Sanaa’s ability to pay for imports reached a new low in April as the riyal tumbled to a record low against the US dollar, leaving the country’s finances in an increasingly precarious position.
The Central Bank of Yemen’s foreign assets fell to $5.92bn in April, a report issued in early July shows. While the dollar amount is not the lowest on record, the number of months of imports it can pay for is. This is due to increasing demand for foreign goods and the falling value of the riyal.
In 2005, the bank held an average of $5.7bn in foreign assets, but could cover 13.8 months of imports. The central bank now holds enough foreign currency to cover a mere 8.2 months of imports.
On 17 July the Yemeni riyal fell to a record low against the US dollar, with YR230 buying $1. As of 25 July, the exchange rate was YR229.6 against the dollar.
Yemen saw a trade deficit of 10.7 per cent of GDP in 2009. Although its economy is largely based on agriculture, Yemen imports 90 per cent of its wheat and, according to senior government officials, 100 per cent of its rice.
The demand for foreign goods is exacerbated by the falling value of the riyal. Sanaa sold more than $850m in US dollars between January and April 2010 to firm up the value of the currency, but this has left its foreign currency reserves even more depleted and has done little to increase the value of the riyal.
The government sold another $80m in July in an attempt to increase the value of the riyal and will likely have sold more than $1bn by the end of the year to prop the currency up.
The country faces increasing cash problems as oil revenues, which made up around 76 per cent of government income in 2009, fail to balance out expenditure. The country’s spending deficit topped 10 per cent in 2009, according to the Washington-headquartered World Bank.
According to International Monetary Fund (IMF), also Washington-headquartered, Yemeni government debt hit 45.9 per cent of the country’s $26.6bn gross domestic product (GDP) in the same year.
Sanaa wants to raise around YR60bn ($261.2m) in debt by issuing an Islamic bond (sukuk) in the third quarter of 2010 to help ease its woes, according to sources close to the Yemeni government.