THE NEED TO REFORM THE PUBLIC SECTOR WAGE BILL
Yemen’s bloated public sector employment was a strain on the state budget prior to the conflict, accounting for an average of 32 percent of government spending between 2001 and 2014. During the conflict, the warring parties have added large numbers of new employees to the public payroll, particularly the military and security services, while Yemen’s economy has shrunk. Yemen is also struggling with a large public budget deficit, which was estimated at 660 billion Yemeni rials in 2018, equivalent to US$1.24 billion (at the average US$/YR exchange rate for 2018). Post-conflict, reconstruction will be a priority for public expenditure and external support; Yemen may struggle to find consistent funding for public sector salaries.
Amid a liquidity crisis, the Central Bank of Yemen stopped distributing salaries in August 2016. Salary payments in some areas and sectors have since resumed, but full, regular payments to all public sector employees have not yet been achieved. While resuming salary payments to civil servants is an urgent priority to help relieve the humanitarian crisis in Yemen, the inflation of the public sector is a looming crisis that must be addressed if Yemen is to achieve economic stability in the future. Post-conflict Yemen will also have to grapple with the reintegration of tens of thousands of fighters employed by the warring parties. It will not be fiscally viable to integrate them all into the state military and security bodies; however, other provisions for these fighters must be made in order to ensure they do not become spoilers to the peace process.
Download the full paper here