A ceasefire between Yemen’s internationally recognized government and the Houthi rebels has helped give the country a semblance of stability since the beginning of April, significantly easing hostilities on the country’s front lines, and many Yemenis hope the war comes to an end. Could be in sight.
But Yemen’s economy, and especially its currency, continues to struggle, pushing millions of Yemenis into poverty and casting doubt on the ability of the government’s Presidential Leadership Council (PLC), which was sworn in on April 19.
At the time, the Yemeni rial experienced a welcome rise in its value, but the riyal’s sudden rebound was short-lived, and its value has fallen again.
In government-run parts of the country, $1 will be exchanged for 1,100 Yemeni rials, an unofficial rate used by all money changers and similar to the level before the PLC bounce.
That’s despite a $3 billion pledge from Saudi Arabia and the United Arab Emirates to support Yemen’s economy.
“It is unlikely that the devaluation of the national currency will be remedied anytime soon, and this crisis continues for several reasons,” Wafeeq Saleh, a Yemeni economic researcher, told Al Jazeera.
“The new leadership and the [government-run] Yemen’s Central Bank in Aden (CBY-Aden) is to implement stricter financial and monetary measures to monitor and control the diverse banking activities in the country. What they have done has not been enough to revive the value of the local currency,” Saleh said.
Even as the CBY-Aden, which operates separately from a branch of the CBY in Houthi-controlled Sanaa, issues instructions and new procedures to counter the devaluation of the currency, the rial has continued to depreciate against foreign currencies.
“The banking sector is still under the hegemony of the black market and money speculators, especially since most money exchange companies, which hold huge sums of local currency, operate outside the control of the CBY-Aden,” Saleh said.
The civil war between the Iranian-backed Houthis and the Yemeni government broke out in 2014 when the Houthis took Sanaa before a Saudi Arabia-led military intervention in March 2015. Since then, hundreds of thousands of people have died due to the conflict.
Economically, inflation, unemployment, declining exports, and currency depreciation were ongoing woes.
Since 2019, the Houthi authorities in Sanaa have banned the use and distribution of new banknotes printed by the Yemeni government.
The decision resulted in divergent currency values - while $1 is equivalent to about 1,100 Yemeni rials in government-run areas, it is currently being exchanged for 557 Yemeni rials in Houthi-occupied governorates.
Shortage of hard currency
Traders and businesses in Yemen need foreign currencies, such as the US dollar, to import food — 90 percent of which the country imports — consumer goods, fuel, or other goods.
The $3 billion deposit from Saudi Arabia and the UAE was intended to provide the CBY-Aden with hard currency.
However, the amount has still not arrived at the CBY.
“The financial support pledged by Saudi Arabia, and the UAE in April has not reached the accounts of CBY,” Saleh said. “This is another reason why the Yemeni rial has lost its recovery after the PLC.”
Abdulrahman Ali, an accountant at a private bureau de change in Aden, told Al Jazeera that there is still a shortage of foreign exchange in the market, and a new political leadership does not necessarily indicate it will get better.
“I’m glad we have new leadership,” said Ali. “What matters, however, is the vision and strategies they have that can lift the nation out of this dire economic condition.”
Another contributing factor to the currency’s devaluation is the preference of many Yemenis to keep their savings in foreign currency as protection against the depreciation of the Yemeni rial, Ali said.
Reversing the fall of the currency
The new leadership of the Yemeni government has indicated that it recognizes the country’s formidable economic challenges and is now seeking increased regional support.
On June 6, Rashad al-Alimi, the head of the PLC, began official visits to Kuwait, Bahrain, Egypt, and Qatar, with the economy high on the agenda. However, concrete results are still lacking.
“The PLC’s overseas visits have so far not had a positive impact on the banking industry in Yemen, and no pledge of financial support to the CBY has been announced during these trips,” said Majed al- Daari, economic commentator and editor. In-chief of the Moragboon Press news site. “Promises without execution cannot revive the Yemeni rial.”
Amid ongoing political and economic instability, economists have formulated several steps they believe could help reverse the fall of the Yemeni currency, such as relaunching oil and gas exports hit by the war.
“The government must revive its resources, especially oil, and gas, to generate foreign currency revenues. It should also reduce government spending in foreign currencies. For example, all salaries of Yemeni officials should be paid in rials, not dollars,” explains Saleh.
In late 2021, the CBY-Aden began weekly auctions of the US dollar to prevent the Yemeni rial from falling further by providing hard currency to importers and commercial firms. However, the adopted mechanism has not revived the ‘s valuemoney or stopped its decline.
A recent report from the Studies and Economic Media Center, a Yemeni non-profit research center, indicated that the CBY-Aden’s mechanism to sell foreign exchange at auctions could not solve the rial’s depreciation crisis.
“There is a need for a permanent source of cash, and this can only be achieved by producing oil and exporting it at full capacity so that the auctions continue,” the report said.
As for Yemeni citizens, the ongoing devaluation of the Yemeni rial has increased their frustration with the war and Yemen’s political leadership.
“To me, the steady decline in the rial means there will be price increases. This makes life more difficult,” Fahd Ahmed, a taxi driver in Aden, told Al Jazeera. “The creation of the PLC in April and the subsequent depreciation of the US dollar against our currency made us positive. Now our hopes for an economic improvement are gone.”