"building a resilient economic system, free from the fragility that has repeatedly left the market vulnerable to collapse."

Abdullah Al-Shadli (South24)

In a country enduring one of the most complex economic crises, Yemen’s financial collapse reached an unprecedented level during the summer of 2025. The exchange rate of the US dollar surpassed 2,900 Yemeni riyals, while the Saudi riyal approached 760 riyals—intensifying a suffocating wave of inflation that decimated citizens’ purchasing power and rendered the internationally recognized government unable to disburse public sector salaries for over two consecutive months.

These conditions triggered widespread protests in Hadramout, the largest governorate in southern Yemen, revealing the depth of public discontent over the deteriorating living conditions.

This economic and social turmoil coincided with sharp divisions within the Presidential Leadership Council (PLC) over how to manage the crisis, amid mounting pressure from the Southern Transitional Council (STC) —the main power-sharing partner—which, in May, endorsed sending a letter to the UN Security Council and the Quartet (United States, United Kingdom, Saudi Arabia, UAE) urging urgent action to alleviate the suffering of the population.

The Yemeni government, led by Finance Minister Salem bin Brik—appointed Prime Minister in early May—found itself facing an economic and service crisis that began to increasingly spill into the political sphere. In response, the government and the Central Bank in Aden launched what was described as “the boldest reform package in years.”

This package focused on curbing speculation in the foreign exchange market and restoring the Central Bank’s regulatory role. Within a few weeks, the initial indicators began to emerge: the dollar dropped from 2,900 rials to around 1,617 rials, and the Saudi riyal declined from 760 to approximately 425 rials, since late July.

Although this improvement was accompanied by apprehension and described as potentially reversible, it provided the government with temporary political and economic breathing room and offered an initial impression of its ability to intervene in the currency market in an organized manner. So, what are the actual reforms implemented by the Yemeni government thus far, and how are they being assessed and monitored by experts?

Reform Map

The establishment of the National Committee for Regulating and Financing Imports (August 10) marked the most significant starting point in the government’s reform path. The Prime Minister issued the decision to form the committee as a central instrument to control import operations—an area that for decades had led to draining of foreign currency and fueled the parallel market.

On August 10, 2025, the committee officially began receiving requests for currency exchange and transfers from traders via banks and exchange companies, under a strict mechanism that requires document verification and submission to the committee for review prior to approval or rejection. The Central Bank confirmed that no goods would be allowed entry through customs unless these procedures were fulfilled—a move aimed at ending import chaos and blocking the flow of goods through unofficial channels.

According to the Central Bank, this mechanism enhances transparency and ensures the smooth flow of imports through official channels, thereby restricting the use of foreign currency to only financing essential commodities.

Experts consider this committee the “cornerstone” in restoring the Central Bank’s role as market regulator, as it curbs random speculation and redirects foreign currency toward the actual needs of the economy instead of leaving it hostage to the black market.

In this context, Presidential Leadership Council economic advisor Fares Al-Najjar stated that this step “changed the rules of the game” in the currency market. In his remarks to ‘South24’, he explained: “Foreign currency sales have been restricted to major entities, exchange companies are required to deposit surplus foreign currency weekly into banks, and sales ceilings are set at $5,000 for banks and $2,000 for exchange firms.”

He added that the most critical aspect of these measures is “stopping the fulfillment of fuel import needs through the parallel market, an action that extinguishes the engine of artificial demand for foreign currency.”

In this sense, the committee has not been limited to merely serve a bureaucratic regulatory role but has become a direct tool for market stabilization and preventing speculators from manipulating currency flows. However, economists—foremost among them Dr. Mohammed Jamal Al-Shaibi, Professor of Political Economy at the University of Aden, warn that the success of this step hinges on the government’s ability to secure sufficient foreign currency reserves. Without sustainable financial capacity, the committee risks becoming a temporary mechanism that would collapse under pressure from the parallel market.

Alongside import regulation, the Central Bank in Aden launched a strategic project of equal importance: the development of electronic payment systems. This initiative, supported directly by the World Bank, constitutes a deep structural reform aimed at modernizing Yemen’s financial infrastructure and enhancing the state’s ability to monitor money flows.

The new system is based on creating a comprehensive electronic monitoring platform that connects banks, exchange companies, government institutions, and even individuals. Through this platform, all financial transactions—including transfers, salaries, government payments, and taxes—are unified under the direct supervision of the Central Bank.

The immediate impact of this system is to reduce excessive reliance on cash and encourage a shift toward electronic transactions, granting the Central Bank unprecedented capacity to track money movements in real time. Dr. Al-Shaibi described this as a pivotal step in combating chaos in the monetary market, provided it is accompanied by parallel reforms that stimulate real economic activity.

Additionally, the unified payments network is seen as an effective tool in combating money laundering and terrorism financing, as well as reducing tax and customs evasion, which have been long-standing challenges for the Yemeni state. Fares Al-Najjar affirmed that this step represents “instant settlement and digital tracking that reduces liquidity outside the system”, thereby helping prevent the return of funds to the parallel market and amplifying the impact of monetary stabilization.

