Yemen Socio-Economic Update

Transcription

1 Ministry of Planning & International Cooperation Economic Studies & Forcasting Sector Yemen Socio-Economic Update Issue (18) Sep., 2016 Yemen Economy in Lines Liquidity Crisis Exacerbates Food Insecurity Facts and Figures YER 305 / USD YR billion The exchange rate in the parallel market has been fluctuating around YER305/USD during Mid Sep. - Mid- Oct., million 82% of the population in need of humanitarian assistance, including 9.9 million children.* 1.5 million beneficiary cases have been awaiting the cash assistance of the Social Welfare Fund since early million 51% of the population are food insecure. 7 million severely food insecure.* Introduction Food insecurity and liquidity shortage are two serious crises that exacerbate day by day. Emergence of these two factors in the arena of Yemen s conflict intensifies the cri-sis, putting the lives of Yemenis at serious risk, shaking and destroying the financial and banking system and deteriorat-ing the entire economic activity. As a result, the remaining manifestations of stability, security and tranquility As the fall entire apart. world is celebrating this year World Food Day on October 16, food insecurity indicators in Yemen are unprecedentedly escalating million people are unable to meet their food needs (of whom 7 million are severely food insecure). In other words, at least one in two Yemenis don t have access to enough food. Liquidity crisis has recently reared its head, making the situation more vague and dangerous to all community members to varying degrees, but without exception. The manifestations of liquidity crunch are obviously seen in the nonpayment of wages of 1.25 million state employees (With 6.9 million dependents, including 48.2% children) for months, in addition to depriving 1.5 million SWF poor beneficiary cases from cash assistances. Banks inability to meet their obligations shakes confidence in the banking system and further exacerbates the liquidity crisis, thereby, deepening the economic downturn and increasing unemployment and poverty rates. In light of the foregoing, this issue rings alarms bells about how serious the situation is, including a package of priorities that should be seriously dealt with to avoid further escalation of the economic, banking and humanitarian crises. Dr. Mohammed Al-Maitami Minister of Planning and International Cooperation The public budget deficit during Jan.-June 2016, compared to YR278.7 billion during the same period in % Is the estimated decline in GDP, while the inflation rate rose by over 30% in million 90% of the population lack access to electricity through the public grid.** 2.21 million # of IDPs.* Sources: *UN agencies and IOM, June, ** WB, June, million public employees are awaiting for their salaries First: 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. In March-April 2014, the percent of food insecurity fell to 41.1% of the population. Food insecurity is concentrated more in rural areas as around 48% of the total rural population were found to be food insecure, compared to 26%in urban areas. (The CFSS,2014). As figure (1) and table (1) show, food security status worsened unprecedentedly during as a result of the negative impacts of the ongoing war in Yemen, accompanied by severe crises, especially fuel shortage that reached a peak in the second quarter of 2015, and liquidity crisis that began in the second half of Figure(1): Prevalence of Food Insecurity % World triple F-crisis: Prices of Food& Fuel, and Financial crisis in Repercussions of 2011 crisis Repercussions of ongoing war Mar.-Apr. June June Source: CFSS, And FSIS, IPC According to the Integrated Food Security Phase Classification (IPC) released in June 2016, about 51% of the population (14.1 million people) is estimated to be food insecure, with a 9% increase compared to June Food insecurity is divided into five phases. Even though Yemen hasn t yet reached the last phase (famine), there are pockets of severe food insecurity in Al Tuhayata and Al Khawkhah districts of Hodeida governorate which could lead to famine. Table(1): Phases of Food Insecurity Description/Year 2014 June 2015 June 2016 Million people % Million people % Million people Emergency (Phase 4) Crisis (Phase 3) Phases 3+4 (Food Insecurity) Stressed and Minimal (Phase 1&2) Source: Food Security Information Systems Development Program, IPC, %

