Yemen's parliament approved the transitional government's 2.77 trillion rials ($12.9 billion) 2013 spending plan on Saturday, four weeks after it was passed by the cabinet, after the former president's party withdrew objections to some spending.

Yemen, the poorest Arab state, is grappling with the aftermath of political tumult in 2011 that toppled Ali Abdullah Saleh and two domestic insurgencies that have caused a humanitarian crisis.

Restoring stability is seen as key by Washington and Gulf countries because of Yemen's location on the important Red Sea oil shipment route and the presence there of an al Qaeda wing that vows to topple Saudi Arabia's ruling family and strike international targets.

The cabinet said in December its budget plan for this year projected spending of 2.77 billion rials and a deficit of 682 billion rials.

A source in parliament told Reuters the breakthrough came after a meeting on Wednesday between interim President Abd-Rabbu Mansour Hadi and members of parliament.

Saleh's party, the General People's Congress, holds a majority in parliament, giving it powers of veto over important laws such as budgets.

It had objected to the amount of "general spending" in the budget plan.

Last year the country did not pass its budget plan until April.

The economy of Yemen shrank 10.5 per cent in 2011, further destabilising the country and worsening poverty in a country where two in five people live on less than $2 a day.-Reuters