Analysis Main Publications News The Yemen Review Publications Index

Commentary Economic War Set for Escalation Following Riyadh Consultations

The official economic outcomes from the inter-Yemeni consultations in Riyadh in April were flawed, unfinished and of questionable utility from a policy or governance standpoint. What they were useful for, however, was as a bellwether for gauging the intentions of the internationally recognized Yemeni government moving forward, pointing toward a desire for further escalation, rather than armistice, in the economic war that has accompanied the armed conflict with the Houthi movement.

On April 7, hundreds of participants across a broad spectrum of Yemeni society – including politicians, economists, activists and others, though Houthi representatives refused to attend – ended a week-long dialogue in the Saudi capital to discuss Yemen’s overall challenges and draw a road map for bringing peace and stability to our war-torn country. Orchestrated by the Gulf Cooperation Council, the most dramatic outcome was President Abdo Rabbu Mansour Hadi issuing a resolution to transfer his executive powers to a newly formed Presidential Leadership Council (PLC) led by Rashad al-Alimi, that now assumes the political, military, security and economic management of the state. The consultations also saw Saudi Arabia and the United Arab Emirates commit US$2 billion in financial assistance to the Central Bank of Yemen in Aden (CBY-Aden), with the Saudis pledging another US$1 billion in development aid and fuel grants.

The fourth article of Hadi’s resolution formed an economic team, made up of 14 prominent Yemeni economic thinkers and businesspeople, to offer advice to the PLC on the state’s economic and financial issues. Officially, the economic team was assigned to support and advise the Yemeni government and the CBY-Aden in four primary areas: financial and monetary issues; strengthening efficiency, transparency and integrity in government agencies; sustainable development and economic growth; and finally, working to increase public revenue mobilization and diversify the economic base.

An immediate flaw of the economic committee, however, was that none of its members had been consulted prior to their appointment being announced. Active participation in a partisan entity would have created a severe conflict of interest for many, such as those with nationwide business interests, those affiliated with international institutions, and independent researchers, whose public impartiality in the war is core to their professional lives. Thus, following the announcement of the economic team, eight of its 14 would-be members promptly resigned.

While displaying an embarrassing lack of internal consultation and coordination, the incident was not in itself a mortal wound for the economic team since the article calling for its creation contains a clause allowing for those who resign to be replaced by the head of the PLC. A more fundamental problem is that the team’s purpose is framed in broad language that leaves unanswered the question of its mandate and authority – technically, this is meant to be articulated by the legal committee, similarly formed by former President Hadi’s April resolution, the head of which also resigned shortly after his appointment. At a time when the Yemeni government is attempting to strengthen its existing institutions and staff them competently – for instance, replacing the governor and most senior staff at the CBY-Aden in December 2021 – it would seem counterproductive to dilute the powers of these institutions and create an institutional power struggle by inventing another government body with purview over the same issues.

By the end of the Riyadh consultations, delegates at the conference had also produced a document listing a broad range of socio-economic challenges facing Yemenis and recommendations for addressing them. The challenges identified would be familiar to those acquainted with Yemen, including currency collapse and inflation, unemployment, lack of government revenues and public spending, and poor electricity and internet services. The causes given for these issues include “division and duplication” in government agencies that lead to “contradictory efforts” to address them, the government’s expansionary monetary policy to cover expenses, its lack of foreign currency reserves, its lack of data, impeded transportation networks, import dependence and food insecurity. The solutions proposed are generally broad as well, including: use the Saudi and Emirati financial support to stabilize the domestic currency and stop printing new rials; move all government agencies back to Yemen from abroad; activate oversight mechanisms; “find solutions to the division in some institutions”; create a new telecommunications company, and so on.

Notably, the economic outcomes document only tangentially acknowledged the de facto existence of two central banking structures, dual currency and dual banking systems, and broadly speaking the territorial economic divisions. The economic and monetary war between the Yemeni government and the Houthi authorities was presented as incidental, rather than central, to the country’s economic collapse over the course of the war. This is a willful distortion. Houthi authorities wield immense clout over a broad swath of the country’s economy. Resolving the nation’s most significant economic challenges will necessarily require government-Houthi negotiations and mutual coordination of nationwide economic policies until a political settlement to the conflict is reached. The economic recommendations formulated at the consultations were narrowly focused to address economic challenges in areas under the control of the newly formed PLC while lacking any comprehensive national-level vision to end the division in key economic institutions – such as the central bank – or address economic hurdles inclusively at a national level. This is not an oversight.

The recommendations were almost wholly taken from a presentation that CBY-Aden staff gave at the Riyadh consultations, according to a senior government official. The official elaborated that since there is currently no appetite among political leaders on the government’s side to allow negotiations with the Houthis on economic issues to proceed, the policy is to “fix ourselves” and strengthen the government’s hand economically vis-a-vis the Houthis to be better positioned for when negotiations might take place. Escalation of the economic war thus seems nigh, with Houthi authorities certain to retaliate against any unilateral step the government takes to assert itself, and as with all escalations in a war, the first casualties will undoubtedly be the millions of ordinary Yemenis whose ability to attain the basics of life is already precarious.

Even within this reckless, self-serving aim and narrow representation of the country’s economic challenges and possible solutions, however, there is a dearth of details as to how the PLC should carry out the recommendations arising from the Riyadh consultations. The devil, as they say, is in the details, and without thorough and realistic blueprints for implementation, these recommendations risk the new Yemeni government leadership instigating a new round of economic confrontations that it won’t know how to win.