The dilemma of public sector salary payments in Yemen

Amid international efforts to resurrect the fragile peace in Yemen, the Iran-backed Houthi militia is imposing stringent conditions for their return to the negotiating table. The group is demanding the payment of civil servant salaries and a portion of oil revenues as prerequisites for peace, but with a catch: Paying their militia members and loyalists through direct deposits would perpetuate the cycle of conflict and bolster both their forces and their transnational allies. While the need to compensate civil servants impacted by the war is undeniable, the Houthis’ self-serving demands threaten to undermine any progress toward a lasting peace in the war-torn nation.

The suspension of public sector salaries has become a politically charged issue due to the dramatic transformation of the civil servant structure in Houthi-controlled areas. Many civil servants have become displaced, evacuating to government-controlled areas, while others lost their jobs. The United Nations has supported a government plan to pay salaries to civil servants based on the payrolls from 2014, when the civil war began. Not surprisingly, the Houthis rejected this proposal precisely because they had expelled so many civil servants from their jobs and appointed loyalists not found on the 2014 lists.

Efforts to resolve the civil servant salaries issue without directly paying the Houthis have repeatedly failed. The first attempt to tackle this problem came in 2019, when Yemen’s government disbursed the salaries and pensions of 120,000 civil servants and retirees in areas under Houthi control. This was done according to Yemen’s 2014 payroll list and included 50% of employees in higher education, a portion of individuals working in the health sector, and those at universities in the city of Hodeida. The government disbursed these funds through a local exchange company, al-Kuraimi, which Yemenis had access to nationwide. This measure was put in place to ensure that the Houthis could not take a cut — which they currently do from most employees in the public and private sectors whom they pay directly. However, in January 2020, the Houthi militia disrupted the payment of salaries by banning the circulation of currency issued by the Central Bank of Yemen in the interim capital of Aden.

International negotiators and stakeholders never addressed the Houthis’ responsibility for paying their civil servants, even though the militia has more than one revenue source it could draw on. According to a report by the U.N. Panel of Experts, the total value of tax and other revenues collected by the Houthis in 2019 amounted to over $1.8 billion. Moreover, the Houthis reportedly profit from the black market for oil derivatives. Yemen’s government estimates of the total revenue obtained by the Houthi militia during 2020 exceeded $4 billion — more than three times the total salaries and pensions of all state employees in the Houthi-controlled areas.

The Houthi militia is not transparent about the use of public funds. The 2021 U.N. Panel of Experts report indicated that the Houthis diverted 50 billion Yemeni riyals  from the Central Bank of Yemen in Hodeida, which was a violation of the Stockholm Agreement that stipulated revenues derived from the ports should be deposited at the Central Bank of Yemen and subsequently used to pay civil service salaries. Moreover, since the implementation of a U.N.-brokered truce between the Houthis and the government in April 2022, there has been a significant increase in the number of commercial ships and oil derivatives ships arriving at the port of Hodeida, all of which are required to pay taxes and fees imposed by the militia. These tax and customs revenues reportedly exceeded 213 billion riyals (just under $1 billion according to Yemen’s government estimates) between Apr. 2 and Oct. 2. The revenues have gone directly to the Houthi militia, which has blocked any discussion of establishing a mechanism for disbursing the funds to cover part of the civil servant salaries and pensions. All of this highlights the huge disparity between the financial resources available to the Houthis and the needs of affected individuals in areas under their control, driving income inequality and deepening the crisis.

Ultimately, the Houthis want to receive payments for civil servant salaries in foreign currency and directly so they can withhold a percentage. In 2018, the U.N. Children’s Fund (UNICEF) suspended cash transfers to 9 million Yemenis in need amid pressure from Houthi rebels, who blocked the establishment of a call center designed to get feedback from beneficiaries as they feared it might reveal their manipulation of the cash transfers. Furthermore, civil servants in Yemen have complained that the Houthis are making the situation more complicated than it already is through the imposition of double taxation, customs fees, and a religious endowment tax (zakat).

Without a political resolution, Yemen’s economic situation remains dire. Oil revenues have plummeted by 75% because of the continuation of the war, which has prompted investors to wind up projects and companies to leave the country, leading also to an abrupt halt in oil exploration and production as well as the export of liquefied natural gas. While the state’s oil revenues exceeded $2.5 billion in 2013, they are now less than $1 billion annually since the start of the conflict and recently dropped an entire $1 billion after the Houthis’ attacks on Yemen’s oil port terminal in the south, according to recent statements by Yemen’s Prime Minister Maeen Abdulmalik Saeed. This reduced amount can only cover civil servants’ salaries and retiree pensions in government-controlled areas, with just enough left over to maintain a minimum level of services and the cohesion of state institutions. Yet the Houthis continue to demand a share of those dwindling oil revenues while disregarding the economic realities caused by the conflict.

There is no indication that the Houthis are willing to disburse public sector revenues to pay public sector salaries. The Houthis should not be allowed to hijack this humanitarian issue for their own ends or to enable them to continue to control the Yemeni people. In fact, by utilizing the revenue generated from the resources under their control, including oil, gas, and ports, the Houthis can play a vital role in stabilizing the country’s economy and effectively help absorb humanitarian shocks. To this effect, the U.N. must ensure that payments reach the intended recipients and are not used to support the Houthis’ nefarious activities or fund their loyalists. A mechanism will need to be put in place to ensure that revenues are not captured by militias or improperly disbursed by any party in Yemen’s conflict. Finally, the Yemeni government must take control of the country’s main revenue sources and ensure their fair distribution — this applies to financial resources from the oil sector and revenues generated by the port of Hodeida and areas under Houthi control. Failure to do so to date has effectively helped to finance the conflict.

Fatima Abo Alasrar is a Non-Resident Scholar at the Middle East Institute.

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