Introduction

Saudi financial support to Yemen’s economy, worth over $2.2 billion since March 2018, has been crucial in helping Yemen to escape economic collapse. 

With this financial support coming to an end, and no alternative financing in place, Yemen could see the riyal lose almost half its value over the coming six months (reaching YER 1000 to the USD). This would cause food prices to almost double again, increasing food insecurity and pushing Yemenis into a heavier reliance on humanitarian aid, regional patronage and negative coping mechanisms, including criminality and informal taxation. 

Yemen, one of the poorest Arab countries, is highly dependent on revenues from its relatively small oil and gas reserves, remittances from expatriates working mainly in the Gulf states, and bi-lateral support from Saudi Arabia. The crash in oil prices and global spread of COVID-19 has reduced Yemeni income from oil exports and severely reduced remittances leaving direct support as Yemen’s economic lifeline. Saudi Arabia provided a $2 billion deposit to the GoY in March 2018 to help stabilise currency and food prices. This funding is all but exhausted, with less than $200 million remaining in May 2020.

Neither Saudi Arabia nor any other donor has yet indicated a willingness to provide ongoing funding to Yemen. Thus Yemen is looking increasingly economically vulnerable. The global crash in oil prices has reduced GoY hydrocarbon revenue by, on average half that seen in 2019 (USD 60 per barrel to under USD 30). Concurrently, worldwide COVID- 19 restrictions have significantly reduced Yemeni expatriates’ earnings and remittances have fallen while transfer costs increased. Any decision by the GoY put in circulation any new banknotes without sufficient foreign exchange cover will fuel inflation.

Humanitarian activities continue to fall due to the restrictive environment, exacerbated by the COVID-19 outbreak. A donor pledging conference in Riyadh on 2 June 2020 secured little over half its target ($1.35 billion pledged against an ask of $2.4 billion).