COVID-19 exacerbates Yemen’s economic problems
Yemen’s economy has been hard hit as two of the country’s primary sources of foreign exchange – remittances and fuel exports – dried up as a result of the global downturn caused by the COVID-19 pandemic. It is estimated that 80 per cent of remittances sent by Yemenis working abroad is being lost, especially as Saudi Arabia, which hosts most of Yemen’s expatriate workers, continues to navigate a way out of a COVID-19 induced slump. Meanwhile, COVID-19 has also diminished Yemen’s income from fuel exports, as both demand and prices dropped sharply.
As a result, the Yemeni rial (YER) has continued to depreciate against foreign currencies. By the end of May, the unofficial rate had fallen by more than 20 per cent compared to a year ago, crossing the YER 700/US$ mark for the first time since November 2018 in southern governorates, which forced the Central Bank of Yemen to suspend currency trading temporarily. The parallel market exchange rate now stands at around YER750/US$. In the north, the exchange rate saw less volatility due to monetary measures implemented in December 2019. The rial is trading at around YER 620/US$. The gap between south and north now stands at YER130 (or 20 per cent).
Given Yemen’s high dependence on imports, the depreciation of the rial has predictably further eroded local purchasing power. Data gathered by FAO shows that in early June the cost of the minimum food basket (MFB) has increased by 8 per cent compared to the pre-COVID-19 period (February 2020). Aden and Lahj governorates saw the highest MFB price increases, 35 and 27 per cent respectively. As the UN Emergency Relief Coordinator, Mr. Mark Lowcock, noted in his briefing to the UN Security Council on 24 June, this has meant that “more Yemenis are being squeezed out of markets, unable to buy food or other life-saving requirements.”
These problems are further exacerbated by intermittent salary payments to public civil servants. In April and May, half of January 2018 salaries were disbursed to civil servants in the north, while salary payments remained irregular in southern governorates. Meanwhile, a severe fuel shortage in northern governorates is adding to economic woes and affecting humanitarian operations.
Experts caution that the Yemeni rial could continue to depreciate as a US$2 billion deposit from Saudi Arabia in the Central Bank of Yemen in 2018 is nearing exhaustion. They warn that the exchange rate could reach YER1,000 /US$ by the end of the year, again pushing Yemen to the edge of large-scale famine.
In his briefing to the UN Security Council, Mr. Lowcock urged donors to provide Yemen with predictable foreign exchange injections and to increase their contributions and urgently disburse funding to the humanitarian operation to prevent a dramatic deterioration in humanitarian conditions. The alternative, he said, is to “watch Yemen fall off the cliff.”