Yemen on brink of economic disaster as crisis escalates

Yemen is on the brink of a real economic disaster after the Shiite Houthi group tightened its grip on power and the government was paralysed by years of political struggle since the 2011 upheaval, analysts said Wednesday.

Marzouk Mohsen, executive director of Yemen economic and social development research center, said Yemen will have nothing to depend on if the current political deadlock continues and then economic challenges are not addressed.

Around 11 oil blocks in Shabwa and Hadramout provinces, which produce around 90,000 barrels per day, were shut down in protest against Houthi violence including the seizure of power by force.

Currently, Yemen is producing around 35,000 oil barrels per day from block 18 in Marib. Officials said the crude output from the Marib block will not cover a tiny part of expenditure.

"Yemen is facing combined problems that have left no option. It can't use declining foreign currency reserves either since spending from the reserves will result in other problems including disorder of the balance of payments and inflation," Mohsen said.

In November, the foreign currency reserves fell to 4.6 billion U.S. dollars from 5.1 billion dollars in September after the Central Bank of Yemen used around 500 million dollars on oil imports.

"Moreover, Yemen could see increasing taxes evasion since it is expected that businessman and firms take advantage of the current turmoil and deprive the country from another key resource of income," he added.

Meanwhile, some international donors including Saudi Arabia and the United Arab Emirates have suspended aid to Yemen, due to the inability of the Yemeni authorities to use the assistance and the Houthi seizure of the government.

The shutdowns of key projects and suspension of aid will deepen Yemen's budget deficit and then make the country face a possible collapse, observers said.

The budget deficit was at 6 percent of GDP in 2014 and was expected to go higher this year.

Radhwan Al-Hamdani, a business writer and analyst, said the current crisis is affecting all resources of income in Yemen.

"People have started to spend less amid fears the authorities will not be able to give salaries. Such trend will affect exporting and importing operations, which means more resources of income to be hit as well," Al-Hamdani said.

Yemen depends largely on energy resources which contribute with around 70 percent to the budget.

In 2014, Yemen imported fuels for around two billion dollars while its oil exports brought in around 1.6 billion dollars, according to the Central Bank.

Yemen's oil-producing provinces including Shabwa and Hadramout have announced that they would not receive orders from the powerless government after Houthis seized the capital Sanaa in September 2014, which suggests that oil and gas revenues may no longer be collected by the authorities in Sanaa.

At the same time, Sunni tribes in the Marib province which produces most of the country's crude oil and electricity have been mobilizing to fight Houthi militants since late 2014 and any violence in Marib will lead to disruption of the remaining oil output in the country.