The internationally recognized Yemeni government is grappling with escalating financial pressures that verge on an unacknowledged state of bankruptcy, characterized by a widening gap between revenues and expenditures, declining local liquidity, and increasing borrowing. Despite these challenges, current government measures disproportionately focus on augmenting resources through fees and customs duties rather than addressing the structural imbalances draining public finances.
Economic indicators reveal a substantial deficit between revenue and expenditure, according to oil and economic expert Dr. Ali Al-Masbahi. He noted that while the exchange rate improved and a fixed exchange rate was implemented, these did not translate into enhanced government financial capacity. Instead, they coincided with a shortage of local liquidity, impacting salary payments, debt servicing, and project financing.
Al-Masbahi highlighted in a social media post that M2 money supply decreased by approximately 2,073 billion Yemeni Riyals in 2025, falling from 13.503 trillion Riyals in 2024 to 11.429 trillion Riyals, signaling the significant monetary pressures confronting the economy. The fiscal situation appears more dire, with general revenues dropping to 1,435 billion Riyals in 2025 from 2,066 billion Riyals in 2024, a decline of 631 billion Riyals, or about 30 percent.
According to the economic expert, general revenues covered only 52 percent of expenditures, necessitating borrowing to bridge the deficit. In 2025, the government borrowed approximately 1,312 billion Riyals, increasing domestic debt from 7,285 billion Riyals in 2024 to 8,597 billion Riyals in 2025. Concurrently, debt interest payments rose from 560 billion to 796 billion Riyals, illustrating a concerning financial cycle where escalating deficits necessitate more borrowing, which in turn increases interest burdens, thereby reducing resources available for essential services, salaries, and projects.
Al-Masbahi suggested that the decline in revenues prompted the government to increase customs duties in an attempt to compensate for the shortfall, projecting a 20 percent revenue increase in 2026 due to these measures. However, expenditures are expected to rise by approximately 10 percent due to increased allocations for wages, salaries, and cost-of-living allowances. The core problem, as identified, is that increased fees and customs duties may offer a temporary revenue boost but fail to address the weakness of revenue-generating institutions, corruption, or escalating expenditures. Furthermore, imposing additional burdens on the commercial sector and consumers could ultimately lead to higher prices for goods and a diminished standard of living for citizens.
With inflation projected to remain around 20 percent in 2026, according to preliminary estimates cited by Al-Masbahi from the International Monetary Fund, any nominal improvement in revenues could be eroded by inflation and rising expenditure costs. Al-Masbahi warns that the continuation of the current fiscal situation will maintain a high deficit, even with external support for salaries and electricity fuel. He advocates for comprehensive economic and financial reforms that extend beyond the implementation of Presidential Leadership Council Resolution No. 11 of 2025.
He emphasizes the critical need to combat corruption and its sources, rationalize public spending, address functional duplication, and restructure the diplomatic sector, alongside reforming revenue-generating institutions and enhancing their financial and operational efficiency. These indicators place the government in a dilemma that transcends an immediate liquidity crisis. Persistent deficits, declining revenues, mounting debt, and escalating servicing costs indicate that public finances are operating with an extremely narrow margin of safety. In the absence of genuine reforms that address the root causes of the deficit rather than financing it through borrowing or increased fees, the crisis is poised to worsen, potentially jeopardizing the government's ability to meet its fundamental obligations to employees, services, and the economy.
