Economy |

Houthis' ban on national currency leads to suspension of salaries

By Nabil Abdullah al-Tamimi in Aden

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Houthi female supporters collect money to support Houthi militias fighting Yemeni government forces in the port city of al-Hodeidah, during a rally in the capital Sanaa on November 10th, 2018. [Mohammed Huwais/AFP]

The Iran-backed Houthis' decision to prohibit the use of new currency banknotes has caused the suspension of salaries for thousands of government employees.

The militia issued a decree on December 19th banning the use of the new national currency banknotes printed by the legitimate government-controlled Central Bank in Aden in the provinces under its control.

About 100,000 government employees in Sanaa, whose salaries are disbursed by the Central Bank in Aden, were affected by the decision, as they are paid their salaries with the new banknotes.

The Houthi decree also set a deadline of one month for citizens to dispose of the new banknotes in their possession, as the group intends to confiscate them after January 18th.

In response, the Yemeni government on January 2nd suspended the disbursement of salaries to civil employees of five government agencies in Houthi-controlled areas.

It also froze procedures to resolve the crisis of suspended salaries in many sectors that has been ongoing since 2016.

The government, through the Central Bank in Aden, had been regularly paying the salaries of Ministry of Health employees, civilian retirees, judiciary employees and Sanaa University professors, in addition to employees of the Control and Accounting Agency.

In addition to tens of thousands of employees, 40,000 retirees in Houthi-controlled areas also are not receiving their salaries anymore, Information Minister Muammar al-Eryani said on December 30th.

This is one of the first consequences of the ban imposed by the militia on the use of the new national currency, he said.

The Houthis took this action in order to purchase hard currency and use it to speculate in the black market, he said, in further evidence that the militia is "pursuing a policy of systematic impoverishment and starvation of citizens".

Significant repercussions

"This decree is catastrophic and will have significant negative humanitarian, economic and political repercussions," Studies and Economic Media Centre chairman Mustafa Nasr told Al-Mashareq.

It will lead to more economic stagnation and currency speculation and to an increase in the operational cost of goods and services, and consequently further price increases, he said.

It also will "open the door wide to extortion and revitalise the black market for currency trade", he added.

The cutoff of salaries to thousands of employees "will compound the humanitarian problem in Yemen and lead to further deterioration at all levels", said Nasr.

The Houthi militia is further compounding the burdens and human suffering of residents in their areas of control "in order to achieve the goals of Iran and its Islamic Revolutionary Guard Corps (IRGC) in the region", economist Abdel Aziz Thabet told Al-Mashareq.

The Houthis are "plundering the savings of Yemenis" with their latest decree on the confiscation of the new currency banknotes, he said.

The militia's aim is to "manipulate the economy and engage in currency speculation, as evidenced by the fact that its decree calls for the confiscation and not destruction [of the new banknotes]", he said.

It seeks to collect these banknotes to purchase hard currency in government-controlled provinces in order to increase the monetary supply there -- leading to a decline in the value of the Yemeni riyal against foreign currencies, he said.

This decree has stifled local banks and put many of them, as well as many businessmen, at risk of suspending their business activities, said economist Abdul Jalil Hassan.

One of the initial negative repercussions is "the large discrepancy in the foreign currency exchange rates between Sanaa and Aden, which encourages currency speculation and disrupts the economy", he said.

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