South24 (Aden)

The Yemeni Riyal dropped to its lowest value On Tuesday in Aden. as the price of one U.S. dollar is equivalent to more than 1016 Yemeni Riyals, amid questions about the reasons behind such a record and accelerated collapse, and the role of the Aden Central Bank which, over last years, received hundred billions of printed cash without a foreign exchange coverage. It has been partially paralysed by the reluctance of governorates, controlled by the Yemeni Government, to transfer their revenues to the bank.

Moreover. The Central Bank is accused of corruption, especially after the UN reports ^[1] which revealed scandals about plundering previous Saudi deposits that contributed- according to economic experts-in a temporary stability of the currency before being hit later by dubious “corruption deals” involving prominent bodies and figures inside the Yemeni government.

On Thursday, the Central Bank announced a step to inject batches of the old 1000 Riyals banknote, which is circulated in the Houthis areas of control in North Yemen, to “ fix the currency price distortions, and to unify the exchange rate”^[2]. 

This comes after more than 18 months of the Houthi decision to ban the new currency within their areas, which has created division and growing rift, as the Sanaa Riyal kept its value and stability while the Aden Riyal has collapsed. 

Following this measure. The Deputy Governor of the Central Bank in Aden, Shakib Hubayshi, said that the International Monetary Fund (IMF) allocated 555 million dollars of its own withdrawal units to “enhance the state’s foreign reserves, and support the crumbling national currency” revealing the bank’s intention to announce bonds and instruments (Sukuk) worth 400 billion Yemeni Riyals “to revive the cash cycle in the exchange system” ^[3].

Accusation

At an economic meeting, in which the STC’s Economic Committee, and the Yemeni Exchangers Association participated, the STC President, Aidarus Al Zoubaidy said that “the Central Bank and the Yemeni government are behind the deterioration of the currency” accusing both of them of “abandoning their duties in this critical circumstance”. He warned of running out of patience towards “the economic crises that hit the southern governorates” ^[4].

A governmental decision of doubling the price of the Customs Dollar in the Port of Aden has stirred a wave of resentment and criticism among economists who warned of its disastrous consequences on the prices, and the further suffering of people who have had enough. This was confirmed by the Chamber of Commerce and Industry in the capital Aden, as it is officially called for “halting all customs activities until the decision is reversed”.^[5]

Al Zoubaidy’s accusations are not new, as the STC constantly repeat them, considering them as “intentional war that has political purposes, to collectively punish the southerners, as part of attempts to disrupt and abort the Riyadh Agreement”, which is regarded as a gate through which the crises can be solved, as well as improving the people situation in the southern areas and parts of the northern governorates( areas liberated from the Houthi control”. 

For its part, Yemeni Exchangers Association in Aden said that “there is a political aspect that contributes to the currency collapse” noting that the total exceptions of applying the value added tax reached the level of 70 billion Yemeni dollars. It warned of the “constant smuggling of hard currency from Aden to Sanaa”, calling for a “unified exchange rate for foreign currencies”.

the Central Bank’s steps

Regarding the step of injecting the old banknote, the economic expert Maged Al Daery told “South24” that “there is no way to fix the made up- disruption in the exchange rate distortions, and to get rid of the exchange difference with a lack of a successful monetary policy applied by the bank, based upon at least 5 billion dollars foreign reserves, and closing all unlicensed exchange companies and those which are involved in currency speculation, smuggling cash and money laundering”.

Al Daery questioned the statement of the Deputy Governor of the Central Bank, about The IMF’s allocation of 555 billion dollars for the Central Bank, stressing that “the IMF can’t provide any financial aids for Yemen amid the lack of the bank’s governance, and a clear banking and monetary policy in the face of the disaster of the Riyal’s collapse against the foreign currencies”.

The Head of the Studies and Economic Media Center, Moustafa Nasr, told “South24” that “it is too early to talk about the success or the failure of injecting the old banknote, before knowing the Houthi response towards this step”, noting that the Central Bank “bets on” its infiltration into the Houthi areas, and to intensify its trading, although the Houthis will certainly act against this.

Nasr indicated that this step doesn’t basically aim to “improve the currency exchange rate”, as this goal has special different, or opposite, measures, to inject more banknotes in the market without a coverage of productive activities”, but “it aims at fixing the exchange variation between the Houthis areas and the liberated ones”. He added that this step has possible risks of inflation and negative consequences”.

He went on: “these risks are connected to accompanying procedures taken by the Central Bank, such as the declared 400 billion-Yemeni Riyals instruments (Sukuk) and ponds. He expects no great risks if the bank “withdraws the currency with small scale(the new printed money)while there would be negative consequences in case of the failure of such a step”.

The Deputy Governor of the Central Bank, Shakib Hubayshi, did not respond to “South24” request to comment about the recent step of injecting batches of the old banknote. And the accusations against the bank.

Who is responsible?

from the Maged Al Daery’s perspective, “all forces are responsible for the current economic collapse, especially the Houthis, who looted the Central Bank reserves in Sanaa, and the government which failed to put any financial policy to collect revenue, or monetary policy to maintain the exchange rate”. He also blames the STC, which has the control on the ground but fails to coordinate with the Central Bank to close the unlicensed exchange companies and those which are involved in currency speculation.

Al Daery describes the decision to increase the customs dollar price in the Port of Aden as an “annihilation decision against consumed people, inside a devastated country, due to the horrors of the 7-years war”. He accused the “Islah Party, which dominates the Yemeni legitimacy” of being the “The beneficiary from all what happened”. On July 21st, the International Rescue Committee warned of the consequences of the Riyal price’s decrease in South Yemen.

Moustafa Nasr believes that the economic collapse is due to “the war, security instability and the lack of resources. He indicated that the “Central Bank covers the governmental spending through issuing cash, and that this is the source of inflation”. He added that “the government still suffers from a deficit in expenditures to cover salaries through printed money, which is a great disaster”.

Nasr pointed out that the 2015 Houthi War consumed the foreign reserves, halted gas and oil exports and resulted in full collapse within all sectors”. He noted that the Houthis decision to ban trading the new currency in their areas exacerbated the crisis. This “led the printed money to be circulated within a narrow scope of the liberated areas, which have weak economies compared with the Houthi areas”.

It is worth mentioning that the STC have made some moves in Aden to attempt to reduce the economic collapse of the southern governorates. The STC’s Economic Committee issued “variable recommendations” ^[6] which could achieve this according to economic experts.

However, those recommendations have not been applied yet, amid popular criticism towards the STC, and demands to put the governorates revenue under its controls, which are regularly transferred to the Central Bank, to meet internal needs and the local authority treasury, as in Marib and Shabwa, controlled by the governmental forces, affiliated with the Islamic Islah Party, as well as the Oil-rich Wadi Hadhramaut in South.

In the midst of all this, the Exchangers Association in Aden announces, for the second time in less than one month, “an all-out strike” which starts today, Wednesday, in conjunction with a state of popular anger in the Southern governorate of Hadhramaut, against the collapse of the currency, the economic deterioration and the increase in the food prices. The Trade Union in the governorate also called for another comprehensive strike as of August 8th.

Jacob Al-Sufyani

Editor and journalist at South24 Center for News and Studies

- Image: A family in Aden suffers from economic collapse and lives in a dire humanitarian situation (Al-Ayyam newspaper)

(عربي)