Banking Sector Crisis Projected to Escalate Households Food Insecurity in Yemen

The recent directives issued since March 2024 by the central banks in Aden and Sana’a have led to significant disruptions in Yemen’s financial and banking sectors and pose a substantial risk that ordinary Yemenis will face increasing food insecurity and hunger.

A new report issued by the Food and Agriculture Organization of the United Nations (FAO) shows, over the past year, the Yemeni Rial (YER) in Government controlled areas has depreciated by 38 percent against the US Dollar, averaging a three percent monthly depreciation. Projections indicate a further depreciation of at least five percent per month over the next four months. However, uncertainties hide the trajectory of the YER in Sanaa Based Authority (SBA) controlled areas due to strict exchange rate controls.

This currency depreciation has increased the risk of rising food and fuel prices. Projections indicate that the Minimum Food Basket (MFB) is expected to cost between USD 87 and USD107 by August 2024, marking a six percent increase in GoY controlled areas. This comes at a time when casual labour rates remain stagnant. Diesel prices hikes are also anticipated, which could lead to an increase in food prices due to transportation costs, translating approximately into 30 percent of food inflation. The price risks in SBA areas are unpredictable, given the unresponsive economic price controls, yet inflation risks persist.

According to the FAO’s report, the crisis is also projected to lead to a reduction in food and fuel imports, exacerbated by the lack of access to dollars, limited fund transfers, and constrained credit lines. This is expected to slow down commercial import flows, particularly affecting Southern Ports. Dr. Hussein Gadain, the FAO Representative in Yemen, emphasizes the gravity of the situation: “The current financial turmoil is not just an economic crisis; it’s a humanitarian one that directly affects the daily sustenance of millions.”

The report further indicates that remittances, which play a crucial role in meeting the food needs of millions in Yemen, are also expected to decline. The financial sector disruptions could worsen the already decreasing domestic and external remittance flows, leading to accelerated currency depreciation and a widened import financing gap, further exacerbating household food insecurity.

Yemen’s economy faces a deepening downturn, with the IMF projecting negative growth for the second consecutive year in 2024. The financial crisis threatens to stifle economic and trade activities, increase unemployment rates, and reducing household income.

According to UNDP analysis, 82 percent of Yemenis are living in multidimensional poverty and are heavily reliant on market resources for essential food items, and hence this financial crisis poses a severe threat. FAO’s Yemen households monitoring analysis, already allocating more than 65 percent of their income to food expenses, are increasingly vulnerable to economic and market instabilities. Many are resorting to food borrowing and aid for support, which may hinder their financial recovery and deepen their poverty.

The report recommends the necessity of taking swift and decisive action to navigate the instability and lessen its detrimental impacts. “In the midst of this financial upheaval, our immediate priority must be the people whose lives hang in the balance. We are witnessing a dire situation where families are struggling to afford even the most basic food items,” Gadain said. “It is imperative that we take concerted action to stabilize the economy and provide urgent assistance to those in need.”

The urgent need for humanitarian food aid and developmental support is vital to tackle the intensifying food insecurity afflicting Yemeni families. It is equally important to initiate and sustain negotiations and dialogue among the various parties in conflict, aiming to achieve mutual agreements.

Such collaborative efforts, supported by international mediation, are indispensable in reinforcing the financial sector’s stability. This will ensure the continuous and effective delivery of vital services, thereby preserving the well-being of Yemen’s most vulnerable groups during these trying times.