By Peter Bergman (MoneyAmped.com)
On Tuesday, Saudi Arabia announced its intention to provide the internationally recognized government of Yemen with significant financial assistance totaling $1.2 billion. The initiative aims to support the state’s economic stability, which is facing substantial challenges.
In a statement, Riyadh announced the cash injection as one component of Saudi Arabia’s ongoing efforts to promote food price stability in Yemen, address the budget deficit, and provide salary assistance.
Civil Conflict Causes Yemen’s Economy to Plummet
Yemen’s protracted civil conflict, now in its ninth year, has devastated the country’s economy, driving up food prices and pushing about half the population to the brink of starvation.
The conflict in the southern Arabian state began in 2014, when a group of Iranian-backed rebels took control of the capital Sana’a and much of the northern region. As a result, the internationally recognized government was forced to seek refuge elsewhere. The following year, a coalition consisting of Saudi Arabia and the United Arab Emirates intervened to restore the overthrown government.
Yemen’s central bank was divided between the conflicting factions, with the Houthis controlling its monetary authority from Sanaa. For an extended period, the rival office in Aden contributed to inflation by taking measures such as printing additional banknotes to pay off debts and cover the cost of remuneration for public sector workers. Areas under Houthi control do not accept banknotes printed by the central bank in Aden.
Where Will the Funds Received Be Used?
In a related statement on Tuesday, the Yemeni government said the $1.2 billion aid package would address the budget deficit, wage support, and food security. The timing of the funds remains uncertain.
According to a recent statement, the Aden-based central bank said the Yemeni rial rose slightly against the dollar. The exchange rate changed from 1,427 riyals to 1,400 riyals.
The provision of funds is the latest addition to a string of aid packages Riyadh has been providing to its Yemeni counterparts. In February, a significant amount of funds—$1 billion—were transferred to the Aden-based central bank.
Saudi and Houthi officials have met repeatedly in recent months to discuss possible ways to resolve the conflict. Interest in these talks increased earlier this year when two prominent countries—Saudi Arabia and Iran, the principal backers of the Houthis—came to a diplomatic solution to resolve their strained relations.
