Barran Press - Nawaf AlHemyari
“Every day the exchange rate rises, and we say we will endure, but each day we are getting worse,” lamented 40-year-old Mahyoub Qassem, expressing frustration over the ongoing decline of the Yemeni rial against foreign currencies and its impact on commodity prices and living conditions.
Qassem, a construction worker from Taiz, told Barran Press, “As the currency collapses, food prices rise, and our situation worsens, especially for those of us with limited incomes.” He added that the rapid depreciation of the national currency forces project owners to halt construction work due to escalating costs.
Record Low
On Tuesday, October 15, 2024, banking sources reported that the Yemeni rial hit an unprecedented low against foreign currencies in areas controlled by the internationally recognized Yemeni government. In Aden, Yemen's temporary capital, the dollar was trading at 2,011 rials for purchase and 2,002 rials for sale. The Saudi rial also reached an all-time high, valued at 526 rials for sale and approximately 525 rials for purchase.
This marks the lowest level the national currency has recorded against foreign currencies in government-controlled areas, while it remained relatively stable in Houthi-controlled regions at 538 rials to the dollar for sale and 534 rials for purchase, with the Saudi rial stable at 140 rials for purchase and 141 for sale.
The continued collapse of the local currency has exacerbated the living conditions of citizens who are already suffering from the suspension of salaries, lack of jobs, and the overall consequences of war, making food prices unaffordable.
The Yemeni government claims that Houthi attacks on oil export ports in the south and east of the country at the end of 2022 resulted in losses of approximately $2 billion, depriving it of its primary source of hard currency and hindering its ability to meet its obligations to provide services and alleviate the humanitarian crisis.
Multiple Factors
Dr. Mohamed Qahtan, an economics professor at Taiz University, explained to Barran Press that the current rise of the dollar against the Yemeni rial is due to “the depletion of foreign currency reserves at the central bank resulting from the halt of oil exports, which were the sole source of foreign currency for the legitimate government.”
He identified other contributing factors, notably political issues related to the failure of negotiations to achieve lasting peace in Yemen. “Political and economic factors are interconnected, creating pressure on the market and increasing demand for foreign currency, which has led to the rise in exchange rates,” he noted.
Economic journalist Wafiq Saleh echoed these sentiments, discussing the multitude of challenges contributing to the decline of the national currency. He stated, “Economic challenges have doubled with the increasing pressures on the state's public finances, rising deficits in the balance of payments due to halted oil and gas exports, and the increasing costs of importing goods.”
Saleh also pointed to “an increase in overall government expenditures, particularly foreign currency payments,” which “contributes to growing budget deficits and exacerbates the financial burdens on the government.”
Houthi Coup
Economic expert Abdul Wahid Al-Obali attributed the collapse of Yemen's economy primarily to the Houthi coup and their control over state institutions by force. “The Houthi seizure of nearly $5 billion from the central bank's reserves in Sana'a has severely weakened the government’s ability to cover imports with foreign currency,” he explained in an interview with Barran Press.
He further noted that this depletion removed the government’s safety net of hard currency, leading to an increased demand for foreign currency. The looting of other revenue-generating state institutions has exacerbated the fall of the Yemeni rial.
Additionally, Al-Obali pointed out that the division of the central bank between northern and southern Yemen has created a gap between regions. The Houthi group’s attacks on oil export operations, which were the sole source of income for the economy, have also contributed to the crisis.
One-Sided War
According to journalist Wafiq Saleh, these factors coincide with an economic war waged unilaterally by the Houthi militia against government resources and the new currency. He stated, “These actions have collectively led to what is historically the worst collapse of the national currency since the war began.”
Corruption Issues
Saleh criticized the government for its lack of action to address the economic crisis, noting that revenue-generating and financial institutions are experiencing significant stagnation in reforms amid a vacuum in monetary policy. He remarked that this situation has enabled speculators to manipulate the currency's value, harming citizens’ livelihoods.
Al-Obali echoed these sentiments, stating that the situation is marked by government failures and corruption, which have sometimes involved delays in responding to the Houthi threat. He argued that if the government had genuinely pursued reforms to curb currency collapse, it could have cut off resources from the Houthis by controlling telecommunications and banking operations, as well as stopping any imports from Houthi-controlled areas.
“It is evident that the Houthis are not taking oil or imports from government-controlled areas because they know it would weaken the government, yet the government has merely observed while ceding control to the Houthis over the years,” he said.
He added that corrupt officials within the Yemeni government seem pleased with Houthi actions, viewing them as an opportunity to avoid responsibility. They claim that the economy cannot recover while the Houthis continue to wage war and prevent oil exports, thus misleading the public while profiting from the chaos.
Possible Solutions
Regarding possible solutions to mitigate the currency collapse, Saleh emphasized the need for a precise diagnosis of the crisis, identifying all factors that have exacerbated it before implementing effective solutions.
He suggested measures such as reviving oil exports, regulating imports, and addressing the balance of payments deficit by reducing foreign currency expenditures. Additionally, he called for a stricter monetary policy against market speculators and a halt to auctions.
Al-Obali asserted that for Yemen's economy to recover, the Houthi presence must end. He dismissed the notion of a “false peace process” that has shifted from fighting on the battlefield to an economic war against the legitimate government.
He stressed the need to combat corruption within the legitimate government, starting from the central bank governor down to the last official, and to refer back to investigative reports from the parliament regarding the banking sector.
If the government wants to revive the economy, it must first implement reforms that include unifying the currency and closing all banks that provide the Houthis with foreign income, as well as restricting their imports to government-controlled channels only and stopping auctions that facilitate currency smuggling to the Houthis.
On Tuesday, October 15, 2024, internationally recognized Prime Minister Ahmed Ben Mubarak called for international support to halt the decline of the national currency, which recently broke the 2,000 rials to the dollar mark.
During a meeting with Norway’s Special Envoy to Yemen, Heidi Johansen, in Aden, Ben Mubarak stated that current regional and international changes necessitate increased support from the international community for the government to achieve the desired transformation sought by all Yemenis.
He affirmed that maintaining the national currency is a top priority directly linked to the livelihoods of citizens, highlighting the government's and the Presidential Leadership Council's commitment to addressing this issue and the required international support.
Simultaneously, the Central Bank’s board called on the Yemeni government to reconsider its financial and economic policies, particularly regarding resource mobilization and expenditure planning based on priorities.
During its ninth virtual meeting, the Central Bank urged the Presidential Leadership Council and the government to support it in fulfilling its duties with independence and professionalism amid these challenging circumstances and unfavorable developments.