CATF Reports Aug. 16, 2016, 3:22pm

Since the outbreak of war in Yemen and the 2014 capture of Sana’a by the Houthis, the Central Bank of Yemen has held an increasingly important yet precarious position in the country’s ongoing conflict. While earlier reports claimed that the Central Bank, located in the Houthi-controlled capital of Sana’a, was maintaining neutrality in the conflict and even paying the salaries of soldiers on both sides, Yemeni and Western officials have more recently asserted that Houthi rebels take around $100 million a month in cash from the central bank to pay their soldiers with limited funds reaching officials outside Houthi control. Claims that the Houthis are shaping the country’s finances in their favor gained momentum when Prime Minister Ahmed Obaid bin Dagher signed a July 30 letter urging the International Monetary Fund (IMF) to intervene in order to freeze the central bank’s accounts and appoint an independent auditor to review its actions.

Reports that Houthis in full control of the Central Bank of Yemen are using the bank to finance their fighters while limiting funding to government employees exacerbate the bank’s already desperate situation. Operating in a state of war, the central bank’s foreign reserves are quickly dwindling and, according to the country’s finance minister Munser al-Quaiti, may not last more than three months. Statistics attached to Prime Minister Dagher’s letter showed that Yemen had lost over two thirds of its foreign reserves since the start of the war and held only $1.3 billion in foreign reserves at the end of June. With decreasing funds, Yemen’s central bank has struggled to maintain the rial’s value and cover government salaries and foreign debt. Faced with a quickly approaching deadline, Yemen’s government is turning to the IMF in an unusual appeal to regain control over the country’s finances from their Iranian-backed rivals.

As the fighting on the ground continues into the 16th month in Yemen, the country’s central bank has entered the competition between the Houthi rebels in Sana’a and the government forces in Aden. While earlier reports claimed the central bank was maintaining neutrality and paying government and Houthi fighters’ salaries, more recent accounts of stalled government payments amid Houthi control over the bank appear to more closely reflect the reality of Yemen’s war. Prime Minister Dagher’s government, desperate to regain some control over the central bank, has appealed for an unlikely IMF intervention into a country in turmoil. As the war in Yemen rages on, control over the country’s central bank will continue to play a vital, yet underexplored role in determining Yemen’s future.

 From The Wall Street Journal:

“Yemen's Houthi rebels, who control the capital San'a, have for more than a year been taking around $100 million a month in cash from the central bank there to pay their fighters' salaries, according to Yemeni and Western officials familiar with the situation.

At the same time, salary payments for government employees in areas outside Houthi control have been drying up, according to Yemeni officials and people affected, despite warnings from the U.N. and aid agencies of a potential famine.

In an unusual appeal for help, the internationally recognized government, now based in the port city of Aden, has asked the International Monetary Fund to step in.

In a July 30 letter signed by Prime Minister Ahmed Obaid bin Dagher, seen by The Wall Street Journal, the government urged IMF Managing Director Christine Lagarde to freeze the central bank's accounts until further notice and to stop accepting the signatures of Mohamed Bin Humam, the central-bank governor, and his deputy.”

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