Saudi Arabia, concerned that chaos in Yemen would further embolden Al Qaeda on its own doorstep, pledged $3.25 billion in aid to its neighbour at a donors' meeting two days after more than 90 Yemeni soldiers were killed in a suicide attack.

Riyadh, which already provides oil and military aid to its impoverished neighbour, convened Western and Arab Gulf nations at a meeting here to see how they can help Yemen push ahead with reforms and tackle its poverty and lawlessness.

"I assert one more time our support to Yemen to back all the phases of the political initiative to help achieve security, stability and prosperity in facing the threats of extremism and terrorism," Saudi Foreign Minister Saud al-Faisal told envoys on Wednesday.

The donor group, which is co-chaired by Britain, was discussing political developments since President Ali Abdullah Saleh stepped down in February, ending his three-decade rule in the Arabian Peninsula state after nearly a year of mass protests.

Monday's attack on a military parade was the latest violent incident in a country wracked by political turmoil, where the army has split into rival factions and much of the south has fallen under the control of an Islamist militia allied to al Qaeda's local wing.

Saudi Arabia and Western countries have watched with mounting alarm as Al Qaeda in the Arabian Peninsula, known as AQAP, has taken advantage of the lawlessness to set up a base  capable of planning sophisticated international attacks.

In early May Washington said Western and Arab intelligence agencies had foiled a bomb plot aimed at a passenger airplane.
 In October 2010, AQAP had tried to send bomb-laden parcels to the United States and in 2009, a bomber from Yemen was caught trying to ignite explosives on a US-bound flight.

Wednesday's donor meeting is aimed at strengthening the Yemeni state and returning a semblance of economic stability to a country where 40 percent of the population lives on less than $2 a day.

Yemen's modest oil exports that were a source of foreign exchange were hit by repeated attacks on pipelines last year.
Yemen is rapidly depleting the water in its aquifers, and by some estimates the capital Sanaa may run out of water in the coming decade or sooner.      
The Planning and International Cooperation Minister told the conference his country needed an initial $2.17 billion to help stabilise the country, fight militant attacks and ease a humanitarian crisis.

It required a further $5.8 billion in future to develop the economy and national infrastructure, with $3.7 billion needed by 2014, he added.

As the meeting began, Yemeni Finance Minister Sakhr Ahmed Al-Wajeeh told reporters he would be happy if his country achieved economic growth of 1 percent in 2012, and that even this modest goal relied on foreign generosity.

Yemen is likely to run a $2.5 billion budget deficit this year, he added. But he was unable to say by how much the economy had contracted during the political turmoil of 2011.

"The (Saudi) contribution will support development projects agreed upon," Prince Saud said, without giving details on how the money would be disbursed.     

Some $3 billion of aid pledged by the Friends of Yemen group when it first met in 2006 has still not been delivered, the government said in February.

Yemen's Deputy Finance Minister, Jalal Yaqoub, told Reuters:
"Saudi Arabia has shown great generosity... Yemen has to increase its capacity to absorb these funds efficiently. This money must be translated into projects that citizens can actually feel."     

Countries from the Gulf Cooperation Council, which includes Saudi Arabia, Kuwait, Qatar, Bahrain, the United Arab Emirates and Oman, attended the meeting, as did the United States, the European Union, France, Egypt and Russia, the International Monetary Fund and the World Bank.    

In April the IMF resumed lending to Yemen, approving the payment of a $93.7 million loan to help it address a balance of payments deficit that worsened during the political turmoil.  - Reuters