A recent publication by the Sana’a Center for Strategic Studies outlines threats to Yemen’s domestic currency and state institutions, as a result of both the year-long war and the poor policies and mismanagement that preceded the conflict. Mansour Rageh, an economist with the Central Bank of Yemen (CBY) since 2003, explains that the Yemeni riyal and government institutions are critical for post-war rebuilding and that it is in all parties’ best interests (save those of IS and al-Qaeda) that they be preserved, so as to avoid the unnecessary expense of reviving them later. Considering the tremendously difficult conditions Yemen is witnessing right now, the country’s central bank and central government have done an impressive job of protecting the riyal’s value while keeping state institutions intact. However, this relative success is no longer sustainable as the ongoing conflict makes it even more difficult for the government to fulfill its debt obligations and the CBY’s foreign currency reserves are plummeting (they now stand at less than $2.1 billion, or enough to cover only two month's worth of imports). Once these reserves are exhausted, the riyal’s value will start to dip, gravely impacting the country’s entire economy and the people’s well-being.

"Many of the weaknesses in Yemen's public finances are structural and predate the current conflict. Government revenues have for some time been undiversified and overly dependant on oil exports, while expenditures have been inflated by endemic corruption and sprawling patronage networks. The current civil war – which effectively began in September 2014 and escalated when the Saudi-led military intervention began in March 2015 – has dramatically intensified these weaknesses and their consequences."

In light of these threats, Rageh suggests a number of steps to be taken to preserve the riyal and the minimum operation of state institutions. In the absence of a cessation of hostilities, which would be the largest single measure to stabilize Yemen, foreign backers of the country’s warring parties should “pressure their local allies to stop plundering state institutions and appropriating state revenue streams.” Houthis must stop selling fuel import licenses and help to reinstate the Yemen Petroleum Company as the primary handler of commercial fuel. All parties must end their respective blockades while not interfering with or targeting commercial networks across the country. Parties must also allow Yemen’s commercial banks to transfer Saudi riyals out of the country in exchange for US dollars. If these actions are taken, among others, Yemen will have a better chance of preserving the state institutions that are essential to its economy and its citizens.

Read the full report here.