2 Issue (18) Sep., 2016 Page 2 Yemen Socio-Economic Update Geographically, food insecurity percentage varies from one governorate to another, as follows: 9 governorates were classified under emergency (IPC phase 4) as the most food insecure governorates and need urgent lifesaving food and livelihood assistance, namely Al-Dhale, Lahj, Taiz, Abyan, Sa ada, Hajja, Hodeida, Al-Bayda and Shabwa. 10 governorates were classified under crisis (phase 3) and need urgent aid to reduce the food consumption gaps and acute malnutrition, namely Aden, Amran, Dhamar, Sana a City, Sana a governorate, Ibb, Marib, Rima, Al-Mahweet and Al-Jawf. 3 governorates were classified in the stressed phase (phase 2) and are considered the least affected by food insecurity compared to other governorates, namely Hadramout, Al-Mahra and Socotra. Figure(2): Integrated Food Security Phase Classification (IPC) Map SAUDI ARABIA OMAN Sa'ada Al Maharah Hajjah Amran Al Jawf Hadramaut Red Sea Al Mahwit Sana'a Al Hudaydah Raymah Taizz Amanat Al Asimah Dhamar Ibb Al Dhale'e Lahj Marib Al Bayda Abyan Shabwah Disclaimer: The boundaries and names shown and designation use in this Map do not imply official endorsement or acceptance by collaborating Organizations and the IPC Global Partners. Arabian Sea Acute Food Insecurity Phase Minimal Stressed Crisis Emergency Famine Area with inadequate evidence Not Analyzed Area would likely be at least 1 phase worse without the effects of humanitarian assistance ERITREA DJIBOUTI Aden Gulf of Aden Kilometers Source: FAO - Yemen, situation report, September With regard to malnutrition among children, the prevalence of chronic malnutrition (Stunting) in children under five fell from 46.6 % in 2011 to 41.3% in However, it remained one of the highest in the world (Comprehensive Food Security Survey, 2014). Currently, UNICEF estimates that 370,000 children under 5 at risk of Severe Acute Malnutrition (SAM) compared to 160,000 prior to the war (1), while 2.2 million children need urgent humanitarian assistance to prevent a further deterioration in their nutritional status (2). SAM blunts children intellect and makes them nine times more likely to die compared to their healthy peers. This puts the future of human development in Yemen at risk. Yemen in the Global Hunger Index Report: According to the Global Hunger Index Report released by the International Food Policy Research Institute (IFPRI) for 2016, Yemen is classified among the poorest 6 countries out of 118 countries in the world. There is no doubt that the liquidity crisis and other crises will further exacerbate the humanitarian situation and undermine social peace in the country. Figure(3): COUNTRY TRENDS FOR THE 1992, 2000, 2008, AND 2016 GLOBAL HUNGER INDEX SCORES. NEAR EAST AND NORTH AFRICA Socotra GHI1992 GHI2000 GHI2008 GHI Yemen Iraq Egypt Oman Morocco Algeria Lebanon Iran Jordan Tunisia Kuwait Saudi Arabia Turkey Source:

3 Issue (18) Sep., 2016 Page 3 Yemen Socio-Economic Update Second: Liquidity Crisis: Concepts of liquidity: Macroeconomic liquidity Means broad money supply (M2) (currency outside banks, demand deposits and quasi money inside banks). Public Budget Liquidity The ability to finance public expenditure including salaries, otherwise we face a long-term liquidity crisis. Liquidity Concepts Funding liquidity The ability of banks to meet their liabilities in a timely fashion. Central bank liquidity It`s ability to supply the liquidity needed to the financial system. Signs of Liquidity Crisis: 1- At CBY: - The CBY has suspended all disbursements to the public budget except for wages and salaries. However, it delayed payment to employees. - The CBY circulated damaged banknotes that were supposed to be replaced due to the lack of cash. 2- At banking sector and exchange companies: - Having difficulty in meeting depositors demands of local currency. - Banks set a deposit withdrawal ceiling on deposits in local currency. - Lack of Yemeni Riyal cash in markets, especially the YR1000 and YR500 notes. - Exchange companies are having difficulty disbursing large remittances, especially in the southern governorates. Major Causes of Liquidity Crunch (3) : Aggravation of the public budget deficit, which amounted to YR1451 billion (equivalent to $ 6.4 billion) during January June 2016 due to the deterioration of tax revenues, halt of oil and gas exports and suspension of donor support. Therefore, the budget relied on liquidity available at the CBY, which contributed 80.6% (YR1170 billion) of the public budget deficit during the same period. Thus, The CBY s stock of available cash was depleted in financing budget deficit. Interruption in the cash flow cycle because the CBY used to periodically pump the hard-currency revenues of the public budget to the local market in exchange for withdrawing the local currency from the market to use it to finance the budget expenditures. However, this cycle has been broken. Decline in the CBY s total foreign reserves from $4.7 billion in December 2014 to $0.987 billion (including Saudi deposit and banks deposits at the CBY) in September 2016 due to the sharp decline in the flow of foreign exchange resources to Yemen, in addition to financing basic commodities imports, paying external debt service and easing the exchange rate crisis. Having difficulty continuing the policy of banknotes issuance that amounted to about YR498 billion during January 2015-June 2016 since the ongoing war and conflict have restricted the CBY s ability to issue new banknotes.furthermore, the newly issued bank notes remained in circulation outside banks. Waning confidence in the banking system,in particular, and the economic situation in general due to the narrow horizon of political resolution and pessimism about the future of development. Figure(4): Total Foreign Exchange Reserve of CBY (Billion USD) Figure(5): Banknotes Issued and Currency outside banks (Billion YER) 1, ,064 1,034 1, June 2016 Sep Currency Outside Banks Banknotes Issued June 2016 (3) Liquidity crisis in commercial and Islamic banks has been discussed in detail in Yemen Socio-Economic Update No. (17). The liquidity crisis began in the public budget and then shifted to the CBY and spread to commercial and Islamic banks.

