/ 18 December 2018

War-ridden Yemen’s other frontline — the central bank

The Arab world's poorest country is crippled by a humanitarian crisis.
The Arab world's poorest country is crippled by a humanitarian crisis. (Mohamed al-Sayaghi/Reuters)

Cashiers sort through large stacks of money inside a ragged building that is Yemen’s central bank, another frontline in a ruinous conflict as it fights to stave off economic collapse.

The Arab world’s poorest country is crippled by a humanitarian crisis, with images of skeletal children in famine-like conditions grabbing global attention, but economic dysfunction appears to be at the heart of the problem.

Yemen is afflicted by what diplomats call a famine of jobs and salaries, with the central bank — headquartered in the government’s de facto capital Aden — torn between the two warring parties.

Running the economy from a building pocked with bullet holes in the southern port city, the bank is scrambling to revive a currency that has lost two-thirds of its value since 2015, exacerbating joblessness and leaving millions unable to afford basic food staples.

The central bank expects a $3-billion cash injection from Gulf donors Kuwait and the United Arab Emirates to prop up its sagging currency amid soaring inflation, its deputy chief Shokeib Hobeishy said in an interview last week, without giving a timeline.

The potential lifeline, if confirmed, would follow a $2.2-billion infusion by Saudi Arabia to the depleted reserves of a bank that appears ever more dependent on international handouts.

‘Most dangerous frontline’ 

Hobeishy acknowledged that the bank was struggling to assert authority over its branches outside government control, including in Sanaa, which was seized by Iran-aligned Huthi rebels in September 2014.

The government moved the bank’s headquarters from the capital in 2016 following suspicion that the rebels were plundering its reserves to finance their war effort. The rebels deny the claim.

The relocation practically left the country with two parallel centres of fiscal policy dealing in one currency.

Yemen’s rivals reached a truce accord last week, but conspicuously absent was an agreement on economic cooperation as the Huthis rejected government calls for the Aden central bank to handle public sector salary payments on both sides, a diplomat who attended the talks said.

The central bank is now “arguably the most dangerous frontline in the Yemen war”, said Wesam Qaid, executive director at Yemen’s Small and Micro Enterprise Promotion Service.

“The death toll as a result of bombings or land mines and military operations stands in the thousands,” Qaid said.

“Many more have died as a result of poverty, starvation, poor healthcare as the central bank is caught up in the conflict.”

Soaring Inflation 

Yemen’s economy has contracted by 50% since the escalation of conflict in 2015 and inflation is projected at over 40% this year, according to the World Bank.

A weakened currency has diminished the purchasing power of millions and the private sector is haemorrhaging with businesses shutting down or making layoffs.

New Prime Minister Moeen Abdulmalik Saeed, appointed in October, said he was seeking to revive oil exports that once contributed about three-quarters of state revenue.

But such are the fears of insolvency that many Yemenis are afraid of putting their money in local banks.

“Banks often say: ‘We don’t have money. Come tomorrow, come next week’,” said a 54-year-old school employee in Aden.

Businesses also criticise the central bank over cumbersome processes to obtain letters of credit for vital imports — in a country that depends almost entirely on food from abroad.

In a letter sent in November to the prime minister and central bank chief, Aden’s chamber of commerce voiced concern that traders in areas outside government control were struggling to import essential goods. A central bank order requires payment in cash only.

The letter said the policy had caused a sharp decline in imports in those densely populated areas, making them prone to famine.

On the other side, businesses say the rebels are obstructing traders and banks in their areas from opening credit lines to Aden.

Central bank chief Mohammed Zemam said this month five Sanaa-based central bank employees had fled to Aden over safety fears and were immediately blacklisted by the rebels.

“We are asking the rebels to leave the banking sector alone,” he said in a separate interview in Riyadh.

“This is the only way to feed the people.”