dual measures between the parties in various areas such as taxes and customs, imposing restrictions on the private sector in Houthi-controlled areas, and the lack of a conducive environment in government-controlled areas." All these factors, according to Nasr, push the economic situation towards collapse.

Reasons for Continued Currency Decline

Economist Mohamed Kahtan explained that the continued decline in the value of the Yemeni rial in its new print against foreign currencies is due to "the ongoing war, the halt in oil and gas exports, and the government's inability to address corruption and restore state institutions." Other reasons include the presence of state officials and their families abroad, the inflated diplomatic corps, which "drains all available foreign exchange resources," and the instability of national capital within Yemen. Factors such as corruption, foreign currency smuggling, and speculation also contribute to the ongoing deterioration.

Economist Al-Obali interprets the continued decline of the Yemeni rial despite the $300 million Saudi deposit through several factors. He stated that "when the deposit is used to pay salaries, more rials are injected into the market, increasing the money supply." In this situation, "the demand for foreign currencies like the dollar and the Saudi rial rises, as citizens seek to buy these currencies to preserve the value of their savings amid the erosion of the Yemeni rial's value." Al-Obali noted that many citizens and institutions tend to convert their money into foreign currencies, creating additional demand and putting pressure on the rial's value.

He added that "currency traders exploit this situation by selling dollars at high prices, contributing to the exchange rate increase." Furthermore, "the ongoing economic and political instability in Yemen, the Houthi-imposed currency division, resource looting, and the seizure of sovereign resources," along with "the failure and corruption of legitimate government agencies and unjustified spending," ensure the continued collapse of Yemen's economy.

Continuous Bleeding

Since the Houthi group, globally classified as a terrorist organization, took control of Yemen's capital, Sana'a, in late 2014, Yemen's economy has been in continuous decline, causing catastrophic economic and social impacts on Yemenis across the country. The financial crisis worsened when the group halted oil exports in October 2022 by bombing export ports in eastern Yemen, demanding a share of the revenues with the internationally recognized Yemeni government, which faces a severe cash crisis after losing its primary resources.

Amid this crisis, the local currency's value in government-controlled areas fell to its lowest level against foreign currencies, exceeding 2,060 rials per US dollar, while the Saudi rial reached 541 rials for sale. At the end of October 2024, a World Bank report reviewed by Barran Press stated that Yemen's economy continues to face escalating challenges, with prolonged conflict, political fragmentation, and rising regional tensions pushing the country towards a more severe humanitarian and economic crisis.

The World Bank report confirmed that the halt in oil exports, coupled with heavy reliance on imports, has intensified external pressures, causing an unprecedented decline in the Yemeni rial's value. The report also highlighted potential risks to Yemen's banking sector, which faced escalating tensions between the Houthis and the internationally recognized government regarding regulatory oversight in the first half of the year. The World Bank predicted that Yemen's GDP would shrink by 1% in 2024, continuing the decline after a 2% decrease in 2023, leading to further deterioration in real per capita GDP, with a 54% decline since 2025.