Inflation is worse scourge than war in Yemen
The value of the Yemeni rial against the dollar and other major currencies is dropping in a worrisome manner. Its devaluations threaten to eat up the very thin margin of hope for millions of Yemenis to live above the poverty line.
In less than two years, the Yemeni rial dropped in value by 200% and was at 77 against one US dollar by the end of September. At the same time, the average annual inflation rate stands at about 40%.
The fast devaluation of the rial started an upward spiral of inflation in prices of goods and services that has never been seen in Yemen. If this phenomenon continues, millions more Yemenis will be driven to the verge of famine.
Inflation is one of the worst economic woes that can plague a country’s economy. In the case of Yemen, it must be pointed out that fast-moving inflation, spreading like cancer in the body of Yemeni economy, is more than just an economic phenomenon. It is the tragic consequence of the war in Yemen.
Consequently, any purely economic solutions to inflation in Yemen will be mere temporary bandages. The problems will continue.
In times of war, military expenditures rocket and, with the appearance of scores of armed militias who make handsome profits off war and have insatiable greed for more consumption, inflation becomes an unstoppable flood, destroying all barriers across its path.
Add to that the propensity of governments to rely on minting currency without cover to finance their military and civil needs, in light of the breakdown of economic and production institutions because of war.
When warring parties start minting their own paper money, you know the situation has become hopeless. Since the beginning of the war in Yemen, and up to the third quarter of 2018, 3.5 trillion rials that had no economic backup were pumped into the economic channels, principally as wages and salaries and military spending.
Fearing further devaluation of the rial, people quickly seek to convert their money. The crisis in Yemen today is dominated by the phenomenon locally known as “hot currency” or “dollarisation.”
Of course, in such situation one disaster hides another. Yemen’s trade with the outside world has virtually stopped because of the war. Naturally, the country’s reserves of hard currency are almost depleted. In the absence of any oversight or monetary control that might mitigate consumption, we ended up with what is called “money illusion.”
The civil war in Yemen is the main culprit in preparing the country for “judgment day,” when there will not be a social structure to deal with as in the past.
Runaway inflation will “terminate” whatever is left of the social foundations, the material ones as well as the moral ones.
Yemen’s economy was weak and exhausted to start with and it began to shrivel and falter when this latest evil civil war set foot in the country during the last quarter of 2014. By the end of 2015, the country’s GDP had shrivelled by one-third. More than half of the Yemeni labour force was suddenly without jobs as the agricultural, industrial and services sectors faltered. Very soon, two-thirds of the population had no food security.
The financial and economic embargo on Yemen, put in place by international and regional powers, deepened the crisis. Early in 2015, practically all foreign embassies and international development and humanitarian agencies had left Yemen. They took with them their aid programmes and development projects and loans to Yemen.
We must keep in mind that inflation is worse than war. If weapons in Yemen are responsible for the death of hundreds of people, the downfall of the rial and unbridled inflation will certainly lead to the death of hundreds of thousands if not millions of Yemenis. Without exaggeration, inflation is truly a weapon of mass destruction. This is why UN Special Envoy to Yemen Martin Griffiths’ recent warning about this aspect is justified.
The devaluation of the currency in Yemen is the logical outcome of structural problems in the country’s economy and of years of armed conflicts and instability. The monetary policies advocated by Yemen’s Central Bank will not do. This institution has really given enough proof of its shortsightedness.
As alleviating remedies to this catastrophic situation, the countries of the Arab coalition must pump $5 million-$10 million in Yemen’s Central Bank and facilitate remittances made by Yemeni expatriates in Gulf countries. These funds ought to be managed jointly by the Yemeni government and the donor countries to ensure efficient, professional and transparent governance.
However, as usual, the ultimate and noblest solution that will stop judgment day from befalling Yemen is to quickly end the war through a solid, fair and permanent peace settlement.