Despite the technical importance of this system, a fundamental challenge remains: Yemen’s weak technological infrastructure, in addition to the continued control of the Houthis over parts of the country which may limit its effectiveness in the short-term. Nevertheless, its implementation in Aden signals the government’s intent to assert control over the national financial system and redraw the rules of the banking sector.

The preparation and approval of the state’s general budget on July 24, 2025, constitutes the third pillar in the reform triangle championed by the government. International financial institutions such as the IMF and World Bank have long emphasized the necessity of an official budget as a prerequisite for revenue control and rational public spending—a step Yemen has lacked for many years.

Dr. Al-Shaibi views the budget not merely as an accounting tool but as a framework for fiscal discipline that enables the government to monitor money flows and prevent their return to the parallel market, thereby reinforcing the impact of other monetary reforms. In his remarks to ‘South24’, he noted that this step had been a repeated demand of international institutions, and its adoption is part of a broader reform package aimed at rebuilding confidence in Yemen’s economy.

For his part, Fares Al-Najjar described the three reforms—the National Import Committee, the payments network, and the budget—as “an interconnected loop that reinforces a cohesive economic impact.”

He added: “The committee regulates the real demand for foreign currency, the payments network provides instant settlement and digital tracking that reduces liquidity outside the system, and the budget ensures fiscal discipline that prevents liquidity from returning to the parallel market—thus amplifying the stabilizing effect.”

Nonetheless, warnings persist that the success of this step depends on the government’s adherence to clear expenditure benchmarks, and prohibiting off-budget spending—a point that Al-Najjar emphasized. Without ensuring strict discipline, the budget risks becoming a mere formal document incapable of addressing deep-rooted resource mismanagement or confronting the influence of actors who control public funds.

Productive Sectors

Government reforms are not limited to monetary tools and financial procedures but have extended to productive sectors, which represent the cornerstone of easing pressure on the balance of payments. In this context, the government proposed a strategic direction to reactivate the Aden refineries and establish a new refinery and free zone in Hadramout, as part of a broader vision to revive the local economy and create new job opportunities.

Economic advisor Fares Al-Najjar explained that operating the Aden refineries alongside the Safer refinery in Marib “will reduce the fuel import bill, which currently amounts to around $3 billion annually in Yemen,” thereby improving the trade balance and supporting the national currency. He noted that these steps were a direct response to mounting public and economic pressure from Hadramout, which had been the epicenter of the largest protests against deteriorating living conditions.

On the monetary front, the government’s reforms registered tangible progress through a series of decisive measures aimed at regulating the currency market. Dr. Al-Shaibi believes the most notable achievement was “restoring the Central Bank in Aden’s legal role and initiating steps to regulate foreign currency trading by stabilizing exchange rates, revoking licenses of non-compliant exchange institutions and branches, and shutting down unlicensed offices.”

These measures were reinforced by a Prime Ministerial decree issued on August 11 prohibiting the use of foreign currencies as an alternative to the national currency in domestic commercial transactions, such as rent, tuition fees, and travel tickets. Al-Shaibi considers this decision “a crucial step in supporting monetary sovereignty,” given its direct impact in enforcing the Yemeni rial as the sole currency for local transactions.

Possible Scenarios

Yemen’s economy today stands at a critical crossroads, pulled between divergent paths of sustainable recovery and relapse into chaos. The reforms launched by the government and the Central Bank appear, so far, to be bold steps that have yielded some positive indicators. However, their continuity depends on factors far more complex than temporary currency market stabilization.

The first scenario is one of sustainable recovery—a path that requires building upon current measures and transforming them into entrenched policies that ensure long-term monetary stability. Economic advisor Fares Al-Najjar asserts that achieving this trajectory depends on three key conditions: first, maintaining strict executive discipline to prevent lax enforcement of decisions; second, establishing organized transparency through a Central Bank digital portal that enables real-time monitoring of financial flows; and third, curbing the influence of actors who use illicit funds to fuel speculation, as they represent the most dangerous driver of market volatility. If the government succeeds in meeting these requirements, the initial stabilization could evolve into a solid foundation for a new economic breakthrough.

The second scenario is a relapse into chaos—a risk that remains potent if the government fails to address the root causes of the crisis. Dr. Mohammed Jamal Al-Shaibi warns that any slackening in implementing the reforms will revive the parallel market, bringing back speculation and eroding control over exchange rates. These risks are further compounded by the divergent monetary policies between the government-controlled areas and those under Houthi control. If the reforms do not tangibly improve daily life through better prices and salaries, public discontent will resurface, threatening to unravel the government efforts and plunge the country into a deeper crisis.

Between these two paths, the future of Yemen’s reforms hinges on the government’s ability to translate temporary gains into stable structural transformations—backed by external support that strengthens the Central Bank’s reserves and equips it to withstand future shocks. The real battle lies not only in restoring momentary exchange rate balance, but in building a resilient economic system, free from the fragility that has repeatedly left the market vulnerable to collapse.