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YEMEN: Ramadan shoppers feel the pinch of soaring food prices, tumbling currency

August 17, 2010 |  8:26 am
DSC01238xxcxc Soaring food prices during the annual fasting month are nothing new to Yemenis, but this year's unusually high price hikes and the continued devaluation of the national currency are forcing many Yemenis to cut their Ramadan shopping short.

"I couldn’t buy all the Ramadan supplies I used to," Faris Azzan, a 31-year-old engineer  in Sanaa, told Babylon & Beyond. "I had to manage with only the necessary ones. The habit of inviting family and relatives for Ramadan dinner gatherings was canceled this year too."

He said that the value of his salary in Yemeni rials has decreased by 30% due to the recent increase in prices and drop in the rial against the dollar.

Twenty-two-year-old shopkeeper Wadhah Hubaishi, who has two wives and two children, said he is also feeling the pressure from the high commodity prices.

"Prices of everything increased. I reduced the quantity of Ramadan supplies I bought by 30%," he told Babylon & Beyond. "It is a heavy burden on us, and Eid (the Muslim holiday after Ramadan) is coming. "We have to be patient. What we can say?"

The rial has kept dropping at a rapid pace this year, despite Yemen's central bank making cash injections of $977 million into the exchange market. Since mid-January, the rial has fallen nearly 16% from its 2008 level against the dollar, media reports say. In late July, one dollar equaled 242 rials on the Yemeni currency market, marking the worst exchange rate in history.

Some traders in the Yemeni capital suggest the devaluation is getting worse.

DSC01275xxxx Thirty-five-year-old clothing trader Sadiq Alimi told Babylon & Beyond that he put a halt on credit sales and even shut down business for five days to avoid losing money when the rial recently fell to 252 to the dollar. Clothing prices, he said, have gone up a whopping 15% to 20% from last year.

At one point, he said, currency exchangers in Sanaa refused to sell dollars for six days.

The central bank responded by issuing a stern warning to currency exchangers in Sanaa.

According to Yemen's Saba news agency, the bank said it will make any money exchanger who refuses to sell dollars to traders pay a penalty of 300,000 rials (approximately $1,300).

Meanwhile, debate about the cause of the currency turbulence continues in this impoverished country on the Arabian Peninsula that also battling a resurgent Al Qaeda and a separatist movement. Opinions on the root of the problem remain divided, with some analysts saying that the devaluation of the rial is linked to the political situation in the country.

But the central bank has reportedly blamed the recent currency drop on heightened demand for foreign currencies to import goods for Ramadan. The governor of the bank, Mohammad Awad bin Hammam, has also suggested to Saba that speculators may be playing with the official exchange rates.

Jaffer Munaiem, an economics professor at Aden University, has a different theory.

He believes the main reason the currency keeps dropping against the dollar is linked to the decrease in oil prices internationally: "The coming of Ramadan was not the reason of rial devaluation and increase in prices," he told Babylon & Beyond. "The structure of the economy of Yemen was affected since it depends mainly on oil. About 75% of Yemen's budget comes from oil, which makes up more than 90% of the country's exports."

Aside from dropping oil prices, Munaiem said that corruption, the country's budget deficit and the failure of the central bank's cash injections into the market also play a role in the continued currency deterioration.

-- Khaled Hilaly in Sanaa and Alexandra Sandels in Beirut

Upper photo: Customers shopping at a stand in Sanaa's old souk. Credit: Alexandra Sandels

Lower photo: A man puts bread in the oven in a small bakery in Sanaa. Credit: Alexandra Sandels