Yemen revolt: Collapsing economy 'is major threat'

Yemen's fragile economy is on the road to collapse, some economists warn

Hundreds of thousands of protesters in Yemen continue to demand the resignation of President Ali Abdullah Saleh. The West is worried Yemen's uprising could empower al-Qaeda, but the real threat - some believe - is the economic one.

This report is by our correspondent in Sanaa, who cannot be named for safety reasons.

Ali Abdullah Saleh looks down from the wall of Sleiman's small grocery shop in Medinat al-Leyl - one of the poorest neighbourhoods of Sanaa.

"I'm for stability," Sleiman says. "Security is what I want."

For decades, Sleiman saw President Saleh as the man capable of keeping Yemen stable, but now he is beginning to change his mind.

Not so much because of the protests that have swept the country, but because life in Medinat-al-Leyl has become harder.

Prices are rising, and security problems and roadblocks across the country are making it more difficult for Sleiman to deliver goods.

"People are hoarding. They are buying supplies for two months ahead just in case," he says.

Cut taxes

Medina al-Leyl epitomises many of Yemen's problems - the neighbourhood has no running water, streets are filthy, malnutrition is widespread.

Yemen has been gripped by weeks of nationwide protests

Aid agencies say that because of the current crisis tens of thousands are already unable to buy food, and economists warn that Yemen's fragile economy is on the road to collapse.

When anti-government protests first began two months ago, President Saleh introduced a number of reforms.

Ignoring those who warned him against spending money the Yemeni government didn't have, Mr Saleh cut taxes, increased salaries of government officials and created public sector jobs.

When economic incentives failed to calm the protests, the government called on people to hold rival rallies.

"When you are the president with access to the central bank, of course you'll be able to bring thousands out into the streets," says Hameed al-Ahmar of the opposition Islah party. "These people are paid, and when we control the central bank we will have proof of that."

Away from the crowds chanting slogans in support of the president, three young men - who did not want to be named - confirm Mr Ahmar's theory.

One boy says his father, who is a village sheikh, brought 300 people to last Friday's demonstration. The government, he says, paid for their transport and food, and each got paid the equivalent of $10 (£6) a day to attend.

Another boy says he was given lunch and paid the equivalent of $10.

"Our central bank is now empty," he laughs. "They will soon need more money."

Saudis 'fed up'

Diplomats in Sanaa say the central bank is printing more money to meet the government's new expenditures. Both the IMF and the World Bank also confirm the government is tapping into its reserves and that this is having a disastrous effect on the Yemeni currency - rial.

Rial's value has been dropping sharply, and dollars have virtually disappeared from exchange booths and banks across the capital.

In the country that imports most of its food, importers are now struggling to get letters of credit, with suppliers demanding upfront payments in full.

According to the World Food Programme (WFP), the price of wheat flour has almost doubled in the past month. And while food shortages are not an immediate danger, aid agencies worry fewer people will be able to afford basic food.

"The situation is not good. If you take the global increase in food commodities, mix into it weakening rial and add to that the overall political situation, we really don't have good news," says Gian Carlo Cirri, of the WFP.

The increased spending by the government comes as revenues have dropped. Some estimates indicate oil production has halved in the past two months, after oil companies pulled out their staff and tribesmen set ablaze an oil pipeline connecting Marib's oil fields to the Red Sea last month.

While Yemen's powerful neighbour Saudi Arabia has recently poured tens of billions into Bahrain and Oman to help governments there, Riyad seems to be in no rush to come to Yemen's rescue. Many take this as a sign the Saudis have given up on the Yemeni government.

"In one of the Wikileaks, the Saudis complained that all the money they send to Yemen ends up in Swiss accounts, so they don't see the benefit of intervening, they are fed up with the current regime," says Sanaa-based analyst Abdel Ghani al-Iriyani.

The cost of Yemen's uprising and its collapsing economy, many believe, poses the greatest threat to the country's stability.

"The government is taking measures to keep rial stable," says economist Mohammad al-Maitami. "But if there is any confrontation, rial will collapse and with it Yemen will collapse."

"People will have no access to food and water. People will fight," he adds.