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Aden-based Central Bank orders halt of transactions with major commercial banks

  • Key Message Update
  • Yemen
  • May 2024
Aden-based Central Bank orders halt of transactions with major commercial banks

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  • Key Messages
  • Key Messages
    • In Yemen, poor households face highly limited income-earning opportunities following years of protracted conflict and poor economic conditions. Given this and high dependence on markets for food amid above-average food prices, millions are expected to be facing food consumption gaps. At the governorate level, Crisis (IPC Phase 3) (IPC Phase 3) and Crisis! (IPC Phase 3!) outcomes are likely to persist across most of the country throughout the projection period, with Emergency (IPC Phase 4) outcomes likely to persist in some areas controlled by the Sana’a-based authorities (SBA) amid the ongoing pause in WFP-provided humanitarian food assistance. In IRG-controlled areas, a greater number of households are expected to face a Crisis (IPC Phase 3) or worse outcomes in the hot summer months given lost income and increased expenditure requirements amid power outages and extreme heat. In addition to the risk that the economic conflict escalates further, with notable negative impacts on households, it should be noted that the increased tension could lead to a re-escalation of military conflict.
    • Economic conflict between the internationally-recognized government (IRG) and the Sana’a-based authorities (SBA) escalated to highly concerning levels in May, following the developments reported in FEWS NET’s March and April reports. On May 30, the Aden-based Central Bank of Yemen (CBY) announced a circulation to suspend all financial transactions with six of the biggest commercial banks in Yemen given their failure to relocate their headquarters to Aden city. As an immediate consequence, some of the Sana’a commercial banks witnessed a drop in liquidity. This has led to unprecedented protests by citizens demanding the release of their deposits after banks refused to issue even the limited withdrawal amounts allowed previously. 
    • While it is unclear what additional actions the CBY-Aden will take to enforce the May 30 order against non-compliant banks, measures might include suspending licenses, imposing fines, rescinding all privileges related to public currency auctions and documentary credits, suspending internal transfers, and restricting access to financial services, including to the international financial transactions servers (SWIFT) essential for foreign transfers. These moves would be expected to contribute to worsening liquidity shortages in SBA areas and, in turn, further deterioration of the business environment and income-earning opportunities for poor households. The suspension of internal money transfers would also disrupt an important source of income for remittance-dependent households in SBA areas. 
    • From January to April 2024, Yemen imported around 1,302,833 MT of wheat grain, 43 percent of which was high-quality wheat imported from Australia. The recent designation of the SBA (Ansar Allah) as a terrorist group and associated sanctions by the Australian Government (which took effect on May 24) are intended to allow for continued exports to Yemen. However, Australian traders will need time to conduct due diligence to ensure they will not transact with traders linked to Ansar Allah, and some traders may be reluctant to continue exporting to Yemen at all. As such, the designation may lead to a temporary decline in high-quality wheat import levels manifesting in late 2024, given typical importation lead times. However, poor households are unlikely to be meaningfully impacted; poor households purchase lower-quality wheat, and relatively better-off households would be expected to substitute high-quality wheat with other staples, rather than switch to lower-quality wheat. Additionally, based on past trends, Yemeni traders would likely be able to source wheat from alternative markets relatively quickly, avoiding meaningful supply reductions. However, this would likely result in higher importation costs that would translate to additional upward pressure on domestic prices. 
    • In IRG-controlled areas, the local currency continued to depreciate in May 2024, at least partially due to high demand for currency with the approaching Haj season. The exchange rate reached an unprecedented value of 1,765 YER/USD (selling rate) on May 25, representing a 6 percent and 38 percent loss of value, respectively, compared to the prior month and the same time last year. This has led to additional inflation in IRG-controlled areas, including for prices of basic food commodities and fuel. In Aden, commercial fuel stations increased petrol prices by 4-8 percent during the last week of May, relative to the April average price, in response to the currency depreciation. 
    • In Aden, the Association of Professional Bakeries announced a total and open strike on May 25, demanding an increase in bread prices by an additional full 43 percent, from 70 to 100 YER per loaf, due to rising production costs. This comes even after the association raised bread prices by 40 percent in March 2024. After two days, the strike paused temporarily for fifteen days, with bakeries selling bread at a new temporary rate of YER 75 (15 percent higher than the prior rate), alongside a promise from the Bureau of Industry and Trade in Aden to study the production and selling costs and take appropriate action. Meanwhile, in IRG-controlled areas of Taizz, bread prices increased by 20 percent, from 50 to 60 YER per loaf, due to currency depreciation and high production costs. 
    • Extreme heat and prolonged power outages in IRG-controlled areas are further burdening poor families and limiting income-earning. Already problematic power outages have worsened in recent months, driven by a lack of government revenue to purchase fuel to run power plants. In May, outages exceeded 20 hours in Aden, and have lasted days in other IRG-controlled areas. The extreme heat has caused increased strain on public water availability and is driving heat-related health issues, including increased incidence of disease and death, with children and the elderly most vulnerable. These circumstances are forcing poor families to prioritize essential energy and health expenditures—including water and ice—over other essential needs, including food. The extreme heat has also negatively impacted crop and livestock production and is reducing poor households’ ability to earn income given reduced productivity in the dangerous heat and reduced profits amid power outages.

    Recommended citation: FEWS NET. Yemen Key Message Update May 2024: Aden-based Central Bank orders halt of transactions with major commercial banks, 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.

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