Yemen's economy: Recovery challenges and the impact of financial division and war
Yemen's economy faces a complex crisis, among the worst globally, experiencing a fragile recovery hampered by a series of crises stemming from the ongoing war and deep political divisions. The economic landscape in Yemen is no longer merely a reflection of traditional warfare; it has become a parallel battleground where financial and monetary tools are used as bargaining chips, exacerbating the suffering of millions and eroding the country's economic infrastructure.
Background to the crisis: The roots of the conflict and financial division
To understand the depth of the current crisis, it is necessary to return to the historical context that began with the escalation of the conflict in late 2014 and the intervention of the Arab coalition in 2015. Prior to the war, Yemen was already facing developmental challenges, but the armed conflict brought vital economic activities to a near standstill and devastated infrastructure. The most dangerous economic turning point was the decision to relocate the Central Bank of Yemen from Sana'a to Aden in 2016, effectively splitting the sovereign financial institution into two rival entities, each answering to a different authority and implementing conflicting monetary policies.
Currency war and its impact on markets
Perhaps the most serious challenge facing Yemen's economy today is the existence of two monetary policies and two currencies of different value for the same country. This division has led to a massive disparity in exchange rates between areas controlled by the internationally recognized government and those controlled by the Houthis, creating exorbitant fees for domestic money transfers and hindering trade between governorates. This financial fragmentation has caused runaway inflation, particularly in the liberated areas, where the local currency has lost a significant portion of its value, resulting in a dramatic increase in the prices of imported basic commodities, on which Yemen relies for over 90% of its needs.
Oil exports halted and the deficit worsened
The economic crisis intensified with the halt of oil and gas exports, which had been the primary source of revenue for the state budget and a major source of foreign currency. Attacks targeting export terminals in the eastern provinces deprived the government of vital income, exacerbating the budget deficit and reducing the state's ability to pay public sector salaries and provide essential services such as electricity and water.
Human and livelihood impacts
These macroeconomic indicators have a direct and tragic impact on the lives of Yemeni citizens. According to reports from the United Nations and the World Bank, the majority of the population lives below the poverty line, and millions face severe food insecurity. The desired economic recovery cannot be achieved through piecemeal solutions or temporary humanitarian aid alone; it requires a comprehensive political solution that unifies financial institutions, resumes the export of natural resources, and reintegrates the country's economic cycle to ensure sustainable stability.
