Financial Crime World

Yemen’s Financial Sector in Shambles: Conflict, Fragmentation, and Food Insecurity

Conflict Wreaks Havoc on Yemen’s Financial Sector

The ongoing conflict in Yemen has had a devastating impact on the country’s financial sector, exacerbating food insecurity and economic hardship. The split between the internationally recognized government (IRG) based in Aden and the de facto authority (DFA-AA) controlling Sana’a has led to a fragmented financial system, with opposing regulations issued by the Central Bank of Yemen (CBY) in both locations.

Consequences of Fragmentation

  • Transaction costs have skyrocketed, disrupting the operations of financial institutions such as banks, microfinance providers, and money exchanges.
  • Opportunities for currency arbitrage and illicit profiteering have emerged, further entrenching poverty and malnutrition.
  • The situation has created a dire economic climate, with 80% of the population below the national poverty line in 2020, up from 48.6% in 2014.

Food Security Under Threat

  • Acute food insecurity is expected to worsen, with an estimated 16.2 million people facing severe food shortages this year.
  • Experts warn that the situation is dire and calls for immediate action to address the crisis.

Recommendations to Restore Stability

To address the crisis, international organizations are urging increased aid, expedited mobilization of investments in digital infrastructure and skills, and human capital investment among financial services providers and consumers.

Recommendations:

  • Increase Aid: Provide higher levels of aid, conditional on strong governance structures and transparency, to help stabilize the exchange rate in Yemen.
  • Mobilize Digital Infrastructure Investments: Expedite investments in digital infrastructure and skills to provide a trusted channel for remittances at lower cost and facilitate financial access to marginalized groups.
  • Invest in Human Capital: Increase human capital investment among financial services providers and consumers in adopting international standards/best practices in financial transactions.

Conclusion

The future of Yemen’s financial sector hangs in the balance. It is crucial that all parties involved take immediate action to address this crisis and prevent further devastation. The world must act quickly to prevent further catastrophe in Yemen.

Source:

  1. IMF (2021a). World Economic Outlook.
  2. IMF (2021b). Regional Economic Outlook for the Middle East and Central Asia.
  3. MPIC (2021). Yemen Humanitarian Response Plan 2021.
  4. World Bank (2020d). Yemen Economic Update.
  5. ACAPs (2020). Yemen Crisis: A Humanitarian and Economic Assessment.