The Sana’a Center Editorial
There is a confluence of humanitarian and economic woes bearing down on Yemen that evoke the image of tidal waves cresting upon tidal waves, and average Yemenis have been left terrifyingly exposed. The United Nations estimates that 16 million Yemenis may ultimately be infected with the COVID-19 virus. Simultaneously, the warring parties’ response, or lack thereof, to the pandemic’s arrival has been stunningly reckless, and the ongoing retraction of international financial support for the country’s relief effort could not be more ill-timed. Available foreign currency in Yemen is also projected to enter a steep decline due to lost remittances and Saudi support for import financing ending, which will beget price shocks and increased unemployment. Seen through the sum of all these factors, the months ahead have come to appear sufficiently dire as to warrant consideration of whether it is still possible for Yemenis to save their country, or whether Yemen, as a political entity, will be unrecoverable after the pandemic passes.
Behind the frontlines, Houthi authorities have engaged in a massive censorship campaign to stifle public awareness of the disease’s spread, keeping shops open and allowing Ramadan festivities to continue normally through April and May even as new obituaries increasingly flooded Yemeni social media and reports of a surge in burials in Sana’a emerged toward the end of last month. The open economy allowed the Houthi authorities’ systemic extortion of businesses to continue unabated, while they also undertook a forceful campaign to collect religious alms from businesses during the holy month. By concealing the extent of the threat, however, the Houthi authorities ensured the spread of COVID-19 in northern Yemen.
Meanwhile, outside Houthi-controlled areas a second front in the war is pitting factions of the anti-Houthi coalition against each other and fracturing southern Yemen, with Yemeni government allies to the east, forces associated with the Southern Transitional Council (STC) to the west, and battles between the two raging in Abyan governorate in the middle. Notably, the STC is in full control of what is meant to be the government’s interim capital, Aden. The Riyadh Agreement, which the two parties signed in November 2019, was intended to end their rivalry, unify them politically and militarily, and facilitate the emergence of functioning public institutions and effective governance in southern Yemen. Instead, the “agreement” became the latest platform upon which to jockey for position, and in continually undermining each other, the parties have collectively robbed people in the south of the public services and protections that a state could provide – such as preparing for the arrival of a pandemic. The STC’s declaration of self-rule for southern Yemen in April would be farcical if it did not so tragically highlight the actual absence of governance in the south. Hospitals’ requests to authorities for supplies to handle COVID-19 patients went unanswered, and as the virus has spread, healthcare centers have shuttered and doctors, lacking personal protective equipment, have turned away the sick.
In Aden, like Sana’a and elsewhere in Yemen, the rising numbers of burials and tributes to the newly dead on social media attest to a virus spreading freely – the World Health Organization (WHO) is now operating on the assumption that full-blown transmission is ongoing in the country – while the lack of available testing makes accurate quantification impossible. Widespread malnutrition and poverty are undoubtedly aggravating factors – ones that are on track to significantly intensify in the near future.
As a soon-to-be-published Sana’a Center research paper will show, the Yemeni market is on the cusp of a precipitous drop in the amount of available foreign currency. Remittances, the country’s largest source of foreign currency estimated at more than US$3 billion annually, are largely sent from Yemeni workers in Saudi Arabia. Tightening labor restrictions on these workers, in combination with a sudden Saudi economic contraction – due to measures aimed at containing COVID-19 and global oil prices plummeting – has the UN projecting that remittances to Yemen could drop as much as 70 percent.
In the past several months there have been increasing warnings that the billions of dollars in foreign support sent annually is also shrinking. In April, the World Food Programme announced food rations in Houthi areas were to be cut in half – impacting some 8.5 million people – while the WHO said it was cutting most of the services it provides in hospitals and care centers, including COVID-19 response operations. The UN announced in May that it was heading for a “fiscal cliff” in Yemen and that its funding deficit was causing three-quarters of its programs in the country to either close or reduce operations. In the process of retraction, these agencies will also shed thousands of Yemeni workers. Meanwhile, the pandemic is creating a far more challenging environment in which to deliver aid for the relief programs that remain, given the reduction in international staff, national staff having their movements restricted by quarantines and their aid agencies’ safety protocols, and global supply chain disruptions.
