Economists told Al-Shorfa that Saudi Arabia's recent $1 billion deposit in Yemen's Central Bank will reinforce the stability of the Yemeni riyal value against other currencies and improve the balance of payments.

Saudi Arabia had deposited the $1 billion in early September as part of its pledged aid package of $3.25 billion to Yemen.

The Yemeni riyal exchange rate has been in a state of general stability for several months now, and the Saudi deposit is expected to relieve anticipated pressure on this stability and on Yemeni cash reserves in the coming period, experts said.

Supporting the balance of payments

Yahya al-Kestban, public relations director at Yemen's Central Bank, told Al-Shorfa that the Saudi funds would support the riyal's stability and shore up the country's balance of payments, especially since the bank had pledged to cover the import of basic goods and commodities since the 2011 crisis.

"Indicators suggest that development will accelerate, requiring the [Central] Bank to make additional efforts to cover [such] activities," he said. "Hence, the Saudi deposit will play a pivotal role in stabilising the currency and relieving the anticipated pressure on the bank in the coming days."

Economist Ali al-Wafi ruled out that the Saudi contribution would result in a drop in the price of the riyal.

"It is not important whether the price of the riyal drops, because it is stable. Any fluctuation in the price would be worrisome to investors and the development [process]," he said. "The significance of the [Saudi] deposit lies in that it shores up the balance of payments, relieves the pressure on the riyal and ensures that exchange rates remain stable."

"I do not expect improvement in the [price of the] riyal [against other currencies]," al-Wafi said. "[In any case] we do not want this improvement since the riyal has been stable against other currencies for several months now. Fluctuation in its price does not serve the development process, investment or capital."

Preliminary indicators show stability in the riyal exchange rate over the past months, al-Wafi said, adding that this benefits not only investment activity and infrastructure projects, but also the import process, "as Yemen imports $10 billion annually in investment and commercial goods, putting enormous pressure on cash reserves and the balance of payments".

State of optimism

Dr. Mohammed al-Maitami, an economics professor at Sanaa University, told Al-Shorfa there are signs the $1 billion deposit is bringing optimism to the Yemeni economy.

"This will reflect positively on exchange rates, even if it is only in a relative way, especially in light of continued improvement in the security situation, which will undoubtedly restore confidence in the Yemeni economy," he said.

Dr. Taha al-Faseel, also an economics professor at Sanaa University, said "strengthening the psychological factor has a significant effect on the stability of exchange rates and inspires confidence in the Yemeni economy, whereas the absence of this factor for periods in 2011 led to a significant drop in the price of the Yemeni riyal against hard currencies."

According to al-Faseel, the Saudi deposit will enable Yemen to utilise its cash reserves, reinforce the stability of its currency and support the balance of payments.

He urged other donors to take steps similar to those of Saudi Arabia.

"An increase in deposits would have a positive impact on the entire [Yemeni] economic and investment operation and would help stabilise the currency in view of the growing demand for hard currency to meet import needs," he said.

This increase would also lead to lower inflation rates, especially in light of the rise in global food prices, al-Faseel said.