The ceremony for signing the $1 billion Saudi deposit. February 21, 2023 (official)

Will the «Saudi Deposit» Prevent the Collapse of the Yemeni Currency?

Analytics

Tue, 28-02-2023 10:57 AM, Aden Time

Ahmed Bahakim (South24) 

General Overview

The "Saudi deposit" is a controversial issue in the context of Yemen's economic crisis. In February 2023, Saudi Arabia made a deposit of $1 billion into the Central Bank of Yemen (CBY) in an effort to prevent the collapse of the Yemeni currency, the riyal. This move was met with some skepticism from both Yemeni and international observers, who questioned the effectiveness of the measure and whether it could really prevent the further decline of the riyal.

In the following months, the Yemeni riyal may get slightly appreciated, indicating that the Saudi deposit may have had a stabilizing effect on the Yemeni currency. However, it is important to note that the appreciation of the riyal will short-live, and the currency will continue to remain weak against the US dollar. Furthermore, the economic crisis in Yemen is complex and that any solution must take into account a range of factors in order to be effective. The "Saudi deposit" may have had a small impact in the short-term, but it is unlikely to have had a lasting effect on the Yemeni currency. In order to truly prevent the collapse of the Yemeni currency, more comprehensive and sustainable measures need to be implemented.

The Yemeni Economic Council

The Yemeni economic council has recently announced a new deposit of 40 billion Yemeni riyals, equivalent to 33 million dollars, into the Yemeni monetary system. This significant injection of capital is expected to help stabilize the Yemeni riyal and improve its exchange rate in the currency market. The deposit comes at a time when the Yemeni riyal has been suffering from a steady decline in value due to the country's ongoing civil war and economic crisis. This new deposit of 40 billion Yemeni riyals will help to reduce the amount of money in circulation and reduce the pressure on the currency. By decreasing the amount of money in circulation, the Yemeni riyal is expected to become more valuable and stable.

The deposit is also anticipated to provide Yemen's economy a much-needed boost. Business activity and international investment will increase as the currency becomes more stable. This will contribute to the expansion of the labor force, a rise in economic activity, and the improvement of the climate for economic growth. The fresh infusion of 40 billion Yemeni riyals into the nation's financial system is anticipated to boost the economy of Yemen. The deposit will assist improve Yemen's economic position overall by stabilizing the Yemeni riyal and boosting economic activity.

The Economic Situation

The collapse of the Yemeni riyal has caused prices of commodities and foodstuffs to skyrocket, particularly those imported from abroad. Merchants are buying these goods in dollars, driving prices up even further. In addition, the suspension of paying salaries to state employees has left many in dire financial straits, making it difficult to access even the most basic of necessities. The situation has been further complicated by the ongoing conflict in the country, which has caused an increase in displacement, disrupted supply chains, and further hampered access to food, water, and medical supplies. These issues have had a profound impact on the most vulnerable in the country, including children and the elderly. In order to address these issues, it is necessary for Yemen to implement long-term economic and political reforms, increase access to humanitarian aid, and address the underlying causes of the conflict. 
Economic Observers Expectations 

Despite the initial optimism by economic observers, the Saudi deposit on the Yemeni economy has not produced the desired results. This is largely due to the mismanagement of the funds by the Yemeni government, which has failed to use the money to stimulate the economy, create jobs, and ensure the stability of the currency. Instead, the funds have largely been squandered on the enrichment of a few individuals, and there have been reports of corruption and misappropriation of the funds. This has exacerbated the already dire economic situation in Yemen, with poverty and unemployment levels reaching unprecedented levels. It is essential that the Yemeni government take steps to ensure that the funds are used to benefit the entire population, rather than just a few. This could include investing in job creation, education and healthcare, and providing support to small businesses and entrepreneurs. Doing so would create a more equitable and stable economy and help to ensure the long-term prosperity of the Yemeni people.

The Saudi deposit of one billion dollars is intended to provide some financial relief to the Yemeni economy and stabilize the Yemeni riyal. However, this deposit is not enough to prevent the collapse of the currency, and its effects will short-live. Once the deposit expires, the riyal is likely to decline again and the situation in Yemen will become even more dire. This is especially concerning given the ongoing conflict in the country and the disruption of supply chains, which have caused an increase in poverty and unemployment. It is essential that the Yemeni government takes steps to address these issues, such as by implementing long-term economic and political reforms, increasing access to humanitarian aid, and addressing the underlying causes of the conflict. Only then will the Yemeni people be able to rebuild and have a more secure and prosperous future.

Recommendations 

1. The Yemeni government should increase access to humanitarian aid and ensure that aid is distributed equitably to all affected populations.

2. The Yemeni government should implement long-term economic and political reforms to create a more stable and self-sufficient economy.

3. The Yemeni government should take steps to address the underlying causes of the conflict.

4. The Yemeni government should work to attract foreign investment and create incentives for private sector growth in order to create jobs and stimulate economic development.

5. The Yemeni government should work to reduce corruption and strengthen the rule of law in order to create a more transparent and fair business environment.

6. The Yemeni government should prioritize the protection of human rights and civil liberties in order to ensure the safety and security of the people of Yemen.


Ahmed Salem Bahakim 

Eng. Ahmed Salem Bahakim is an economist and energy researcher 


South YemenSaudi depositYemenFinancial aidCentral BankAdenYemeni currencyHumanitarian