Hunting for food amongst the trash in Sana'a, Yemen
© Kit Weaver
Hunting for food amongst the trash in Sana'a, Yemen
Last updated: April 29, 2013

Yemen's public finances – in need of a helping hand

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As a prelude to the National Dialogue set to take place in Yemen today, donors who have pledged a significant amount of aid to the nation took a seat side by side on March 7th to discuss why disbursement of said funds has been an issue. Several countries that vowed to provide financial assistance to the Middle Eastern nation have yet to live up to that promise, withholding several billions in aid.

The authorities in Yemen not only require the aid for delayed financial commitments, but a growing humanitarian crisis as well. Widespread hunger, malnutrition, and a lack of government support are threatening to revive the same calls to protest that brought down its former leader, Ali Abdallah Saleh, in the latter half of 2011.

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The commitment, agreed upon in Riyadh on September 4th, 2012, was made by 27 donor countries and 36 regional finance institutions. At over $7.5bn, the funding was meant to buttress Yemen’s short-term development agenda. More importantly, however, was its role in securing socio-economic stability for the government’s transition towards general elections to be held in 2014.

According to Yemen’s economic plan, dubbed the Transitional Program for Stabilization and Development, the government estimates that it will require a total of $11.9bn in aid to be able to achieve its goals. This is split between $4.3bn in the short term and $7.6bn in the medium term. The original course of action involved holding the first round of aid talks in Riyadh last year, and then organizing a second conference in 2014 to procure funds for the remainder of the economic plan.

The Kingdom of Saudi Arabia has by far been the most generous donor to Yemen’s Government of National Reconciliation, having transferred 93% of its $3bn pledge to the neighboring nation. A full $1bn was deposited into the Central Bank of Yemen’s ledgers, while $500m was allocated to subsidize exports. The remaining $1.3bn took the form of several development projects to be undertaken by the government.

Aside from Saudi Arabia, however, other donors have only combined for approximately $500m, a figure far below what is required for sustainable economic growth, according to the World Bank and other authorities. In addition to budget support, development projects, and capacity building initiatives, the international community has recently been urging other donors to follow in Saudi Arabia’s footsteps in order to counter the growing humanitarian crisis in Yemen.

Yemen’s current fiscal state does not allow for any viable outreach programs to alleviate the lack of food and medical needs. According to a February 2013 report by the World Food Programme, approximately half of the population depends on credit for purchasing food, raising concerns of indebtedness among the country’s impoverished. Millions lack an adequate amount of food, while one million children are classified as malnourished with approximately a quarter of them at risk of death without immediate assistance. Food security experts consistently warn about the repercussions of underestimating a crisis of this magnitude.

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Basic services such as healthcare and clean water remain unavailable to a significant portion of the population; the country is projected to be the first state in the world to run out of water, and currently half of the population lacks access to proper sanitation. This has exacerbated health concerns in a nation with the lowest life expectancy in the Middle East.

The coalition government stands to lose the most if Yemen’s finances are not buoyed as soon as possible, with its credibility among its constituents hanging by a string. Security concerns have been pervasive throughout the country; earlier this month, a car bomb attack in the south of Yemen killed over a dozen people and injured several others. Many have criticized the authorities for not allocating enough resources towards battling these security threats, instead depending on a small contingent of U.S. security advisors to assist in diffusing the situation.

Inger Andersen, World Bank Vice President for the Middle East and North Africa, has warned donor nations that if the financial pledges made to Yemen last year are not fulfilled soon, the government will lack the resources to ensure a smooth road to the 2014 elections. “Yemen needs exceptional and substantial financial and technical support now,” said Andersen earlier this month, arguing that ensuring fiscal stability in Sana’a is in the best interest of those working towards a peaceful transition to democracy. Once this is tended to, President Hadi’s administration can set an agenda for 2014.

This article is part of Bassam's series on public finances of countries across the Middle East. Click here for his previous article on "Jordan's fiscal distress".

Bassam Aoun
Bassam Aoun is a Business Editor at Your Middle East. He is currently based in Abu Dhabi and holds a BA in Economics from the American University of Beirut and an MPP (Master of Public Policy) from the University of Chicago. He has written for the Chicago Policy Review and is interested in economic and fiscal policy in the Middle East.
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