FINANCIAL AND ECONOMIC SYSTEM OF YEMEN: IS RECOVERY POSSIBLE?
Authors: Svetlana Babenkova 
Published: August 2020

The regional war in Yemen (the Republic of Yemen) began on the 26th March 2015 in the result of the military intervention of the Arabic coalition headed by Saudi Arabia. Nearly all the northern part of the the country is under control of the alliance with the participation of the former ruling party “Yemeni General People's Congress” and Houthi rebellions from the Shiite movement Ansar Allah. In August 2019 the southern part of the country loyal to the coalition was threatened by disintegration as a result of expulsion of the structures of internationally recognized President A.M. Hadi, living in Riyadh since the beginning of the conflict, from the temporary capital Aden by forces of the pro-Emirates group headed by the Southern Transition Council.

The war did not solve any domestic problems of Yemen caused by a massive peaceful protest in all parts of the country split by the crisis in 2011, disrupted the international plan of the peaceful solution to the crisis under United Nations auspices, which started in November 2011, and de facto worsened the split of Yemen, which appeared on the map of Arabia only in 1990 in the result of merging two previously existing sovereign republics – the Yemen Arab Republic and People's Democratic Republic of Yemen.

According to the announcements of the UN, currently the country goes through the hardest humanitarian crisis in the world. The military actions devastated the economy of the country, almost entirely ruined the infrastructure and lead to the absence of food security. The UN estimated that in 2019 nearly 24.1 million people (80% of the population) were exposed to the risk of famine and diseases. In the result of the absence of sanitary conditions and vaccination of the population, the country faces large-scale disease outbreaks, such as cholera, diphtheria, measles and fever.

In addition, analysts estimate that more than 40% of Yemeni families lost their main source of income, consequently, it is quite difficult for them to by goods included in the minimum consumer basket. Poverty is getting worse: before the crisis it affected nearly half of the population, and currently it affects about 80% of Yemenis.

In the result of the inflation, the value of the national currency threefold dropped. Besides, the humanitarian crisis worsened, and failure in the operation of the facilities of the national infrastructure and financial institutions significantly influenced the activity of business society, especially small and medium-sized businesses.

The military conflict in Yemen disrupted the social and economic activity both of individual institutions and of the state as a whole. In the hard situation is found the revenue part of the budget, whose main source of income was export of hydrocarbons. Financial losses from oil revenues resulted in severe shortage of the national currency and plummeting of state revenue. The aforementioned factors in combination with the fragmentation of the public institutions, including the Central Bank of Yemen, resulted in stopping flow of foreign currency for essential imports and payment of salaries in the public sector, which led to the growth of inflation and worsening humanitarian crisis.