Saudi downturn deepens Yemen’s economic despair

RIYADH (AFP) – On top of war and the coronavirus pandemic, Yemen faces looming economic disaster as a crisis gripping its main benefactor Saudi Arabia dents remittances and leaves state coffers running dry.

Saudi Arabia, leading a five-year military intervention against Iran-linked Huthi rebels, has poured in tens of billions of dollars to prop up the Arab world’s poorest country in the form of humanitarian aid, fuel subsidies and cash to its ailing central bank.

But as the double whammy of low oil prices and virus shutdowns triggers deep austerity measures at home, observers say Saudi Arabia no longer appears willing – or able – to offer Yemen the same level of support even as the kingdom’s military spending remains robust.

Saudi Arabia may also be reassessing its role as what observers call a “regional ATM” after its expensive intervention in Yemen produced few tangible gains, while a bitter power struggle between its anti-Huthi allies complicates its efforts to exit the conflict.

“The Saudis are no more (inclined) to pour unlimited millions and billions into Yemen,” a Western official tracking the kingdom’s engagement in Yemen told AFP.

Smoke billows following an airstrike in the Yemeni capital Sanaa. PHOTO: AFP

Riyadh is the top donor to Yemen – and the paring back of its support will have the biggest impact, observers said.

Analysts anticipate the Yemeni rial will weaken substantially this year as a USD2 billion central bank deposit from Saudi Arabia in 2018 is nearly exhausted, a scenario that will diminish purchasing power and leave millions unable to afford basic food staples.

Less than USD200 million of that amount remained in May, according to ACAPS, a non-profit project of charities including the Norwegian Refugee Council.

“Yemen is looking increasingly economically vulnerable,” ACAPS said in a report, warning that a cessation of Saudi monetary support will lead to a “sharp devaluation” of the local currency.

A donor conference in Riyadh earlier this month secured little over half its target of USD2.4 billion, as the United Nations (UN) warned funding shortages could shutter relief programmes just as coronavirus cases spike.

Yemen is already gripped by what the UN calls the world’s worst humanitarian crisis, with tens of thousands killed and an estimated four million people displaced by war.

The World Bank said three-quarters of the population lives in poverty and last year the UN estimated 80 per cent of Yemenis were at risk of hunger and disease.

At the heart of the economic dysfunction is the country’s central bank, split into two rival branches controlled by Yemen’s main warring parties.

Compounding the crisis is a “war within a war” that pits southern separatists against the Yemeni government – both allied against the Huthis.

The separatists, who have declared self-rule in the de facto capital Aden, recently seized a central bank convoy carrying nearly USD80 million, multiple sources said.

A spokesman for the separatist Southern Transitional Council justified the seizure, telling AFP it was meant to protect the currency from sliding further.

The government-controlled central bank now faces the stark prospect of operating with almost no cash.