Saudi downturn deepens Yemen's economic despair

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.

Riyadh is the top donor to Yemen-and the paring back of its support will have the biggest impact, observers say. Analysts anticipate the Yemeni rial will weaken substantially this year as a $2 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 $200 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.