Situation Report

Exchange rate in southern governorates reaches all-time low

By the third week of September, the value of the Yemeni rial on the unofficial market had fallen to YER850/US$ in Aden, down from YER800/ US$ at the end of August 2020 when it reached the previous historic low of two years ago. It rallied slightly exchanging at YER780/US$ by 28 September, but falling again to YER805/US$ by the end of September. In just the first 8 months of 2020 the rial depreciated by 25 per cent in southern governorates, down by 250 per cent of its pre-conflict value. The risk of further depreciation during coming months is high with unpredictable sources of foreign currency and levels of foreign currency reserves.

The Cash Consortium in Yemen attributed the rapid depreciation of the rial between June and August to a number of factors, including excessive printing of new notes by the Central Bank in Aden, limited availability of foreign currency on the local market, the active engagement of currency brokers in the foreign exchange market, the effect of COVID-19 on markets and livelihoods, a sharp decline in remittances, the conflict between the Southern Transitional Council (STC) and the internationally recognized government (IRG), and the near exhaustion of reserves deposited by Saudi Arabia (KSA) in the Central Bank two years ago. Other key sources of foreign exchange remain depressed and with more than 90 per cent import dependency for wheat and other food commodities, in the absence of adequate official sources of foreign currency, importers have had to increasingly to rely on informal sources for US dollars that are more expensive than the official, preferential exchange rate.

The continued depreciation of local currency against the main foreign currencies has continued to exacerbate the struggling Yemen economy. The net impact on the economy continue to be observed through increased prices for basic food and non-food commodities prices , loss of livelihoods, increased malnutrition and over-dependency on food aid by the majority of the population.