In mid-July, Yemen’s riyal crashed to 1,000 against the US dollar in the occupation-controlled southern capital of Aden, the worst exchange rate since the US-Saudi-led coalition wag an aggression against the country in 2015, an American website reported on Monday.
According to the International Banker, this increase marks yet another low point for the Middle East’s poorest country, which some believe is careening headlong towards economic collapse and widespread famine.
The report added that the war has dramatically impacted the economic welfare of ordinary Yemenis, who have seen their incomes slashed heavily as more than a quarter of businesses have closed, and unemployment has skyrocketed to an estimated 55 percent of the labour force.
With prices of food and other commodities rising and with important sectors of Yemen’s economy, including agriculture and banking, being severely curtailed over the last few years, moreover, millions of people remain impoverished and food insecure. And with its most important export sector—oil and gas—producing only a fraction of the output of pre-war levels, Yemen’s exports now easily fall short of covering its food imports, which, according to estimates, represent 90 percent of all food consumed in the country.
“The six-year long conflict has crippled Yemen’s economy, divided the country, and resulted in an acute economic and humanitarian crisis, which has been compounded by the COVID-19 pandemic,” the International Monetary Fund (IMF) concluded. “External support has collapsed, foreign exchange reserves are nearly exhausted, and pressures on the budget have increased. COVID has only exacerbated the crisis, primarily through a sharp decline in remittances and lower oil prices and revenues. As a result, the exchange rate has depreciated rapidly and food prices have soared.”
The United Nations Children’s Fund (UNICEF) has estimated that nearly 2.3 million children in Yemen under the age of five will suffer acute malnutrition this year, 400,000 of whom will be classed as severe acute malnutrition and could die if they do not receive urgent treatment, the report says.
With inflation likely to continue spiralling higher in response to exchange-rate depreciation and rising international food and fuel prices, however, the value of external aid diminishes quickly, while Yemen’s balance of payments and reserves are progressively worsening, it added.
To stabilize the macroeconomy and underpin a recovery, according to the IMF following its June visit to the country, Yemen needs to mobilize additional resources and accelerate the process of rebuilding institutions. “Securing additional external support would help to close the large financing gap, thereby curbing depreciation and inflation,” the team led by Brett Rayner concluded following the mission.
But without a quick resolution to the war, the IMF also warned, Yemen’s near-term economic prospects will remain decidedly dim. The continuation of the global pandemic, alongside the lack of external financing sources, will have a crippling impact on gross domestic product (GDP), which the Fund stated it expects to contract by a further 2 percent in 2021 after declining 8.5 percent in 2020. The Fund also noted that the war has weakened and fragmented Yemen’s policy capacity, thus limiting the authorities’ ability to respond effectively to the crisis.
A lasting ceasefire is thus required before Yemen can even think of initiating economic-stabilisation measures and moving towards unification. And with no end in sight to the unrest, Yemen’s economy will remain in a deep crisis.