Yemen donors running out of time to stem crisis

Source: Reuters, 06/06/2012


* Yemen faces hunger, budget and security crisis

* Needs at least $10 bln over 2012-2013 to stabilize - analyst

* Over $4 billion in aid pledged, donors to meet in late June

By Martin Dokoupil and Tom Finn

DUBAI/SANAA, June 6 (Reuters) - Anood al-Mikhlafi, sitting in the one-room shack she calls home in a shantytown on the outskirts of Yemen's capital Sanaa, rues the political chaos that has engulfed her impoverished country in the past year and left her family nearly destitute.

"We've never lived in comfort but last year pushed us to the limit and we had to sell our animals and my wedding jewelry. We have nothing to fall back on," she says.

Her husband lost his job in April after the concrete-mixing company he worked for went bankrupt. Her family pulled their children from school and sent them, illegally, to Saudi Arabia to beg and, perhaps, work.

"There is simply no work left here in Sanaa. We sent them to Saudi Arabia because we had no choice," she said.

A year of mass protests against the government and political turmoil, which forced Yemen's long-time leader Ali Abdullah Saleh to quit in February, has left the Arabian Peninsula state on the verge of bankruptcy. The unemployment rate has shot above 50 percent in a country where some 42 percent of the population of 24 million live on less than $2 a day.

Resource-rich Gulf neighbours and Western countries, who watched with mounting alarm as political crisis gave al Qaeda the opportunity to develop a base in Yemen from which to launch attacks around the world, last month pledged over $4 billion in aid to head off a humanitarian disaster and stabilise the state.

Yemeni experts and aid agencies such as Oxfam say that is not enough. If more aid is not provided soon, a transition process brokered by Saudi Arabia to try and ease the political turmoil, may fall apart, they say.

"For Yemen, $4 billion is not really enough. The budget is totally zero," said Mohamed al-Maytami, economics professor at Sanaa University. "Yemen needs urgent financial support, otherwise the transition process will fail."

The transition process saw President Saleh give way to his deputy Abd-Rabbu Mansour Hadi in February after 13 months of protests against him spiralled into fighting between rival factions of Yemen's military and saw parts of Yemen's south fall to an Islamist militia allied to al Qaeda in the Arabian Peninsula (AQAP).

Yemeni government troops are now engaged in a U.S.-backed drive to recapture territory in the south.

Government officials say the country is likely to run a $2.5 billion budget deficit this year. Modest oil and gas exports, which were a vital source of foreign exchange for the government, have been hit by repeated attacks by tribesmen on pipelines since the unrest started last year.

Hydrocarbons typically account for 60-70 percent of Yemen's income and the country is losing $15 million a day as a result of the attacks, authorities have said.

With the central bank's hard currency reserves low, the government has little room to manoeuvre.

"Within the next few months the government will be bankrupt, there will be no money for the police or for the army fighting al Qaeda," Abdulrahman al-Iryani, the country's former water minister, told Reuters.

WATER, FUEL SHORTAGES

The IMF, which resumed lending to Yemen in April, approving the payment of a $93.7 million loan to help address a worsening balance of payments deficit, predicts the Yemeni economy will shrink by 0.9 percent this year. That would follow an estimated 10.5 percent contraction last year, its worst performance since the unification of the north and south of the country in 1990.

The $4 billion aid pledge by international donors, agreed at a Riyadh conference last month, included $3.25 billion from host Saudi Arabia, which has a long, porous border with Yemen, and already provides it with oil.

Saudi Foreign Minister Prince Saud al-Faisal said at the conference that his country's contribution would support agreed development projects, but did not give details on their timing.

Long-term development funds, while welcome, may do little to answer an immediate humanitarian crisis and restore security, which Maytami estimates would require at least $10 billion over 2012-2013.

In April, the IMF forecast gross official reserves would remain at $4 billion in 2012 and the budget gap would widen to 5 percent of gross domestic product from 4.4 percent in 2011.

Shortages of electricity, water and fuel sent prices soaring last year, and although prices have decreased somewhat from their peaks, they are still too high for low-income families to cope with. Maytami estimates inflation is running at 25-30 percent.

The Yemeni rial's market rate has stabilized at around 215 to the dollar, from about 243 at the peak of the political crisis, but its depreciation and inflation are compounding food emergencies in a country with a per capita annual income of just $2,300.

"People buy affordable food that will fill them up quickly," said Majid al-Shahury, who owns a grocery shop in Sanaa. "Almost half of my customers buy their food on credit, some take months to pay off the bill."

REMITTANCE INCOME

Yemeni officials told the Riyadh conference they needed $2.17 billion immediately for humanitarian and other purposes, and $5.8 billion for longer-term development and infrastructure projects.

The United Arab Emirates, which has said it will give Yemen food aid worth $136 million, is considering a separate contribution. Donors will meet in Riyadh again in late June to discuss the aid pledges.

Yemen's experience with pledges of assistance from neighbours is mixed: its planning minister has estimated that some $3 billion of $4.7 billion aid pledged by the Friends of Yemen group when it first met in 2006 has not been delivered.

Donors and some Yemeni officials have argued the chaotic security situation, as well as corrupt and dysfunctional state institutions, impede aid by making it impossible to know whether it will be spent effectively, stolen or simply wasted.

"Most of it was not used because Yemen didn't have the capacity to absorb the money in development projects for which the money was allocated," said Charles Schmitz, an expert on Yemen at Towson University in Maryland in the United States.

Iryani, the former minister, said the most effective form of aid may be to bypass the government, and put money directly in the hands of Yemenis, abroad.

"What Yemen needs now is quick cash. Traditional development funds now are really not going to be effective," he said, arguing neighbouring Saudi Arabia held a possible key, albeit politically fraught, to defusing the humanitarian crisis.

In the 1980s, more than 1.3 million Yemenis worked in wealthy Gulf Cooperation Council (GCC) countries and could even travel to Saudi Arabia without a visa. Since 1990, when Yemen failed to join its neighbours' condemnation of Iraq's invasion of Kuwait, they have been largely replaced by labourers from Asia.

Yemenis working in the GCC countries in 2010 sent home an estimated $1 billion in remittances, according to a Chatham House research paper. It said security fears and concerns about potential involvement in local politics were key obstacles to employing more Yemenis in Gulf countries including Saudi Arabia, a monarchy that tolerates no political organization.

"The quickest and most direct way to help Yemenis is to grant them easier access to employment in Saudi," Iryani said. "This type of income comes directly back to poor families in Yemen and not to the government and its agents."