Famine at Hand Without a Reunified Central Bank to Protect the Yemeni Rial

Famine at Hand Without a Reunified Central Bank to Protect the Yemeni Rial

Sana’a Center Editorial

The largest threat facing millions of Yemenis today is not the violence of war but the collapse of the local currency the war has brought on. Put differently, while bullets and bombs harm the individuals on the receiving end, a collapsing currency – in a country overwhelmingly dependant on imports – makes it harder for everyone to feed themselves. This crisis was not inevitable. It was man-made.

By the end of September, the Yemeni rial (YR) had dropped to close to a quarter of the value it had when the conflict escalated in March 2015 – from YR215 per United States dollar (US$) to YR760 per US$1 over that period. This decline has accelerated recently, with the rial dropping 40 percent in value relative to the US$ between August and September alone.  

Prices for everything in Yemen have skyrocketed and by mid-September a nation-wide fuel crisis had descended. The UN subsequently reported that another 3.5 million people were potentially in need of emergency food assistance, bringing the total number of Yemenis facing starvation to almost 12 million. This is not because there is no food. It is because people cannot buy it. This is a problem that can be fixed if there is the will to do so.

First, the Central Bank of Yemen (CBY) must be reunified. The internationally recognized Yemeni government’s decision in September 2016 to relocate the CBY headquarters from Sana’a to Aden left Yemen with two central banks. With each operating independently from the other on either side of the war’s frontlines, neither has been able to effectively steward the currency or the economy. Multilateral pressure must be brought to bear on both the Yemeni government and the armed Houthi group to allow the CBY to reunify, and for that reunified entity to be able to operate independently from the belligerent parties. UN Special Envoy for Yemen Martin Griffiths has said economic de-escalation of the conflict is now his top priority; reunifying the CBY must be the central focus of these efforts.

Second, the international community – in particular Gulf states such as Saudi Arabia and the United Arab Emirates who are primary parties to the war in Yemen – must provide the CBY with the financial resources to address the shortage of foreign currency in the Yemeni market. While Saudi Arabia deposited US$2 billion in the Aden-based CBY earlier this year to support the value of the rial, the conditions Riyadh placed on the CBY’s use of these funds, and the restrictions the Aden-based CBY has placed on their disbursement, have severely limited their impact. And even this amount is still likely insufficient, according to former CBY Governor Mohammed bin Hummam, who discussed the currency crisis with the Sana’a Center in September.

Keep in mind that this month Gulf neighbors offered Bahrain US$10 billion in financial support, and in August Qatar loaned Turkey US$15 billion to save the Turkish lira from collapse. Neither of these countries faces mass famine, and a fraction of the assistance they received could save millions of lives in Yemen. Indeed, a fraction of the billions of dollars the coalition has spent on its military campaign in Yemen for more than three-and-a-half years could end the country’s food crisis.  

Saudi Arabia must also stop expelling Yemeni expat workers by the thousands as part of its labor nationalization campaign. Since Yemen’s oil and gas exports ceased in March 2015, the country’s largest source of foreign currency has been remittances, with the majority of these coming from Saudi Arabia. The humanitarian catastrophe in Yemen is only amplified by every expat worker who is forced to return home.     

The Yemeni government must also stop paying civil servant salaries through ordering the Aden-based CBY to print new rial banknotes. Expanding the money supply in this way will depreciate the rial further. Instead, all efforts must be made to restore Yemen’s oil and gas production – previously the country’s largest source of foreign currency and government revenue – to full capacity. Until then, Gulf countries must help provide the hard currency resources to cover the Yemeni government’s public expenditure bill. Simultaneously, the newly appointed Yemeni Prime Minister Maeen Abdulmalik must activate transparency mechanisms, address the corruption allegations his government faces, and eliminate the lavish spending of high-ranking officials.

In September, the Aden-based CBY announced that it would speed up the process by which fuel and commodity traders can qualify for import financing – the CBY’s primary means of influencing the currency market. It also said it would work with Yemeni banks and money exchangers to regulate the currency market and protect the rial. However, given that almost all of Yemen’s largest financial players are based in Sana’a, the Aden-based CBY’s influence with them is limited. Thus, the Aden-based CBY’s plans, while well intentioned, are likely to be ineffective.

Yemen’s humanitarian crisis is in reality an economic crisis, and one caused by the deliberate decisions of the stakeholders involved in the conflict. They have the means to end the crisis. If they do not, they will be culpable for the mass starvation that ensues.

For more details, please see The Yemen Review – September 2018.