Liquidity Crisis Exacerbates Food Insecurity

In 2003, food insecurity among people in Yemen was 22%. The percentage doubled (44%) in 2008 due to the triple F-crisis: the soaring world fuel and food prices and the global financial crisis. However, the percent of food insecurity fell to 32% in 2009, and then went up again to 44.5% in 2011 as a result of the negative repercussions of the political crisis in the country.

Banking Sector Developments in Yemen

Banks perform various functions in economy, mainly the financial intermediation functions in terms of receiving deposits from savers and providing credit to borrowers. The role of Yemeni banks in financial intermediation is still limited in the economy where the average value-added of financial institutions accounted for only about 2.9% of GDP during 2010-2014.

Call to Resume Donor Support to Yemen

Disbursement of external grants and loans dropped from $2.185 billion in 2014 to $109 million in 2015, or by about 95.0%. The donor support suspension has included even basic social projects such as the basic education, maternal and Newborn health and social protection. This has reflected negatively on the various population groups.

Debt Restructuring or Default

The public debt as a percentage of Gross Domestic Product (GDP) reached alarming levels of 94.4% in 2015, exceeding the safe limits of 60%. The public debt service (principal and interests) constituted 64.2% of the total public revenues and 34.6% of the total public expenditures in 2015. This means that the public debt burden has exceeded the safe limits (25%). Accordingly, the public debt service has taken more than the social expenditures (education, health, social protection and water).

Oil Sector Recovery in Yemen

The crude oil production and liquefied natural gas (LNG) exports declined by

76.8% and 80.3% respectively in 2015 compared to 2014. The lost opportunity

cost of crude oil production and LNG exports is estimated at about $2.5 billion

and $1.6 billion respectively in 2015.

Causes, Implications and Priorities: Exchange Rate Crisis

The most important causes of exchange rate crisis include suspension of oil and gas exports, suspension of donor development support, difficulty to convert banks accumulated balances from Saudi Riyal to US dollar and erosion of the CBY’s foreign exchange reserves.

Public Finance Developments in Yemen

Decline in total state’s public revenues by 53.7% due to the suspension of the production and exports of crude oil and liquefied natural gas (LNG), suspension of donor support to state’s budget and reduction in tax revenues.

Private Sector: In Search of a Lifeline

A rapid survey conducted by SMEPS-UNDP, between mid-August and mid-Sep. 2015 indicated that 26% of businesses were forced to shut their doors for several reasons, most notably the physical damage on the private sector enterprises due to the ongoing war in the country, as well as the loss of capital, mounting debt and lack of electricity and fuel.