4 Issue (18) Sep., 2016 Page 4 Yemen Socio-Economic Update The scarcity of liquidity at commercial and Islamic banks stems from: 59% of commercial and Islamic banks assets were saved as balances (deposits and required reserves) at the CBY (13%), and invested in government securities (46%) in However, the lack of liquidity at the CBY makes it difficult to use that liquidity. 38% of the total advances of banks to the private sector were at risk of default. This impacts negatively on the liquidity situation in banks. Some banks set a withdrawal ceiling on deposits, which undermined depositors confidence in banking sector, and made withdraw their deposits outside banks. Figure(6): Balances of Commercial and Islamic Banks at the CBY (Billion YER) Figure(7): Structure of Assets of Commercial and Islamic Banks In 2011, Bank deposits at the CBY declined by 39.5%. In 2016, the liquidity crisis in the CBY did not allow banks to withdraw the required amounts of their deposits. 1 % Local Currency in bank vaults 13 % Balances at the CBY June Third: Liquidity Crisis Risks on Food Insecurity: Affecting about 1.25 million public employees (With 6.9 million dependents, including 3.3 million children) due to delays in wage payment. This makes it difficult for them to have access to food and non-food commodities and services, particularly as 31.8% of them are already food insecure (Comprehensive Food Security Survey (CFSS), 2014). The salaries and wages bill stands at YR75 billion per month. Depriving about 1.5 million poor cases from cash assistances of the Social Welfare Fund since early Government This exposes them Salary to more deprivation, particularly as 63% of them are already food insecure (CFSS, 2014). About YR22.7 Social Welfare Fund billion are required each three months to cover the cash assistances of the poor (YR 7.57 billion per month). 14% 18% 47% 18 % Foreign Assets 46 % Credit to Government 7 % Other 15 % Advances to private sector Yemen s economy is witnessing a severe domestic currency drought, as well as a scarcity of foreign exchange. The liquidity crisis has resulted in the suspension of, not only state employee wages, but also the public budget expenditures in general. This may cause significant risks to the economic, social and humanitarian indicators and further exacerbation of food insecurity. The major risks of liquidity crisis on food insecurity are as follows: Figure(8): Food security status of households whose main source of income depends on Government salary or SWF aid (pre-crisis in 2014) 16% 37% Severely food insecure Moderately food insecure Food secure Disrupting the projects of the Public Investment Program and suspending the operating expenditures of basic social services (Such as education, health and water) in the public budget. This means the deterioration of employment and income and difficult access to basic social services. Declining aggregate demand (Consumption and investment spending) that leads to disruption of the remaining economic activities, increase of economic downturn severity and higher unemployment and poverty rates. 68% Source: CFFS, 2014

