For decades prior to the ongoing conflict, Yemen had been vulnerable to recurring budget deficits. The escalation of the ongoing conflict in 2014/15 has had a profoundly negative impact on Yemen’s debt position. Large-scale oil exports ceased, leading to a collapse in public revenues, while banks and pension funds stopped purchasing government debt instruments. Management of the public debt became bifurcated between rival central bank administrations in Aden and Sana’a, both of which suspended payments on foreign and domestic debt obligations. Unable to receive interest payments, public debt holders faced a liquidity crisis, leaving banks unable to honor customer obligations and threatening their solvency, while pension funds have struggled to support retirees. Based on the input and discussions of the Development Champions Forum, this paper outlines the history, characteristics, and drivers of Yemen’s public debt and presents recommendations for addressing this crisis.
