With the end of the ninth year of the conflict and the worsening of its devastating effects on the economic and humanitarian situation and due to the ineffectiveness of humanitarian aid and the decline in its volume, the United Nations seeks to shift from the context of emergency humanitarian support to permanent development solutions by: enabling local authorities in the governorates to partner with international organizations and the local private sector, to provide public services to the population. At the same time, the United Nations supports the implementation of sustainable development projects. However, these efforts clash with the legacy of centralization in the management of local government affairs, including the management of financial resources at the central and local levels. This requires intensive endeavors to enable the leadership of local authorities in the targeted governorates to have full powers in managing financial and development resources.
Therefore, the importance of the subject of this article comes in order to clarify the extent of the negative impact that public finance management has had centrally on the governorates through the data of the Taiz governorate model as being the governorate chosen by the United Nations to be a case study of the previously mentioned transformation.
In fact, before 1962, there was no state financial entity with the modern sense in North Yemen. Instead, the financial system was a storehouse called the Bayt Al-Mal (Money House), inside which cash and in-kind resources were collected from citizens with their various social formations, and these resources were placed at the Imam’s disposal. The Imam had governors and officials who were appointed in the governorates and districts to represent the Imam in governance, and their most important mandate is to collect public funds for the treasury, whose resources were controlled by the Imam.
After the September 1962 revolution took place, and the process to establish the modern state at the end of the seventies of the last century were launched, sectoral ministries were established to manage state affairs, and among these ministries was (the Ministry of Finance), with the mandate to develope the regulatory and administrative framework for the state’s general budget, at the central and local levels.
Since Taiz Governorate was under the regime of government in the north before the Yemeni unification, the financial system in Taiz Governorate was represented by an office of the Ministry of Finance in the governorate, and was managed through a central systems approach. Thus, the role of the Finance Office in the governorate was limited to implementing the decisions of the Ministry of Finance, which is headquartered in the capital, Sana’a. Therefore, the general budget for the governorate was prepared centrally by the Ministry of Finance, like the rest of the northern Yemeni governorates affiliated with the central government in Sana’a. The financial office in the governorate had no role other than supervising the collection of financial revenues from its various sources to be supplied to the central state treasury, and supervising the spending of the budget that was allocated for it within the general budget of the governorate.
When Yemeni unification took place in 1990, and state institutions in both the north and the south were merged, the financial systems of the two parts were merged into one financial system, within the framework of the Ministry of Finance in its current state and components, which led to granting broader powers and responsibilities than they were before the unity. Accordingly, the administration of the Finance Office in Taiz Governorate was developed to supervise the implementation of the policies of the Ministry of Finance with some powers on the revenue and expenditure aspects, represented by granting the Finance Office some limited powers with the aim of alleviating the strict central administration.
Accordingly, the Taiz finance office is charged with the drafting of the governorate’s general budget and submitting its final account to the central ministry, which is reviewing it, in consultation with the governorate office administration and deciding what it deems appropriate regarding it.
As a result, the governorate’s public finances have remained centrally controlled by the capital, Sana’a, and it faces many imbalances and an inability to meet the obligations of the governorate’s operational and capital expenditures.
The centralization of financial authority in light of the conflict and siege that Taiz is currently experiencing leads to the squandering of all its financial resources, and the small part collected in the areas affiliated with the Aden government is spent on operating issues for local authority offices, while the key part of the financial resources is spent according to what the Sana’a government decides, outside the framework of state obligations and local development.
In the part below, we will be discussing the governorate’s general budget imbalances:
First: on the Part of Revenues
Based on our analysis of the classification applied on state revenues from Taiz Governorate, it became clear that the central authority in the capital, Sana’a, restricted the powers of the local authority in the governorate so that all basic state revenues are deposited in the central treasury. The powers given to the local authority in the governorate are very marginal. To validate this, the governorate’s finance office was visited in order to review its general budget before the war, specifically in the 2014 fiscal year, and it turned out that the revenues for that year in Yemeni riyals were as follows:
Total revenues: (58.3) billion
Based on the above, the powers of the local authority in terms of revenues are estimated at only 6% of the governorate’s total revenues, and the remaining 94% is restricted and supplied directly to the central state treasury through the competent financial agencies affiliated with the Ministry of Finance in the capital, Sana’a. This reflects the blurring of vision of the governorate’s finance office, and the difficulty of identifying the total resources of the central governorate, thus subjecting the governorate’s authority to the will of the central authorities.
