Financial crisis persists despite de-escalation of economic conflict

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Nationwide, persistently poor economic conditions continue to limit households’ income-earning opportunities and drive above-average food prices. In addition, the impacts of heavy rainfall and devastating flooding in August are reducing typical seasonal improvements in food and income from crop production and labor, with areas controlled by the Sana’a-based authorities (SBA) particularly impacted. Across the country, Crisis (IPC Phase 3) or worse outcomes are expected to persist at the governorate level through at least the end of the projection period (January 2025). In SBA-controlled governorates where more than 50 percent of the population received WFP-provided emergency humanitarian food assistance prior to the December 2023 pause, Emergency (IPC Phase 4) outcomes are expected to continue throughout most of the projection period.
In SBA areas, given the ongoing status of negotiations and absence of plans for even additional one-off distributions to date, FEWS NET anticipates that the pause in WFP-provided emergency humanitarian food assistance will most likely continue throughout the majority of the projection period, consistent with FEWS NET’s June Food Security Outlook assumption. After more than eight months of paused assistance amid highly limited income-earning opportunities, many households have fallen further into poverty, with very poor households regularly implementing more severe coping strategies such as limiting themselves to one meal per day. Meanwhile, information available as of mid-August indicates that the number of beneficiaries of WFP-provided assistance in areas controlled by the internationally-recognized government (IRG) will be reduced from around 3.6 million to around 2.5-2.6 million from September to December, while ration sizes will increase to provide an average of 46 percent of minimum kilocalorie needs for the remaining beneficiary households. While some beneficiary households in IRG areas will likely experience improvement to Stressed (IPC Phase 2) outcomes given the increased rations, this is expected to be insufficient to improve area-level Crisis (IPC Phase 3) outcomes amid the impacts of poor economic conditions and highly constrained income-earning opportunities, as well as the expectation that a more limited number of households that lose assistance will likely deteriorate to Crisis (IPC Phase 3).
Although the conflict between the country’s two central banks de-escalated in late July, both the SBA and the IRG remain faced with severe macroeconomic problems. In SBA areas, liquidity shortages are preventing many people from accessing bank deposits. In response to the shortages, the SBA is seeking to expand revenue sources, for instance, by regulating fruit exports and limiting them to companies affiliated with the SBA. Meanwhile, in IRG areas, limited government revenue is driving continuous depreciation of the local currency. Despite recent measures taken by the Aden-based Central Bank of Yemen (CBY) to support the value of the currency – such as disposing damaged bank notes – depreciation has continued, with the exchange rate reaching 1,920 YER/USD on August 26. Although the CBY-Aden is expected to continue holding public currency auctions on an irregular basis, supporting traders’ importation requirements, the Aden-based rial (YER) is now projected to depreciate faster than previously anticipated in June, approaching 2,100 YER/USD by January 2025. In both SBA and IRG areas, macroeconomic problems are expected to persist, straining business activity. However, cross-border remittance inflows are now expected to be similar to last year, given the de-escalation of tensions between the two central banks.
In July, Israeli airstrikes caused damage to Al Hudaydah seaport. This caused high concern for potential disruptions to food and fuel importation supply chains that serve SBA areas. While FEWS NET continues to closely monitor the situation, information to date does not suggest cause for concern for food import supply chains. Comparatively more concern exists for fuel supply chains, due to damage to fuel storage infrastructure.
In July 2024, a total of 183,510 MT of essential food commodities were imported through the Red Sea ports, according to the Al Hudaydah Port Customs. Of this, 152,510 MT (including 85,700 MT of wheat grain) entered through Al Hudaydah port, while 31,000 MT of wheat grain entered through As Salif port. While the total food imported through the Red Sea ports in July was 53 percent less than the previous month, significant month-to-month fluctuations in food import levels are typical; month-on-month declines of 40 percent or more have been recorded on four other occasions in the past year and a half. Given this and the absence of any reports to date citing damage to critical importation infrastructure used for food imports, FEWS NET’s assumptions on food supply and prices remain unchanged relative to the June Food Security Outlook. However, the availability of August importation data will be needed to confirm this. It is also worth noting that, even if there should be some lasting decline in food import levels, available wheat stocks are expected to be equivalent to around three months of consumption requirements; as such, traders would likely be able to draw from stocks to keep markets sufficiently supplied, in combination with some continued imports, while any damage is repaired.
On the other hand, there is greater concern about the potential impacts of damage to fuel storage infrastructure at Al Hudaydah port. According to the Al Hudaydah Port Customs, no fuel entered through Al Hudaydah Port in July, likely attributable to recent damage to fuel storage units. Meanwhile, around 148,430 MT of fuel (diesel and petrol) entered through Ras Isa port in southern Al Hudaydah. Since the beginning of 2024, around two-thirds of diesel and petrol imports into the Red Sea ports have been via Ras Isa, with Al Hudaydah receiving the remaining third. While the decline in fuel imports through Al Hudaydah in July could represent a pause due to the need for old stocks to be used before receiving additional supply following the sudden loss of storage capacity, close monitoring is needed. To date, no disruptions to fuel availability or fuel price increases have been reported for SBA areas. As such, while fuel stock levels are likely to remain reduced following the attack and loss of storage capacity, FEWS NET’s assumption on fuel market supply and prices remained unchanged relative to the June Food Security Outlook; however, FEWS NET is monitoring the situation closely and may revise this analysis as additional information – including August import data – becomes available. It is also worth noting that WFP has reportedly lost 800,000 L of fuel, which could potentially impact humanitarian operations of WFP and partners.
Since 2018, Yemen has experienced frequent storms and torrential rains. This year, Yemen was hit by devastating torrential rains and flooding in March and April, causing extensive damage to infrastructure, homes, and shelters, as well as numerous deaths and injuries. Rainfall intensified again at the end of July, with severe flooding continuing throughout the first week of August. This caused widespread damage, including to the homes and shelters of internally-displaced persons (IDPs) and host communities, with some structures damaged beyond repair. Public infrastructure such as schools, roads, and health facilities have also been damaged. The widespread flooding also destroyed essential livelihood assets including livestock, crops, and business assets. According to UN OCHA approximately 38,285 families (nearly 268,000 individuals) had been affected in August as of August 13, with over 50 deaths across 19 governorates. Hajjah, Al Hudaydah, and Marib have been the worst impacted overall. On August 22, the Yemen Civil Aviation and Meteorology Authority (CAMA) issued alerts for continued heavy rainfall. The ongoing rainfall is likely to increase the spread of waterborne and vector-borne diseases including cholera, malaria, and dengue fever, with peak incidence expected during the July to September second rainy season. This will put further pressure on households with exhausted budgets and force many poor households to choose between food and essential health expenditures, underscoring the urgent need for continued support for affected communities.
While the frontlines remained relatively quiet in August, the SBA increased attacks on commercial ships in the Red Sea and the Gulf of Aden after a two-week lull in late July. Based on recent observations and analysis, FEWS NET’s assumptions regarding the conflict remain unchanged since June. Increased freight and insurance costs due to insecurity in the Red Sea and Gulf of Aden will continue to drive elevated import costs.

Recommended citation: FEWS NET. Yemen Key Message Update August 2024: Financial crisis persists despite de-escalation of economic conflict, 2024.

This Key Message Update provides a high-level analysis of current acute food insecurity conditions and any changes to FEWS NET's latest projection of acute food insecurity outcomes in the specified geography. Learn more here.