The Yemeni truce enters its second year, yet the absence of optimism is palpable in the expressions of individuals like Bandar Saleh, a 45-year-old citizen. He candidly states, "They have not paid our salaries yet... So, we don't see any change." This sentiment reflects a prevailing frustration among Yemeni citizens concerning the ongoing developments in the country, particularly given the persistently worsening living conditions.

State employees' salaries have emerged as a predominant topic dominating Yemeni public discourse recently. Initial hopes soared with the visit of Saudi Ambassador Mohammed Al Jaber to Sanaa on April 9th of this year as part of the Omani mediation efforts. However, as time elapsed without tangible progress, these hopes dwindled, potentially fueling public frustration. This is primarily attributed to salary disbursements being atop the list of the most intricate challenges in resolving the conflict and securing enduring peace in Yemen.

While there is a shared acknowledgement among both warring factions regarding the importance of disbursing state employees' salaries, conflicts arise when delving into the specifics. What compounds the frustration is the absence of a clear vision from the United Nations or regional mediators to untangle the intricacies of this issue. Neither the United Nations, via its special envoy, nor the Omani mediators have presented a practical, mutually agreeable executive mechanism for salary payments or significant advancements.

In a recent statement, Hans Grundberg, the United Nations Special Envoy to Yemen, candidly addressed the intricate challenges surrounding the state's general budget and revenue unification, stating, "While all parties agree on the importance of salary payments, navigating the details leads to exceedingly complex questions."

It's worth noting that civil service salary payments stopped in mid-2016. In early 2017, the internationally recognised government resumed salary disbursements in areas under its control. For a brief period between 2018 and 2019, the government managed to pay the salaries of 50,000 civil servants in Houthi-controlled regions. However, this effort was suspended following the ban on printed banknotes in Houthi-controlled areas after 2016. In response, the Houthis initiated a series of 20 monthly payments, each equivalent to half a salary, covering the period from 2017 to 2020 in areas they govern.[1]

As per the general budget 2014, the total number of employees in the state's administrative apparatus stands at approximately 1.25 million individuals. Among them, 350,000 serve as civilian employees in the education and health sectors, constituting roughly 70 percent of the civilian payroll.[2]

Public sector employees constitute 30 percent of the Yemeni workforce, with government salaries estimated to provide financial support to up to 6 million Yemeni citizens.[3]

Recently, the Houthi-led government in Sanaa has come under increasing pressure concerning salary payments. Regrettably, appeals for salary disbursements have sometimes been met with violence, as exemplified by the incident involving journalist Mujalli As-Samadi. At other times, threats and intimidation have been employed, leading to the dismissal of certain teachers who publicly supported a strike, with the group subsequently replacing them.

These developments raise several pressing questions: What are the underlying challenges preventing an agreement on employee salaries for both sides of the conflict? Why has this issue evolved into a perplexing conundrum for international mediators? What proposals have been put forth by the two warring factions, the internationally recognised government and the de facto government in Sana'a, as potential solutions to address this matter?

The discourse surrounding the public employee salaries file unfolds within a divided landscape, bringing to the forefront two critical issues:

The first problem: Division of the Monetary System

On the ground, two distinct governments preside over their central banks. In this schism, a unified monetary currency and equitable pricing of the US dollar are conspicuously absent. The Houthis, in particular, do not recognise the new currency notes issued by the legitimate government following the central bank's relocation from Sanaa to Aden in late September 2016 under the directive of former President Abd-Rabbu Mansour Hadi.

This situation presents a paradox: while the Houthis insist on the legitimate government paying salaries, they adamantly refuse to engage with the currency notes it has issued. In Sanaa and other regions under their control, the Houthis impose a strict ban on the circulation of the legitimate government's currency, deeming any interaction with it a punishable offence. Over the past four years, the Houthis have confiscated substantial sums of this new currency, originally accessible to citizens for transactions, before abruptly prohibiting its use, confiscating it, prosecuting those who use it, and incarcerating them.

These measures have led to a suspension of salaries for two significant segments of state employees: personnel and members of the judiciary, as well as employees of the Ministry of Health and its affiliated offices. While their salaries remained valid when they resided in Houthi-controlled areas, their monthly transfers from the Central Bank in Aden to their residing governorates ceased.

The restrictions on dealing with the new currency and its confiscation have resulted in a substantial surge in bank transfer fees, surpassing 100 percent. This clampdown on the flow of new currency liquidity to northern governorates governed by the Houthis has exacerbated the depreciation of the riyal's value in legitimate government areas relative to the US dollar and foreign currencies, with the riyal losing nearly 500 percent of its value (equivalent to one US dollar equalling 1,440 riyals). This, in turn, has led to a considerable surge in prices within these governorates.

In the face of these developments in the monetary sector and the erosion of the riyal's purchasing power, the legitimate government has yet to implement measures aimed at improving or augmenting the salaries and wages of the state's administrative apparatus.

The Second Problem: Financial Deficit

Yemen's substantial allocation of public wages and salaries has long raised concerns about financial sustainability. Over the years, Yemen's public employment practices had been entwined with a strategy of securing loyalties, bloating the state's administrative structure. The financial schism and the interruption of oil and gas exports during the conflict have rendered it impossible to shoulder the burden of the wage bill.