Second: on the Part of Expenditures
Based on the governorate’s final account data and according to the Finance Office, the governorate’s actual spending in Yemeni riyals is distributed for the same year 2014, as follows:
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Total annual spending (63.1) billion
Based on the figures above, it clear that the governorate's investment (capital) expenditures constitutes only 9% of total spending, while 91% of total disbursement is spent to cover salaries and wages, operational expenses, grants and aid. This indicates that the allocation to compensate for depreciation and capital accumulation remained small and does not meet the governorate’s obligations to confront depreciation and the increasing needs in the governorate’s infrastructure. This justifies the sever deterioration the governorate has experienced in its infrastructure and public service sectors, and the widening gap between needs and what is available. Accordingly, this has led to the creation of an environment that is repulsive to local and foreign investments, leading to a decline in economic and social development indicators, and an upsurge in unemployment and poverty rates in the governorate.
When the war broke out in 2015, state institutions in the governorate collapsed, and the war and siege of Taiz led to the division of the governorate into three parts that each part controlled by political and military forces with different political and military orientations. Based on this division, two authorities were formed in the governorate: One of them is affiliated with the government of Aden, and the other is affiliated with the government of Sana'a, and the military forces deployed in the coastal strip of the governorate have military influence, and each of them has formed its own financial system.
Moreover, we returned to the Taiz Finance Office, affiliated with the Aden government, as it is the internationally recognized legitimate government and the office is in its area of influence, we found out that the Finance Office was severely damaged during the military confrontations, which put it out of service. Then, with the efforts of the reconstituted governorate leadership after the war and the perseverance of the office’s staff, the office was restored and has been operational since 2017. Despite this, its annual financial resources remained very low, reaching their highest levels in 2022, amounting to only 19 billion Yemeni riyals. In contrast, total spending exceeded 72 billion riyals for reasons related to the division of the governorate, and the distribution of its financial resources between the aforementioned areas of political and military influence, most of which are central resources that go to the benefit of the Sana’a authority.
Given the low annual revenues compared to annual spending, it seems clear that the governorate’s budget faces a large deficit exceeding 74%. At its best in 2022, revenues represented only 26% of total public spending. The reason for this is that the governorate's basic financial resources come from the taxes of major taxpayers, and since factories and large industrial facilities are under the control of the Houthi authority stationed in the Al-Hawban area, those resources go to Sana'a, as I mentioned earlier.
In general, we can say that the centralization of financial authority in light of the conflict and siege that Taiz is currently experiencing leads to the squandering of all its financial resources, and the small part collected in the areas affiliated with the Aden government is spent on operating issues for local authority offices, while the key part of the financial resources is spent according to what the Sana’a government decides, outside the framework of state obligations and local development.
In an analysis I conducted of the governorate’s public finances, it became clear to me that a very high percentage of the governorate’s public revenues is wasted, and the local authority in the governorate, represented by the Finance Office, is unable to estimate the size of the governorate’s revenue capacity. This can be attributed to the application of the rules of the central financial system, the multiplicity and diversity of revenue channels, the spread of corruption, and the division of the financial system and the distribution of its powers.
In addition, what is supplied to the public treasury through its various financial channels, of the total volume of the state’s revenue capacity, does not exceed 20% at best due to tax evasion and the spread of corruption in the state’s revenue streams since the establishment of the Ministry of Finance. Currently, with the division of the economic situation and the multiplicity of financial resource departments, the situation has become even worse, leaving severe negative effects on economic and life conditions.
Despite all of this, it can be said that Taiz Governorate can, if the government system is transformed from central to local government - according to the outcomes of the National Dialogue Conference, which stipulates the formation of a federal system of government, so that the governorate enjoys local government - and provides a local authority that enjoys competence and integrity in managing the governorate, it can achieve thorough coverage of self-expenditure on both sides; Operational and developmental levels.
In light of our analysis of the economic situation of the governorate, we also confirm that, with its economic capabilities, it can achieve large financial surpluses to accelerate the wheel of economic and social development, meet the requirements of reconstruction and economic advancement. Thus, the indicators of unemployment and poverty rates will be significantly reduced, and the lives of the population, and support and enhance economic and social development all over Yemen shall be improved.
