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As a relatively poorer Arab country home to 20.7 million citizens, Yemen has challenges with respect to high unemployment at 35 percent and poverty where 45 percent of the population live below the poverty line. A clash of ideologies between the Marxist thinking South Yemen and the free market based North Yemen during the 1970-80’s held back each other’s respective economies. Unification of the North and South in 1990 resulted in a new currency, the Yemeni rial. Regions of Yemen have had a very difficult transition from a central planned economy following the then ideology of the former Soviet Union to market based principles. The collapse of the Soviet Union resulted in an economic subsidy loss for the South.

Economic Statistics
GDP using purchasing power parity stands at $16.25 billion USD (2004) with corresponding GDP/Capita at $800 USD. GDP growth forecasts include year 2005 at 3.7 percent, 2006 projected at 2 percent. Other GDP growth figures include year 2004 at 2.7 percent, 2003 at 3.1 percent. Inflation is estimated to be in the vicinity of 10 to 11 percent for both years 2005-06, inflation for year 2004 at 14.5 percent, 2003 at 12.1 percent, 2001 at 9 percent. The current account is in surplus at 1 percent of GDP. The fiscal account is in deficit at 4.5 percent of GDP (2004). Yemen holds $5.3 billion USD of foreign exchange & gold equivalent to 1.25 years of import coverage. Oil exports at 370,000 bpd (2003). External debt was measured at 67 percent of GDP (2001). Interest rates are at 13 percent, money supply growth is moderate at 15 percent (2004).

CURRENCY: ISO Symbol ‘YER’, Yemeni rial, Yemen rial. At time of review on December 10, 2005, the Yemeni rial had an exchange valuation of 194.5 YER to the US-dollar (USD). The currency rial follows that of a floating exchange rate regime that has been in place since July 1, 1996.

CURRENCY HISTORY: historical exchange valuations include year 2004 at 184.78 YER to the USD, 2003 at 183.45, 2002 at 175.63, 2001 at 168.67, 2000 at 161.72, 1997 at 129.15, 1996 at 94.15, 1995 at 40.83, 1991-94 pegged at 12.01 to the USD (the then market rate was approximately 90 rials to the USD), 1990 at 4 rials to the USD. Unification of the two states in 1990 resulted in currency unification with the Yemeni rial replacing two currencies, the Southern dinar and the Northern riyal. The currency swap was set at 26 dinars to the rial.

CURRENCY FORECAST: Yemen’s oil based economy is in decline with quickly depleting oil reserves and falling production, proven oil reserves are modest at only 4 billion barrels for oil. The short term may benefit on high world oil prices, but Yemen faces a great challenge ahead with the transition to a non-oil economy over the next 20 years unless new large discoveries are made soon. The upside is in natural gas where reserves stand at 480 billion cu m and within the country’s mineral potential in areas of nickel, cobalt, platinum, etc. Currency risks include domestic Islamic violence/terrorism, volatile Middle East region, high population growth rates and will the non-oil economy succeed in replacing the wealth output of the oil based economy? The immediate exchange valuation for the Yemeni rial will depend on the level of remittances and foreign aid received, current capital inflows are strong and recent tax reform has been positive with implementation of the GST tax. Over the medium to long term, political forces will help to value the rial as the exchange will be measured by the delicate balance of peace between the hundreds of domestic well armed tribes and the ruling government – security issues will continue to be an important factor for Yemen.

UPDATED: December 10, 2005

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