Yemen works to halt decline in value of riyal

Yemeni officials and economists are concerned about the stability of the riyal after a sharp dip last week sent regulators scrambling to strengthen the value of the currency.

The value of the riyal against foreign currencies has declined steadily since the start of the war in March 2015, when the exchange rate against the US dollar was 215 Yemeni riyals (YER).

By early February this year, the exchange rate had increased steadily to 330 YER per dollar, but on February 13th, there was a sharp increase to 400 YER per dollar, local media reported.

The Central Bank in Aden took swift action and implemented a series of measures to stop the riyal's slide, bringing it back up to about 330 YER per dollar the following day.

Efforts to boost riyal

As the government continues to work to stabilise the riyal, economists warn that the decline in its value to almost half of what it was before the start of the war could have dire consequences on citizens' daily lives in the form of increased food prices and rising inflation rates.

To reinforce the riyal's stability, President Abd Rabbu Mansour Hadi is seeking deposits worth $2 billion to $3 billion from Saudi Arabia and Qatar, to add to the more than $1 billion currently in the Central Bank, Information Minister Muammar al-Aryani told Al-Mashareq.

Hadi arrived in Riyadh February 13th on an official visit after which Saudi Arabia agreed to deposit $2 billion in Yemen's Central Bank to help shore the economy, Saba news agency reported Sunday (February 19th).

Meanwhile, the Central Bank's governor met with representatives of local banks and exchange companies to reach an agreement on a joint mechanism to stop the decline in the price of the riyal, al-Aryani said.

One of the main results of the meeting included an agreement in which exchange companies can buy and sell the Saudi riyal and the US dollar at favorable rates.

The Central Bank also committed to buying dollars from traders and pledged to cover the market's needs with regard to petroleum products and basic food items for citizens.

The rise in the price of foreign currencies against the riyal led many currency exchange companies to suspend their exchange operations and limit their activity to money transfers to avoid incurring losses, said Ibrahim al-Hubaishi, director of the Sanaa-based Yazan Currency Exchange company.

The instability in the price of the riyal against foreign currencies has many concerned, he told Al-Mashareq.

The price of the dollar reached 400 YER in Aden and 386 YER in Sanaa, but the measures taken in Aden gradually brought the price back down to 330 YER within hours, he said.

"The government's measures aimed at stopping the deterioration in the exchange rate of the riyal would be more effective if the Central Bank injects hard currency into the market," al-Hubaishi said.

Circumstances of war impact economy

Taha al-Faseel, an economics professor at Sanaa University, said the drop in the price of the riyal stems from the ongoing war, which has disrupted economic activity and led to a decline in state revenues in hard currency.

"The 70 YER all-at-once surge in the price of the dollar in one day is evidence that this increase was not caused by economic factors but rather by other factors related to the circumstances of the war," he told Al-Mashareq.

"There is no demand for the dollar and other hard currencies because citizens are not traveling abroad and this time of the year is not a season for imports, so there are no economic reasons behind the drop in the price of the riyal," he said.

Al-Faseel warned that a continued high price for the dollar "will exacerbate the human suffering endured by the majority of Yemenis in view of the stoppage of salaries and halt in business activity, which will precipitate tragic consequences for the largest segment of society".

Economist Abdul Jalil Hassan also warned that the war is having very serious consequences on living conditions, the worst of which is the rise in the price of hard currencies against the riyal.

"The rise in the price of the dollar will lead to higher prices for food and other consumer goods, at a time when 80% of Yemenis are in need of food aid," he told Al-Mashareq.

The war caused a halt in Yemen's oil production and remittances from expatriates are at their lowest level, he said, and these are factors that lead to higher dollar prices.

Houthis seize foreign exchange reserves

The drop in cash reserves is one of the indirect outcomes of the war caused by one of the parties to the conflict misusing the foreign currency reserves, said Mustafa Nasr, Studies and Economic Media Centre president.

"The Houthis' seizure of the Central Bank in Sanaa and their squandering of the foreign currency cash reserves, which dropped from about $4 billion to less than $1 billion in August, prompted President Hadi to relocate the Central Bank to Aden ," he told Al-Mashareq.

The foreign cash reserves include the $1 billion deposited by Saudi Arabia in Yemen's Central Bank in 2012 to boost the Yemeni currency.