A ceasefire between Yemen’s central government and rebel Houthi tribesmen has freed up government resources to deal with the country’s numerous security and economic difficulties. However, Sanaa still faces a major shortage of funds as a result of oil and gas revenues falling by more than half over the past year.

The ceasefire agreement between the Houthis and the Sanaa government of Ali Abdullah Saleh was brokered on 10 February, and members of a newly formed bilateral committee have started work in Saada province to assess the damage caused by the most recent war between the two groups, which started in August 2009.

Local analysts and politicians remain sceptical of how durable the truce is, but say the agreement comes at a time when Sanaa desperately needs to free up military resources and funds. At its height, the Saada war was costing up to YR2bn ($9.9m) a day (MEED 10:12:09).

Several ceasefire deals have been made between the government and the Houthis since fighting first broke out in 2004. Houthi leaders have repeatedly said their uprising is a reaction to the economic and political disenfranchisement by the predominantly Sunni central government. Saleh’s government says the Houthis want to install a Shia imamate in Sanaa.

The end of the conflict does not mean that Sanaa’s problems are over.

The war has displaced more than 250,000 Yemenis, according to the Geneva-based UN High Commission for Refugees (UNHCR). Many of these people are now preparing to return to Saada, and the UNHCR will need $39m in 2010 to cope with internally displaced people in the country according to Melissa Fleming, a spokeswoman for the organisation.

The government bill for the reconstruction of the province and the resettlement of displaced people may well run into the billions of dollars, according to government insiders.

“The ceasefire is just 20 per cent of solving [Yemen’s] problems,” said Sheikh Mohamed Abulahoum, a leading member of the ruling General People’s Congress party on 14 February.

“Everything is connected. The problems in the north and the south, the economy. This is not so much a victory as an opportunity. We need help from the international community but now we must also help ourselves.”

In the south, the government faces an increasingly popular secessionist movement in the former independent communist enclave. Another major concern for Sanaa and Western governments is the growth of the extremist organisation Al-Qaeda in the Arabian Peninsula (AQAP).

On the basis that the unrest in the south and groups such as AQAP are fuelled by a lack of work and local development, Sanaa wants to work on infrastructure schemes across the country and to bring private investors into the country.

However, its ability to move ahead with projects will be hampered by the country’s faltering economy which is in “crisis”, according to a Dubai-based analyst.

The government made $1.96bn from oil and gas exports in the 12 months to 31 December 2009, a fall of 54.9 per cent from the same period a year before when income totalled $4.4bn. Revenues from hydrocarbons exports comprised 70 per cent of government income in 2008.

According to the Washington-based International Monetary Fund (IMF), Yemeni government debt reached 45.9 per cent of the country’s $26.6bn gross domestic product in 2009.

At a January conference in London, international diplomats pledged to help develop Yemen’s economy as part of plans to combat AQAP and similar groups.

However, local analysts regard a meeting in Riyadh on 22 and 23 February as being far more influential in helping develop the country’s economy and combat security issues.