Yemen Urgently Needs a Unified Fiscal Policy Response to COVID-19

A youth wears a mask in the market at Al-Qatn, Hadramawt, on April 14, 2020. Days after Yemen’s first recorded case of COVID-19 in Hadramawt’s port of Al-Shihr, masks and gloves were a rare sight nationwide, with people wary of their cost and the stigma of wearing them // Sana’a Center photo by Mohammed Haian


Commentary by Amal Nasser

In separately defined containment measures, authorities in Sana’a and Aden closed sea, land and air ports as a precaution prior to the April 10 official reporting of Yemen’s first confirmed case of COVID-19. Since then, they have — separately — suspended school and university classes, set up quarantines and imposed social distancing measures. As the virus spreads, however, separate responses will fall far short in blunting the human and economic catastrophe widely expected in a country entering its sixth year of war with a failing health system and more than 80 percent of its 30 million people already relying on humanitarian assistance.

The pandemic may require a lockdown, as has happened elsewhere, placing severe restrictions on people’s movement and posing a major disruption to their livelihoods. The internationally recognized government’s containment plan as submitted to the International Monetary Fund (IMF) includes that possibility, if needed. However, this proposition has not been supported with a detailed plan on how the short-term economic impact of a lockdown can be mitigated. Anecdotal evidence has shown that even with partial curfews, economic activities in Yemen’s big cities have slowed down, and working people, especially small shop owners, daily laborers and street vendors, have been hit hardest so far. (See: ‘Yemenis Fear Starvation More Than COVID-19). 

It is essential to establish a joint fund to finance the policy responses to the pandemic. In order to show even the lowest possible level and merit of leadership and credibility toward their own people and the international community, both treasuries should be the first to finance such a fund and not wait for international grants that might take time to be disbursed. Public revenues from collected taxes and tariffs should be redirected toward financing the emergency fund. International and — most importantly — regional stakeholders have the moral obligation to support such a fund.

In the case of a lockdown, one must reckon with a sharp decrease in people’s disposable incomes. Along with the severe impact on livelihoods, food prices would significantly increase due to disruptions in market supply chains.4 The Yemeni rial is projected to experience another wave of devaluation due to decreasing remittances. Yemenis abroad, especially in neighboring Saudi Arabia, also face lockdowns that prevent them from working or sending cash back home across the border. These factors combined with a loss of government revenue from crude oil exports hit by falling global oil prices mean the Yemeni government’s fiscal deficit is projected to increase by 1.3 percent of GDP in 2020.

Given there is less room for implementing a monetary policy response at the moment, the focus should be on implementing short-term fiscal policies that will mitigate the impact of a lockdown. The emergency fund should provide cash assistance to people engaged in precarious labor and be used in part to increase medical facilities’ capacities. 

The internationally recognized government has said it is planning to increase health sector spending to mitigate the impact of COVID-19 by 2 percent of GDP over the course of 2020, or about US$500 million. In northern parts of Yemen under Houthi control, where 70 percent of the population lives, the de facto health authorities have warned they are far short of hospital beds, ventilators and test kits.

Yemen’s working poor, who constitute a large share of the still-employed population after five years of war, should not be abandoned during the fight against COVID-19. A cash assistance program for the duration of a lockdown targeting those who lose their livelihoods would be a lifeline for informal and irregular workers, and small business owners. This can be built on the existing national cash assistance program of the government’s Social Welfare Fund, which was suspended early in the war but later funded by the World Bank and executed by UNICEF to provide cash assistance to families. Relaunching the program with funding from an emergency fund will be more efficient than designing a new direct cash transfer program.

In big cities such as Sana’a, Aden, Marib and Taiz — where roughly 6 million to 7 million people reside — it would be appropriate to implement a rent-freeze for the duration of the lockdown. Families allocating a larger share of their dwindling income to food purchases can be expected to come up short on rent money at the end of the month.

Undoubtedly, establishing such a fund will be challenging, but many countries in the region with a large share of informal and irregular workers, such as Egypt and Morocco, have established emergency funds or implemented such policies. Jordan and Tunisia are implementing policies that go beyond providing direct cash transfers to the most vulnerable segments of the population and include tax exemptions for small businesses.

A severe economic crisis will have immense humanitarian repercussions on the country’s working population, cutting what for many Yemenis is their final lifeline. Therefore, it is of utmost importance that the policy response is not politicized by the different warring parties and remains directed toward mitigating the devastating impact of COVID-19 on lives and livelihoods. The existential threat the novel coronavirus presents requires unprecedented courage, cooperation and pragmatism. 

Amal Nasser is an economist with the Sana’a Center for Strategic Studies who focuses on the political economy of Yemen.

This commentary appeared in War and Pandemic – The Yemen Review, April 2020.


The Sana’a Center for Strategic Studies is an independent think-tank that seeks to foster change through knowledge production with a focus on Yemen and the surrounding region. The Center’s publications and programs, offered in both Arabic and English, cover diplomatic, political, social, economic, military, security, humanitarian and human rights related developments, aiming to impact policy locally, regionally, and internationally.


Endnotes

  1. “Yemen Covid-19 Pandemic – Impacts and Access and Availability,” UN Food and Agriculture Organization, Food Security and Early Warning Information System (FSIS II) Programme, April 8, 2020.