The Yemeni government is counting on cash assistance from Saudi Arabia to rescue the economy and halt the decline in the value of the Yemeni riyal, which has dropped by 50% since the outbreak of the war.
The price of hard currencies has risen 100% against the Yemeni riyal, with the exchange rate for the US dollar reaching 440 riyals and the Saudi Arabian riyal reaching 115 Yemeni riyals, compared to 215 and 64 riyals before the war.
Saudi Arabia recently pledged to deposit $2 billion in the Central Bank of Yemen to support the stability of the currency and the import of fuel, and has allocated funds to support reconstruction and infrastructure rehabilitation in Yemen.
These funds will support education, health, roads, electricity and water and will be released in January, as agreed during a November 8th meeting in Riyadh between President Abd Rabbu Mansour Hadi and the kingdom’s Crown Prince.
Hadi announced the outcome of his meeting with Crown Prince Mohammed bin Salman at a meeting with his advisers in Riyadh on November 11th.
Yemeni Prime Minister Ahmed Obaid bin Daghr, Deputy Prime Minister and Minister of Foreign Affairs Abdulmalik al-Makhlafi and Deputy Prime Minister and Minister of Civil Services Abdulaziz Jabari were present at the meeting.
Hadi affirmed the kingdom’s continued support of Yemen in all areas and fields of development, services and reconstruction, local media reported.
On November 26th, Hadi issued a decree ordering the formation of a ministerial committee to co-ordinate and follow up on the Saudi pledge.
Stabilising the Yemeni riyal
Economists said the deposit will stabilise exchange rates and the Yemeni riyal.
"The $2 billion will stabilise the exchange markets, support the value of the riyal and stop the deterioration that occurs on a daily basis," National Bank of Yemen chairman Mohammed Hassan Halbub told Al-Mashareq.
"On the first day after the announcement of this deposit, the value of the Yemeni riyal rose against hard currencies, with the [exchange rate] of the dollar dropping from 440 to around 400 riyals and the Saudi riyal dropping from 115 to 105 riyals," he said.
Halbub said Saudi Arabia’s $2 billion payment will encourage the International Monetary Fund (IMF) to pay $550 million as part of its commitment to support the stability of the Yemeni riyal.
In order to release these funds, the IMF had stipulated that Saudi Arabia make an effort to support the Yemeni economy and deposit funds to support the Central Bank of Yemen.
"The deposit to be provided by the kingdom will help the Central Bank stabilise the currency, finance trade and cover government commitments," said Central Bank of Yemen deputy governor Khalid Abadi.
These include the import of oil derivatives and the provision of electricity and other civil services, he said.
Deposit requires a clear vision
According to Abadi, Riyadh has been supporting and assisting Yemeni institutions for decades, notably with the $1 billion deposit it placed with the Central Bank of Yemen in 2012, Asharq al-Awsat newspaper reported.
Studies and Economic Media Centre president Mustafa Nasr told Al-Mashareq the Saudi support of the Yemeni riyal with the $2 billion deposit will stop the decline in the value of the riyal against foreign currencies.
Nasr called on Saudi Arabia and Yemen to expedite the delivery of the deposit.
It is important that "the Yemeni government create the necessary environment to speed up the process of receiving [the funds] from the kingdom and develop measures and a clear plan to benefit from it, as agreed upon", he said.
Nasr explained there is an essential prerequisite for the disbursement of the deposit "that is related to the Central Bank having the efficiency and effectiveness to benefit from this deposit".
The Central Bank’s performance in Aden is still below par, he said, while the deposit requires a clear vision of how to best put it to use to help Yemen's economy.
Economist Abdul Jalil Hassan said the deposit would be more useful for the Yemeni economy if it was an open and not a closed deposit.
"The open deposit system allows the Central Bank to use a portion of it to finance the import of food and basic commodities by the private sector, in addition to performing its main role in maintaining financial and monetary stability and strengthening the value of the Yemeni riyal," he explained.