"The reasons behind the currency’s deteriorating value clearly include suspension of the Aden Central Bank’s decisions in July which had put the Houthis under great economic pressure".

Abdullah Al-Shadli (South24)

The economic crisis in areas controlled by the Yemeni Internationally Recognized Government (YIRG) has deteriorated to dangerous levels as the price of the US dollar reached over 2,000 Yemeni riyals during October. It is the record lowest value of the currency that was launched after the declaration of the Yemeni Unity in 1990.

This new collapse in the value of the Yemeni riyal threatens to send the prices of basic commodities in the markets soaring. This could throw millions of people into destitution along with other millions who are already living with extreme levels of hunger and poverty, according to reports issued by the UN and humanitarian agencies.

The Government's Conspiracy Claims 

The YIRG denies that this unprecedented decline in the value of the local currency is due to economic reasons. During a meeting with the leadership of the Yemeni Central Bank of Aden on October 16, Yemeni Prime Minister Ahmed Bin Mubarak talked about a “plot” aiming to destabilize the economy.

Bin Mubarak claimed that “the severe and unjustified deterioration in the exchange rate of the national currency poses an existential threat to the national economy and is as equally dangerous as the security challenges that face the country”. According to him, “the collapse of the Yemeni riyal isn’t a result of natural economic factors and doesn’t match the circulated monetary volume”.

On Sunday October 20, the Chairman of the Presidential Leadership Council (PLC), Rashad Al-Alimi, met Bin Mubarak and the economic team to discuss the economic developments and the collapse of the local currency.

The meeting stressed on a package of measures to address the public budget deficit, deter currency speculators, streamline the import bill, control and monitor the money supply, and activate law enforcement agencies to support the Central Bank's independence and its legal policies in managing the banking sector.

On October 21, the Yemeni cabinet called on the international community, especially the Saudi-UAE led Arab Coalition to support the Yemeni government’s efforts to maintain economic stability and control the exchange rates of the national currency in light of the continued cessation of oil exports and the high prices of shipping due the Houthi attacks.

Dire Economic Conditions

In early 2024, the dollar-riyal exchange rate was around 1,584 to buy and 1,594 to sell. Since then, the decline has continued as the Yemeni riyal lost 25% compared to its value in January. Over the past 10 years, the Yemeni riyal has decreased by more than 80% against the dollar. Ten years ago, the exchange rate was approximately 214 riyals. 

In comparison, the exchange rate in areas controlled by the Houthis has been stable for years – at around 533 to buy and 535 to sell. Additionally, the humanitarian situation continues to be horrific across the country. Despite the collapse of the local currency and the unprecedented hike in the prices of food products, the salaries of state employees are still similar to the pre-war payment rates. The monthly salary of a teacher is $50 at best.

Dollar exchange rate against the Yemeni riyal from January 2024 - October 2024 (South24 Center).

On June 26, a report issued by the World Bank said that “Yemen's GDP is expected to contract by 1.0% in 2024, after contracting by 2.0% in 2023 and modest growth of 1.5% in 2022. Between 2015 and 2023, Yemen witnessed a 54% decline in real GDP per capita”.

On July 20, a report issued by the World Food Programme noted that “For the fourth consecutive month, the share of households with inadequate food consumption soared to unprecedented levels in Yemen, reaching 64% in August 2024. Severe level of food deprivation has nearly doubled in the North (where the Houthis control) over the past year, reaching a historic peak of 37% in August”.

On August 11, a World Bank report stressed that “given the extent of Yemen’s economic deterioration, precipitous rise in the cost of living, and rising population”, poverty has “risen drastically from the 49% recorded in 2014”. It says that around 74% of Yemenis could be living in poverty, and that Yemen is likely among the top 15 percent of poor countries. 

Huge Problems

Journalist Wafiq Saleh believes the Yemeni economy suffers from accumulated structural problems as a result of 10 years of the war in the country and the coup by the Houthi militia against the state. He added that these problems have aggravated over time in a way that has further complicated the economic conditions. 

Saleh, who specializes in economic affairs, told ’South24 Center‘: “The most serious problem is that the Houthi militia have depleted the foreign monetary reserves and hindered the national exports. They still control huge local resources”. According to him “the monetary split made by the militia (divergence in exchange rates between Sana’a and Aden) has led to a massive depletion of hard currency in the state-controlled areas. The Houthis make smuggling activities to areas under their control through trade exchange”.

Saleh stressed that “the country’s financial situation suffers from deep turmoil. There is a large deficit in the public budget’s payment balance as well as a sharp decline in the government’s local resources. Meanwhile, the financial costs are increasing, especially those related to foreign currency payments. This is amid a lack of tangible efforts by the government to reform the economic situation or search for alternatives to compensate for the halt in oil exports”.

He pointed out that “a deadlock dominates the performance of revenue and financial institutions. There are no governmental directions to activate the financial policy or launch an austerity program to reduce costs and develop public resources. These conditions have led to intensified national currency speculations which have in turn increased the exchange rate pressure”.

On the other hand, economic expert Dr. Mohammed Al-Kassadi, professor at Hadramout University, believes that the reasons behind the currency’s deteriorating value clearly include suspension of the Aden Central Bank’s decisions in July which had put the Houthis under great economic pressure. He added that the government faces huge economic challenges, especially due to the cessation of oil and gas exports since November 2022 following the Houthi attacks on Hadramout and Shabwa ports. “All this led to increase the deficit in payment and trade balance”. Al-Kassadi explains that the resumption of oil and gas exports is the most important option to save the economy, but it won’t be enough to solve the entire problem.

“Dependence on weak exports is an ineffective way to solve the problem amid the shortage of foreign currency. Statistics show that the trade balance deficit is increasing as Yemen imports even the simplest of goods such as tea and pasta. This reflects a complicated economic crisis that can’t be solved without the resumption of oil and gas exports,” he said.

In terms of economic grants and budgets, Al-Kassadi believes that the foreign aid is a temporary solution that doesn’t cure the root of the problem which goes back to before the war. He calls for reforming the taxes and customs sector to combat corruption and human intervention with an aim to increase governmental revenues.

Al-Kassadi observed that the government pays little attention to social dimensions, adding that citizens suffer from relentless increases in the prices of basic goods and oil derivatives. He also criticized the Foreign Ministry’s ongoing spending on delegations and foreign visits minus any austerity plans. This has increased the public spending burden.

Al-Kassadi slammed the performance of the Central Bank of Aden, stressing that its lack of management efficiency has further complicated the crisis. He explained that the YIRG’s concessions to the Houthis regarding some monetary decisions raises questions about its strategies. Al-Kassadi believes that the government has surrendered to the pressure of international mediation instead of taking effective measures to improve the economic situation.

“The current situation requires a comprehensive restructure of the Central Bank of Aden and to guarantee more transparency in its management. This is along with the need for implementing urgent reforms in the government’s financial policy to confront the economic crisis,” he concluded.