The impact that the decline in remittances and foreign aid is having on available foreign currency in Yemen, if plotted on a graph, would appear to be a steep downward slope. An actual cliff on this graph will emerge when the US$2 billion deposit Riyadh made at the Central Bank of Yemen in Aden two years ago, which the bank has since been using to finance basic commodity imports, is exhausted. Given the gapping Saudi budget deficit and current cost-cutting campaign, few are expecting Riyadh to match its previous financial assistance to its southern neighbor. As of this writing, there is less than US$200 million remaining of the Saudi deposit and, without replenished foreign currency reserves, the Aden central bank will likely be unable to continue underwriting imports past this summer.
When that happens, traders – in particular commercial food and fuel importers – will have to turn to the market to purchase dollars to pay for orders from abroad. The shrinking supply of available foreign currency, however, means that it will cost increasingly more Yemeni rials to purchase each dollar, and thus the rial’s value will fall. Further downward pressure on the rial’s value will come as the Yemeni government begins issuing tranches of the YR250 billion in new banknotes it recently printed to cover its operating expenses. In a country highly dependent on imports – up to 90 percent of Yemen’s basic foodstuffs come from abroad – a depreciating domestic currency will mean price inflation for most goods. This will be on top of the inflation already caused by pandemic-related global supply chain disruptions. Five years of war and economic collapse have left some three-quarters of the population under the poverty line and even incremental price shifts have outsized impacts – large cost increases will dramatically impact people’s ability to survive. Less foreign currency entering Yemen will also reduce economic activity in general and increase unemployment.
The integrity of the Yemeni rial-based currency system itself will also increasingly come into question. The Houthi authorities’ ban in January this year forbidding new currency banknotes issued in Aden from circulating in areas they control has already spurred divergent exchange rates between northern and southern areas and driven a migration toward the use of Saudi riyals and US dollars to carry out local transactions. The rial’s continued depreciation will further undermine its function as a store of value at all. What business owners will want to accept Yemen’s domestic currency as payment if they expect those bills to be worth less tomorrow?
Thus, in the months ahead it is reasonable to expect a surge in COVID-19 infections accompanied by an acute shortage in access to healthcare, food, water, sanitation and most of the other services that millions of Yemenis receive only from, or through the facilitation of, international aid agencies. Concurrently, prices will spike as a large new slice of the population loses its income source, either because of unemployment or lost remittances. The culmination of these factors will likely propel the humanitarian crisis into dizzying new scales of horror.
To be clear, what is to come is in no way certain, and those in positions of power can choose differently and alter the outcomes. For instance, while the Riyadh Agreement has deep flaws, it is a framework for cooperation which, if entered into with genuine commitment, could facilitate the merger of the Yemeni government and the STC, end the battles across the south and allow a new state apparatus to take shape. The Houthis and the anti-Houthi coalition may still recognize that they are headed for mutually assured pandemic destruction if they do not cease fighting and form a unified front against COVID-19, with this cooperation laying the groundwork for reunifying the bifurcated central bank and other institutions that can begin providing Yemenis with basic services. Perhaps there will be a groundswell among donor countries that will see the international community reinvest in the relief effort and stave off the worst potential humanitarian outcomes. At the same time, international stakeholders could work to prevent further depreciation of the Yemeni rial, advocating strict fiscal policy measures to fight corruption and government waste, and provide the necessary foreign exchange to support import financing in Yemen. These steps are possible. All they take is people in power choosing for them to happen. If they do not, however, and current trends are allowed to play out as projected, it is rational to question whether there will be a future for Yemenis beyond further war, disease and famine in a failed state.
This editorial appeared in A Grave Road Ahead – The Yemen Review, May 2020.
Previous Sana’a Center Editorials:
- March 2020: End the War Before the Pandemic
- January/February 2020: Humanitarian Agencies as Prisoners of War
- November 2019: The Minefield of Combating Corruption in Yemen
- October 2019: Signing Over Sovereignty
- September 2019: The Brinksmanship of a SAFER Disaster
- August 2019: Where Coalitions Come to Die
- July 2019: The March on Al-Mahra
- June 2019: War by Remote Control
- May 2019: A Houthi Masterclass in Dystopia
- April 2019: Yemen’s Game of Parliaments
- March 2019: Saudi Arabia’s ‘Deportation Storm’
- February 2019: The Apology of Aid
- The Yemen Annual Review 2018: Beyond the Brink
- November 2018: Yemen’s War Profiteers Are Potential Spoilers of the Peace Process
The Sana’a Center for Strategic Studies is an independent think-tank that seeks to foster change through knowledge production with a focus on Yemen and the surrounding region. The Center’s publications and programs, offered in both Arabic and English, cover diplomatic, political, social, economic, military, security, humanitarian and human rights related developments, aiming to impact policy locally, regionally, and internationally.