5 Issue (18) Sep., 2016 Page 5 Yemen Socio-Economic Update Having difficulty in providing the necessary foreign exchange to import basic food commodities. Over the past years, the CBY has consistently financed wheat, rice, sugar and fuel imports at the official exchange rate (YR / US Dollar). The CBY was forced to stop financing the fuel and sugar imports at the official exchange rate in August 2015 and February 2016 respectively as a result of the foreign exchange scarcity. However, the CBY continued to finance Deprivng 1.5 M poor cases from cash assistances of the Social Welfare Fund Affecting 1.25 M public employees (With 6.9 M dependents, including 48.2% children) Difficulty accessing basic social services such as education, health and water Key risks of liquidity crisis on food insecurity Deepening econominc downturn, and increasing unemployment and povrty rates Difficulty financing basic imoprts at the offical ER, thus, exacerbating food insecurity the wheat and rice imports, but raised the official exchange rate to YR 250 / US Dollar. Currently, it s difficult to continue this policy due to the erosion of foreign exchange reserves. More population will be susceptible to food insecurity as a result of the increase of exchange rate in the parallel market to more than YR 300 / US Dollar and Yemen s heavy import dependency for 90% and 100% of its wheat and rice requirements respectively. Table(2):Imports of basic commodities and fuel financed by the CBY (million USD) Bank Jan.-Jun.2016 Wheat Rice Sugar Fuel Total Table(3):Imports of basic commodities and fuel financed by the CBY (thousand ton) Bank Wheat Rice Sugar Total Fourth: Priorities to cope with food insecurity and liquidity crisis: Key Issues Food insecurity mitigation priorities Priorities 1. Regular payment of state employee wages. 2. Paying the cash assistances to the poor beneficiary cases of the Social Welfare Fund. 3. Ensuring that basic food commodities are imported at the official exchange rate. 4. Resuming donor support to the social protection and poverty alleviation programs, including the cash-for-work programs. 5. Facilitating the foreign trade movement, especially food and fuel imports. 6. Enhancing the humanitarian support provided to IDPs and the most food insecure areas. 7. Supporting the income-generating activities linked to the production of food with high nutritional value, with a focus on rural women. 8. Stimulating the use of solar energy to operate water pumps in agriculture. 9. Finalizing the food security survey to provide an actual database. 10. Increasing the number of vitamin (A) and iron supplementation campaigns for children and pregnant women. 11. Opening the shut-down health facilities to treat the acutely malnourished children.

6 Issue (18) Sep., 2016 Page 6 Yemen Socio-Economic Update Priorities to cope with food insecurity and liquidity crisis: (Continuous): Key Issues Priorities to cope with the liquidity crisis Priorities 1. Opening a dialogue about the Central Bank to ensure its independence and avoid the vacuum or disputes over the functions and obligations of the CBY. 2. Accelerating the process of printing new bank notes to ease the liquidity crisis. 3. Obtaining foreign-currency deposits at the central bank, and resuming the oil and gas exports. 4. Reallocating the previous donor pledges and mobilizing donor cash and in-kind support oil products to finance the essential public expenditures. 5. Sending reassurance signals from all concerned parties to banks and depositors in the banking sector. 6. Raising awareness among businessmen about the importance of re-depositing their cash in banks, using cheques in dealings and reducing cash transactions. 7. Adopting a simulative and attractive monetary and saving policy. 8. Allowing the use of foreign currencies in domestic transactions to ease the local currency crunch. 9. Disbursing salaries of all state employees (Including the private sector) through banks and post offices instead of cash payment. 10. Establishing regulations on the most essential imports, making the financing process goes through the banking system. 11. Adopting measures to prevent exchange dealers and senior businessmen from keeping large sums of money outside the banking system. 12. Bolstering supervision and evaluation of the performance and safety of commercial and Islamic banks, and developing immediate remedies for any obstacles. In the medium term (post war), the CBY must study the feasibility of establishing a bank, or windows in banks, to deposit gold savings, where a depositor can get gold equivalent to his/her in-kind gold deposits during weddings or when needed. This will maximize benefitting from gold wealth of Yemeni women by exporting gold bullions abroad and, consequently, financing the development and poverty alleviation projects. Contact Person For more detailed information about items in this update please contact: Mr. Abdulmageed Albatuly aalbataly@gmail.com Tel.: