Yemen food costs soar as currency plunges to new low

A money changer holds bundles of Yemeni currency at an exchange shop in Sanaa, Yemen. (Reuters/File)
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Updated 04 November 2020

Yemen food costs soar as currency plunges to new low

  • Aden central bank battles to control runaway exchange market

AL-MUKALLA: Yemen’s currency has tumbled to a record low against the US dollar despite fresh measures by the country’s central bank to bring the chaotic exchange system under its control.

The riyal hovered around 840 against the dollar early on Wednesday, plunging from 800 in recent weeks.

In an attempt to shore up the currency, the Aden-based central bank closed unlicensed exchange companies, banned the internal transfer network between exchange companies — known as hawala — and provided oil importers with dollars.

During a meeting with local moneychangers last month, central bank officials proposed initiating a formal method of transferring money under the bank’s supervision to replace the hawala system.

The bank’s measures helped the riyal to bounce back from 850 in September to 780 the same month before falling against the dollar to almost the same level on Wednesday. 

Despite the bank’s repeated threats to punish local exchange companies that failed to adhere to the measures, many firms continued to operate the hawala system, wiring millions of dollars and Saudi riyals internally away from the central bank’s observation, officials at local companies told Arab News.

While Houthi rebels imposed a fixed exchange rate for local companies in their territories and had observers monitoring daily transactions, the central bank in Aden has largely failed to enforce monetary policies.

“No one has adhered to the measures,” an official at an exchange company in the port city of Al-Mukalla told Arab News.

The official, who declined to be named, said that the latest measures highlight the growing competition between the central bank in Aden and the Houthi-controlled counterpart in Sanaa.

“It is like a match between the two central banks. Each is trying to bring financial activities in the country under its control,” the official said.

In addition to the raging conflict in Yemen, economists argue that printing billions of riyals in new banknotes over the past four years, a fall in foreign remittances as well as oil and gas revenues, and misspending the Saudi deposit in the central bank are main reasons for the currency’s fall.

Ali Bawazer, a Yemeni economist, said that the latest plunge in the riyal shows that the central bank has lost control of the exchange market.

“Moneychangers’ speculation has led to the fall of the riyal and central bank appeals have been unable to stop them,” he said.

Bawazer said that the central bank should ask new exchange companies to deposit $1 million instead of the current $500,000 before a license is issued.

However, moneychangers have denied any role in the fall of the riyal, demanding the central bank and government tighten their grip on the market.

Subhi Baghafar, a spokesperson for Moneychangers Association in Aden, said that the riyal steadied in September after local exchange companies injected millions of dollars into the cash-strapped central bank.

“We stopped all buying and selling of foreign currencies and linked oil importing consultations with the central bank,” Baghafar told Arab News.

“The central bank should inject an adequate amount of foreign currencies into the market to achieve a real balance between supply and demand. It should reopen all external funds for importers,” he said. 
Shrinking salaries

The fluctuating value of the riyal over the past five years has pushed up the cost of basic foodstuffs, fuel and rent, forcing many Yemenis to take more than one job to make ends meets.

Public servants who once boasted about their income are now battling to stay afloat since salaries have lost almost third of their value due to the falling riyal and a halt to annual bonuses.

Abu Abdullah, a government official from Al-Mukalla, told Arab News that in early 2015 his YR100,000 monthly salary used to cover all his family’s expenses with a few thousand riyals left to save.

“I used to have a decent life. Now the salary has not changed for years due to the suspension of annual bonuses. I spend the salary during the first half of the month,” he said.

OPEC+ energy ministers ponder delay to extra oil supply ahead of key meeting

Updated 21 min 6 sec ago

OPEC+ energy ministers ponder delay to extra oil supply ahead of key meeting

  • Rising oil prices would suggest greater demand in the global market

DUBAI: Energy ministers from the OPEC+ alliance of oil producers are considering whether or not to extend historic cuts to crude output for a further period, in view of global uncertainties about demand, as COVID-19 cases surge worldwide.

Policymakers from the 23 OPEC+ grouping - led by the two biggest producers Saudi Arabia and Russia - have been consulting ahead of a crucial full meeting of the Organization of Petroleum Exporting Countries this week to decide whether to put an extra two million barrels of oil per day back onto global markets from next month.

Trading experts said that a further extension of the current level of cuts - around 7.7m barrels per day - was likely in view of continuing uncertainty about the global economic outlook.

Mike Muller, head of Asian business for global crude trader Vitol, told a forum organized by the consultancy Gulf Intelligence: “The market consensus is that they will hold off on the full increase. The question is for how long - three or six months?”

Prince Abdulaziz Bin Salman, the energy minister of Saudi Arabia and chairman of the OPEC+ ministerial committee, has indicated his willingness to consider “tweaks” to the current schedule in view of economic uncertainties and fragile oil demand growth.

The OPEC+ policymakers’ calculations have been complicated by the recent strong rise in the price of crude. Brent, the global benchmark, enjoyed its third consecutive week of rising prices last week, standing at $48.27 per barrel.

Rising oil prices would suggest greater demand in the global market, and therefore less reason for OPEC+ to abandon the timetable for resumption of supply it agreed last April at the height of the crisis that saw some prices fall into negative territory.

On the other hand, some OPEC+ countries are keen to increase export levels as their economies suffer from the effect of pandemic lockdowns.

Nigeria has argued that the OPEC+ rules should take into account the economic situation in individual member countries, a view to which Saudi Arabia is believed to be opposed because it would open the way for other countries to claim “exceptional circumstances”, undermining OPEC+ unity and credibility.

Iraq, another producer which has had trouble meeting OPEC+ limits this year, gave OPEC+ a boost on Saturday as its oil minister, Ihsan Jabbar, was reported in local media as saying the country would fall in line with the current limits and not seek an exemption, for fear of the damage that might cause to oil prices.

The crucial factor in deciding the extension and its duration is the relationship between Saudi Arabia and Russia, who have acted in tandem since the volatility of last spring.

Russia’s preference is to extend the current cuts for three months, according to reports from Moscow ahead of the OPEC+ ministers’ meeting.