Between 2006 and 2014, the public sector wage bill surged at an annual rate of 12 percent, whereas annual revenue growth averaged a more modest 8 percent. By 2014, the cumulative wage bill had swelled to 977 billion riyals (approximately US$4.5 billion), accounting for 42 percent of revenues or 10 percent of GDP, according to the World Bank.

Following the intensification of the conflict in 2015, public payrolls rapidly surpassed the government's entire annual revenue, as reported by [4].

Despite these disparities, between 2015 and 2023, the Houthis devised a strategy with two primary objectives: Firstly, they aimed to replace members of their group with state administrative employees in the regions under their control. Secondly, they worked to infiltrate all state institutions and agencies with their followers and supporters, bolstering their influence within these institutions while simultaneously cultivating loyalty.

In government-held areas, public-sector employment was also affected. Middle and senior positions within the diplomatic and judicial sectors, among others, were inundated with relatives of government, party, and tribal officials. This influx further inflated an already substantial wage and salary bill, surpassing the capacity of both governments to sustain it, especially considering the prevailing financial, monetary, and revenue divisions.

Legitimacy position:

From the perspective of the internationally recognised government, the payment of state employee salaries remains feasible. Still, it must be part of a comprehensive process aimed at unifying the state's public revenues—an idea vehemently opposed by the Houthis. The initial steps to address the salary issue can be traced back to the Sweden negotiations in late 2018. However, despite nearly five years having passed, government employees have yet to see any resolution in their favour.

The Stockholm Agreement addressed this matter by stipulating that the legitimate government and the Arab coalition must permit the entry and import of goods through the port of Hodeidah in western Yemen, under Houthi control. The agreement further specified that "All revenues from the ports of Hodeidah, Saleef, and Ras Issa will be deposited in the Central Bank through its branch located in Hodeidah to contribute to paying the salaries of civil service employees throughout Yemen."

However, due to the lack of international impetus to compel both parties to implement the agreement, the Houthis have refrained from channelling cash proceeds to the bank, and their demands have escalated in recent times.

Regarding the procedural aspect, the legitimate government insists on adhering to the salary structures established in accordance with the fiscal year 2014. In contrast, the Houthis in Sanaa are advocating for the inclusion of individuals who were irregularly recruited into the public service between 2014 and 2023 in the payroll records.

Houthi Demands

Under the guise of salary disbursements, the Houthis are pursuing a share of the oil and gas export revenues controlled by the government. The cessation of oil exports at the end of the previous year, a result of Houthi attacks on export ports and sea tankers, has transformed the salary issue into another battleground for the militia.

The Houthis currently hold sway over significant revenues in their controlled regions. The internationally recognised government alleges that the Houthis amass over 600 billion riyals annually (approximately one billion dollars) from tax and customs collections. In comparison, employees' total salaries in these areas amount to 50 billion riyals per month.

Earlier this year, Rashad Al-Alimi, the head of the internationally recognised Presidential Leadership Council, revealed that "the Houthis have received tens of billions of riyals from fuel shipment revenues arriving at the port of Hodeidah during the truce period, including a sum of 300 billion riyals in the first six months since the truce began in April last year."

Furthermore, according to a report by the committee of international experts presented to the Security Council, the Houthis have gained 271.935 billion riyals in customs revenues from the income generated by the port of Hodeidah.

Prominent figures within the General People's Congress bloc in Sana'a have accused the "Salvation Government," sponsored by the Houthis and their allies, of profiting immensely from various revenue streams. These sources include earnings from fuel shipments of oil ships, customs and taxes, and zakat collections. The proceeds from these sources have surged significantly in recent years compared to their pre-war levels.

In a separate instance, the Houthi-led government in Sanaa garnered approximately 1.25 billion dollars from four major telecommunications companies in exchange for granting concessions for fourth-generation tenders (4G). (7)

Additionally, the Ministry of Electricity has appended an extra two riyals (with one U.S. dollar equivalent to about 530 riyals) to the collection bills paid by citizens, purportedly for "supporting the Education Support Fund."

Furthermore, the Ministry of Communications has imposed a one-riyal tax on mobile phones, a burden felt by more than 7 million subscribers. This levy compounds the populace's hardships and does not improve the already deteriorating educational conditions. (8)

In conclusion, internal and external stakeholders are in consensus regarding the Houthis' accountability for the failures in all proposals aimed at disbursing state employee salaries—the Houthis leverage humanitarian and economic concerns as bargaining chips for future political gains in potential negotiations.

Nevertheless, this collective acknowledgement does not absolve the United Nations and regional mediators from the responsibility of presenting viable strategies to navigate the intricate dimensions of this issue. They should offer practical mechanisms to address the inherent complexities and facilitate progress in the salary payment matter in anticipation of a comprehensive resolution in Yemen. Additionally, financial support to enable salary payments remains essential to this endeavour.

The recognised government must also prioritise the resumption of salary payments for all civil servants based on the 2014 salary structures. In parallel, the Houthis must be willing to make concessions that would facilitate the resolution of the currency division, ultimately leading to the successful implementation of the Stockholm Agreement. This includes adhering to the provision that addresses salary disbursements by channelling revenues from the ports under the Red Sea Corporation (such as the ports of Hodeidah, Salif Port, and Ras Isa Port) to one of the Central Bank branches under the administration of the internationally recognised government.