Restructuring Public Finances In Yemen

For decades, Yemen has suffered from a fragile fiscal structure, given its overdependence on energy exports. Before the armed Houthi movement backed by former President Ali Abdullah Saleh took over the capital, Sana’a, in September 2014, the oil sector accounted for 25 percent of gross domestic product and 65 percent of the public budget.(1) While over the years the government has attempted to diversify the economy by adopting reform programs aimed at supporting non-oil sectors and foreign investment, these did little to wean public finances away from oil dependence.

Yemen is one of the least tax-collecting countries in the world, with tax revenues accounting for less than 9 percent of GDP before the war, compared to an average of 17.7 percent in developing countries with similarly sized economies.(3) Over the years, the state has sought to adopt reforms aimed at increasing the share of tax revenues to total public revenues; however, taxes remained below 30 percent as an average of the total public revenues from 2010-2015, according to the financial indicators.

Meanwhile, grants and foreign aid accounted for 14.4 percent of total budget revenues from 2012-2014.