Last Updated: Fri Feb 24, 2012 00:40 am (KSA) 21:40 pm (GMT)

Yemen minister eyes aid to prop up currency and budget

Yemen’s rial, which is fixed daily, now trades at about 220 to the dollar after dipping near 250 over the last year. (File photo)
Yemen’s rial, which is fixed daily, now trades at about 220 to the dollar after dipping near 250 over the last year. (File photo)

Yemen is counting on Gulf states to free up billions of dollars in pledged aid to help prop up its currency and narrow a gaping budget deficit, the country’s planning minister said on Thursday.

In an interview with Reuters, Minister of Planning and International Cooperation Mohammed al-Saadi declined to specify what the budget gap was after a year of turmoil sparked by mass protests aimed at forcing President Ali Abdullah Saleh from power.

But he said it was at least twice the 5 percent deficit set as a target by the International Monetary Fund, one of the agencies from which Yemen is seeking assistance after a vote to replace Saleh with his deputy as part of a plan to avert civil war.

“We’re not going to talk about an exact figure, it wouldn't be good. It’s greater than 10 percent,” al-Saadi, who represents the government in talks with potential donors, said.

“If I were to specify it, I'd need financial coverage to do so, a reserve of hard currency, otherwise you'd be forced to start printing money and then dealing with the resulting inflation. It's better to say nothing.”

Yemen is operating with last year's budget for the first quarter of 2012, he said.

He spoke 48 hours after Yemen voted in Abd-Rabbu Mansour Hadi, a long-time Saleh confidant, as his successor in line with the terms of a pact brokered by wealthier Gulf states, with U.S. and U.N. backing, aimed at ending a political stalemate.

The vote, in which Hadi was the sole candidate, should be the catalyst for a new constitution, parliamentary elections and the restructuring of a military force that split between Saleh’s foes and allies, triggering bouts of open warfare across the country.

At summits of potential donors next month and in June, al-Saadi hopes the vote will help trigger the release of funds pledged in 2006 to support the country of 24 million people with dwindling resources of water and oil.

“There is some hope, if the Gulf countries agree to release the funds they pledged in 2006. We need $1.8 billion dollars to maintain the exchange rate,” al-Saadi said.

Yemen’s rial, which is fixed daily, now trades at about 220 to the dollar after dipping near 250 over the last year, which saw repeated attacks on a pipeline crucial to modest oil exports that account for some two-thirds of hard currency revenues, which in turn support imports of staple foodstuffs.

Al-Saadi estimated about $3 billion was outstanding from pledges originating at the 2006 conference, and expected the proximity to a large, poor neighbor with multiple armed domestic conflicts would persuade Gulf states to open their coffers.

“The Gulf states are going to behave differently than they did with Egypt, for example,” he said. “The funds they've pledged are less than what they'd pledged Egypt, and the geographic facts impose different responsibilities on them.”

Saudi Arabia, which wields considerable influence among Yemen's disparate political currents and tribal and military factions, has repeatedly donated crude oil and refined products to Yemen during the crisis.

Al-Saadi said the government's fiscal hole was dug in part by the looting of state companies under the tutelage of Saleh, whose relatives continue to occupy key positions in the military, intelligence apparatus and state bureaucracy.

“There are funds that were misused, in state companies, in the oil sector for instance, which were stripped of all their funds. Monies were siphoned from the various insurance funds,” he said, citing a mothballed project for a new airport in the capital Sana’a.

Righting the country’s crippled finances, he said, would be only one part of a long and tortuous process of stitching it together politically.

“It’s going to be about restoring the state, ultimately, since the state disappeared during an era of rule by centers of power, and gangs, the army of Ali Abdullah Saleh and the army of (rebel general) Ali Mohsen, without there being a Yemeni army,” he said.

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