Yemen

Yemen Monthly Economic Update May 2020

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Situation Report
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In May, political impasse continued, while socio-economic conditions deteriorated further, affected by the COVID-19 outbreak, rising food prices, and downsizing of humanitarian operations, especially in the north.

Following the declaration of self-rule in the southern governorates in April, the Southern Transitional Council (STC) stepped up efforts to improve autonomous control over public functions in the south. In May, an oversight economic committee was established with up to 27 expert members. The oversight committee, which reports directly to STC leadership, is expected to provide supervision and guidance on economic management to government institutions in Aden. Other key responsibilities include the preparation of reform agendas to address issues with public services delivery (electricity, water, health care) and improve the overall performance and efficiency in the public sector. In addition, task teams have been formed to monitor government operating expenses, especially by economic and revenue institutions.

Reportedly, most revenue-collecting government institutions in Aden have deposited public revenue into the designated “self-rule” accounts with the Al Ahli Bank, in response to the STC’s request. Major economic institutions such as the Customs, Tax Authority, Aden Refinery Company, Port of Aden, and Authority of Aden Free Zone are among those reported to have complied with the STC. It is not clear if the STC has gained oversight over oil exports, the central source of government revenue. The STC stated that the measure was intended to enhance transparency of the use of public resources, fulfill payroll obligations, and rationalize the recourse to money printing to finance the deficit, but not to overrule the existing budget framework. Public sector salary payments remain irregular in the southern governorates. While the stagnation of salary disbursements was first reported in early 2020, disruptions in revenue collection since the STC’s self-rule declaration appear to have exacerbated the problem.

Meanwhile in Sana’a, the de facto authorities implemented a series of legislative economic reforms to improve the business environment in the controlled territory (“north”). On May 3, 2020, the de facto authorities issued Laws No. 5 to No. 8 (2020), ratifying amendments to the Custom Tariff Laws, General Sales Tax Law and Income Tax Law. The legislative revisions are part of the economic measures under the Economic Revival and Recovery Strategy 2019-20, announced in January 2020. The amendments provide tax exemptions to support small businesses, strengthen local production of medicine, and facilitate renewable energy investment to reduce reliance on imported fuel products. During April-May, half of January 2018 salaries were disbursed to civil servants in the north, drawing resources from the special account with the Central Bank of Yemen (CBY) branch in Hodeidah.