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Economic Bulletin- Sep2020 : The deprciation of the Yemeni Rial

Sep - 29 - 2020   Download The Version

Depreciation of the Yemeni riyal continues unabated in light of the government's inability to address the problem and reduce its effects. As a result of this persistently accelerating depreciation, the inflation index rises and income rates decline, foretelling more humanitarian suffering in Yemen, which is the most severe in the history of the modern world.

Depreciation of the Yemeni riyal, which lost nearly a third of its value in a short time, reflects the depth of the Yemeni crisis and its economic and administrative ramifications. It represents one of the key manifestations of the incompetent monetary and financial policy in Yemen and the lack of a clear vision in this respect. This situation is further intensified by the ongoing war and the negative impacts of the Coronavirus on the situation in Yemen, besides the state of fragmentation and fragility in the management of political and economic affairs in Yemen.

With the depreciation of the Yemeni riyal, the economic crisis in Yemen enters a more complex phase, especially as we are facing a new variable represented by two different denominations of the Yemeni currency: old and new, with each category has a different market value. This is by far the most grievous manifestation of the economic crisis. It is an expression of the level of conflict in the economic sphere between the internationally recognized Yemeni government and the Houthi group that controls large parts of the northern governorates in Yemen.

In addition to the factors related to supply and demand that stand in the way of this depreciation of the Yemeni riyal, the danger now is to fling the economic file into the depth of the political crisis in Yemen, as a consequence, any partial solutions seem almost impossible.

It can be said that the key to the solution to the humanitarian crisis begins with putting an end to the depreciation of the local currency. It is impossible for humanitarian relief efforts to make a fundamental difference in people's lives in light of this ongoing escalation of prices resulting from the depreciation of the local currency.

In light of such a complex situation, everyone is required to come up with solutions that would unify the financial and monetary policy in the country. All parties shall agree on a fiscal and monetary policy that would put the economic process on its right track, especially as other scenarios would definitely lead us to more economic and financial instability, and more poverty and unemployment.

The war will continue as long as the factors feeding it survive. The most important of these factors are the financial resources of the state that are divided among the parties to the conflict, while such resources are inaccessible to 24.1 million Yemenis who are at risk of starvation. About 19.7 million Yemenis do not have access to health care services, and 40% of families lost their income sources, according to estimates by UN organizations. [1]

Another dimension in the economic crisis; namely, the nebulous relationship between the Yemeni government and the Saudi-led Arab Coalition and its implications for the economic file cannot be overemphasized. It has become clear that major problems hinder the resumption of oil and gas exports and restrict the freedom of commercial movement in Yemeni ports. There are several other restrictions that represent a heavy burden on economic and commercial activity in Yemen.

The internationally-recognized government was allowed to export oil and gas derivatives, export ports were evacuated by the coalition forces, and the flow of public resources was again channeled through CBY after it was given its full independence under a unified management away from the conflict.

Stopping the sharp decline in economic growth, and reducing inflation rates, depreciation of the national currency and the trade deficit, and alleviating the most tragic humanitarian crisis in the world will be possible if all Yemeni parties reach a comprehensive and just peace that restores state control over all Yemeni soil. A rational administration, characterized by efficiency and integrity, shall take charge of affairs.  


[1] Report issued by the World Bank Group, Yemen, April 2019