Aden.. Liquidity crisis between Central Bank decisions and government inability to pay salaries
Yemen
Yamanat – Special
Yemen’s internationally recognized government is facing a stifling financial crisis, manifested by its inability to pay state employees’ salaries for the third month in a row. This decline reflects the fragility of the financial situation and reinforces fears of a wave of protests in the governorates under its control.
The roots of the crisis
The current crisis is linked to recent decisions by the Central Bank, which aimed to stabilize the exchange rate of the Yemeni riyal against a basket of foreign currencies. Despite the success of these measures in reducing fluctuations in the foreign exchange market, they have had negative repercussions, notably the lack of liquidity in the coffers of the Central Bank of Aden, which hampered the ability of the Salem bin Brik government to pay salaries.
Popular discontent
The payment of salaries caused a wave of widespread discontent among employees, as it directly affected their daily lives. This discontent is expected to turn into popular protests that will confuse the bank and the government, which could bring the collapse of exchange value back to the forefront, especially with the continued deterioration of the economy and the rising cost of living.
Temporary rescue attempts
Faced with the crisis, the Central Bank of Aden resorted to issuing Treasury bills in order to provide liquidity. However, the results have not yet been announced, raising questions about the effectiveness of this approach. Financial and banking experts say these measures remain temporary and urgent, given the government’s continued inability to activate revenue flows and link them to the central bank.
Income out of control
One of the most important challenges lies in the control of local revenues by influential forces in Aden and government governorates and their channeling outside official channels. This reality weakens the government’s ability to recycle funds within the banking system and further worsens the liquidity crisis.
Pressure on the foreign exchange market
Financial experts confirm that the scarcity of local money supply in foreign exchange companies is a direct consequence of the strict measures taken by the Central Bank to limit speculation. The foreign currency sales cap was set at two thousand dollars only for limited categories, such as patients traveling for treatment, which reduced the amount of liquidity available in the market.
Disruption of the monetary cycle
The liquidity crisis revealed a structural flaw in the monetary cycle, as a significant percentage of the national money supply left the formal banking system. Analysts say the central bank needs to take broader steps to reset the monetary cycle, moving away from contractionary policies that contributed to the liquidity crunch rather than addressing it.
Possible scenarios
The flood crisis continues, with the government unable to secure sufficient revenues and link them to the central bank, the wage crisis will worsen and popular tension will intensify.
Furthermore, resorting to partial solutions, such as selling bonds or obtaining external support, will lead to temporary relief of the crisis, but will not resolve the crisis radically.
Radical reforms are the real way forward to restructure public revenue, improve transparency and integrate the money supply into the official banking cycle, but they require effective government measures.
Weak institutions
The liquidity crisis in Yemen is not just a passing administrative or financial problem, but rather a direct reflection of the weakness of public institutions, the disruption of the monetary cycle and the encroachment of resources by powerful forces. Between the Central Bank’s attempts to curb speculation and the government’s inability to pay salaries, workers remain the weak link, while the future of financial stability remains dependent on the government’s ability to regain control of revenues and restore confidence in the banking sector.
Yemen