Date: Mon Dec 1 15:39:23 2014
Yemen faces economic crisis as Saudi mulls pulling plug
SANAA, 1 December 2014 (IRIN) - Saudi Arabia is considering stopping
financial support to Yemen, a move that could tip the country further
towards economic collapse, Yemeni, Saudi and Western officials have said.
Since rebels from the Houthi movement took hold of the capital Sana'a in
September, Saudi Arabia, which has provided an estimated US$4 billion to
keep the Yemeni economy afloat since early 2012, has been reviewing its
economic support for its southern neighbour. Among the key disbursements put
on hold is $700 million in military aid.
The deliberation comes at a time when fears of an impending economic
collapse have risen, with UN envoy to Yemen Jamal Benomar
<https://en-maktoob.news.yahoo.com/un-warns-rising-sectarian-tensions-yemen-
185315580.html> warning it was unclear "whether [Yemen] would be able to
continue to pay its civil servants after the end of the year".
The ghost of 2011
Yemen's economy, already fragile before the country's 2011 uprising, was
decimated by the unrest and elite infighting of that year. The transitional
administration of President Abd Rabbu Mansour Hadi has struggled to restore
growth or provide basic services, and the poverty rate has remained
stubbornly above 50 percent since early 2012.
The only reason the government has been able to stay afloat since 2012,
officials and analysts say, is the largesse of Saudi Arabia, Yemen's
northern neighbour. While the donations have never been made official, in
2012 Riyadh is believed to have deposited $1 billion at the Central Bank of
Yemen and given the country a further $2 billion in oil and fuel products to
help shore up its finances. In July 2014, Riyadh again bailed Sana'a out,
<ttp://www.ebyemen.org/sites/default/files/EB%20Q3%20Report%2016-9-2014%20V8
.pdf> providing $1.2 billion in cash to help pay for fuel and another $435
million to help the government make welfare payments.
Part of the issue has been the failure to trim fuel subsidies. Yemen heavily
subsidizes fuel in the local market, costing the government more than $3.3
billion - about a quarter of all spending - in 2013.
In August, the government
<http://www.irinnews.org/report/100535/yemen-fuel-subsidy-cuts-hit-poor-hard
est> cut subsidies, leading to a price increase of up to 95 percent for fuel
at the pump. It partly reversed the decision less than two months later,
decreasing fuel prices by 25 percent after the takeover of Sana'a by rebels
from the northern Houthi movement, a Shia group with whom the Saudis have
fought in the past.
Since the Houthi takeover no new Saudi funds have been disbursed, including
$700m in military aid agreed as part of the bailout package in July. A
number of diplomatic and government sources told IRIN that although there is
unlikely to be a formal announcement that funding is being frozen, Riyadh
will at the very least take a "go-slow" approach to transferring further
funds to Sana'a until it is clear that the money will not financially
benefit the Houthis.
"In conversation with [Yemeni] officials, they have been saying that they
are not going to bring money to Yemen just to reinforce the Houthis," said a
senior Yemeni official, part of whose responsibilities is to report on
government spending and finances. "And whatever Saudi Arabia does, you know
the other GCC [Gulf Cooperation Council] countries will do."
Two other Yemeni government and Western diplomatic officials confirmed that
the $700 million had been expected but had not as yet been delivered.
This has exacerbated other trends towards financial collapse. Attacks on an
important oil pipeline and electricity infrastructure in restive Mareb
Province have cut off revenues and forced the government to import expensive
fuel from abroad.
Thus the government is running short on dollars. Foreign currency reserves
fell from $4.4 billion to $3.8 billion between September 2013 and September
2014, pushing the country towards a currency crisis. With the remaining
reserves the bank can only afford to cover 4.8 months of imports, a record
low.
Estimates of when the government would run out of money vary from the end of
2014 until early March 2015, but government officials and advisers make it
clear that fiscal collapse is imminent. "If there is no intervention, it is
not a question of if, it is a question of when," said the Yemeni official.
In line with other GCC officials, a senior Saudi diplomat said no formal
decision had been made to halt aid or funding to Sana'a, but added that
Riyadh is reviewing the situation in Yemen. "We will see how the new
government [formed in early November] does," he said. "If they can act
independently [of the Houthis], then maybe we can work with them."
Saudi officials are also said to be frustrated that the $435 million they
gave Sana'a in July has not been distributed to the Social Welfare Fund
(SWF), the state body tasked with overseeing welfare payments to 1.5 million
of Yemen's poorest people. According to people familiar with talks that took
place earlier in the year, the funds had been touted as the first in a
series of payments to be used to underwrite the Fund's costs.
A source at SWF told IRIN the government did not disburse the funds needed
to make the first quarterly payment of 2014 - which had been due in January
- until August. The second tranche followed in September, but SWF is yet to
receive payments for the third or fourth quarters, both of which should have
been made by this point in the year. "In the past, we paid at fixed times,"
the source said. "Now we don't know if or when we will be able to pay."
Humanitarian crisis
The economic crisis is having an impact on the humanitarian suffering and
any further collapse could be disastrous. More than 15.9 million people - 60
percent of the population - require some form of humanitarian assistance.
"Yemen remains one of the major humanitarian crises in the world and the
outlook for 2015 shows that the humanitarian crisis in the country has
gotten worse," said Johannes van der Klaauw, Yemen Humanitarian Coordinator
for the UN Office for the Coordination of Humanitarian Affairs (OCHA).
"A large number of poor people in Yemen rely on welfare payments. Late
[payments] make it difficult for them to meet their obligations including
basic expenditure like buying food for their families. There are
expenditures that a human being cannot postpone like buying food or medicine
for a sick child."
"Yemen is experiencing new waves of increased conflict, while the risk of an
economic meltdown cannot be ruled out," he added.
Hanalia Ferhan, country director at international NGO ACTED, said there
would be a significant impact if the government were unable to pay salaries.
"The financial and economic situation has affected the country across the
board," she said, highlighting the high prices of food imports and severe
fuel shortages as key concerns for poor Yemenis.
"The communities we work with are in the most rural, hard-to-reach parts of
the country. They were already in a dire situation a year ago. and the
situation has not improved."
Abdulfatteh, a 47-year-old bus driver who would only give his first name,
pointed to a mounting queue of trucks and cars at a petrol station on the
outskirts of Sana'a's Old City. "It's very bad now," he said. "No
electricity, no [petrol], no diesel. There is no work and there is no
security. I think it will only get worse."
<http://www.irinnews.org/Photo/Details/201411250903580984/A-Yemeni-man-stand
s-in-front-of-a-barricade-of-burning-tyres-during-fuel-riots-in-Sana-a-30-Ju
ly>
http://www.irinnews.org/photo/Download.aspx?Source=Report&Year=2014&ImageID=
201411250903580984&Width=490
Photo: <http://www.irinnews.org/photo> Peter Salisbury/IRIN
A Yemeni man stands in front of a barricade of burning tyres during fuel
riots in Sana'a, 30 July 2014
(image/jpeg attachment: image001.jpg)