Global outrage over Houthi missile attack near Makkah

Riyadh, Jul 1: Saudis braced Wednesday for a tripling in value added tax, another unpopular austerity measure after the twin shocks of coronavirus and an oil price slump triggered the kingdom's worst economic decline in decades.

Retailers in the country reported a sharp uptick in sales this week of everything from gold and electronics to cars and building materials, as shoppers sought to stock up before VAT is raised to 15 percent.

The hike could stir public resentment as it weighs on household incomes, pushing up inflation and depressing consumer spending as the kingdom emerges from a three-month coronavirus lockdown.

"Cuts, cuts, cuts everywhere," a Saudi teacher in Riyadh told AFP, bemoaning vanishing subsidies as salaries remain stagnant.

"Air conditioner, television, electronic items," he said, rattling off a list of items he bought last week ahead of the VAT hike.

"I can't afford these things from Wednesday."

With its vast oil wealth funding the Arab world's biggest economy, the kingdom had for decades been able to fund massive spending with no taxes at all.

It only introduced VAT in 2018, as part of a push to reduce its dependence on crude revenues.

Then, seeking to shore up state finances battered by sliding oil prices and the coronavirus crisis, it announced in May that it would triple VAT and halt a cost-of-living monthly allowance to citizens.

The austerity push underscores how Saudi Arabia's once-lavish spending is becoming a thing of the past, with the erosion of the welfare system leaving a mostly young population to cope with reduced incomes and a lifestyle downgrade.

That could pile strain on a decades-old social contract whereby citizens were given generous subsidies and handouts in exchange for loyalty to the absolute monarchy.

The rising cost of living may prompt many to ask why state funds are being lavished on multi-billion-dollar projects and overseas assets, including the proposed purchase of English football club Newcastle United.

Shopping malls in the kingdom have drawn large crowds in recent days as retailers offered "pre-VAT sales" and discounts before the hike kicks in.

A gold shop in Riyadh told AFP it saw a 70 percent jump in sales in recent weeks, while a car dealership saw them tick up by 15 percent.

Once the new rate is in place, businesses are predicting depressed sales of everything from cars to cosmetics and home appliances.

Capital Economics forecast inflation will jump up to six percent year-on-year in July, from 1.1 percent in May, as a result.

"The government ended the country's lockdown (in June) and there are signs that economic activity has started to recover," Capital Economics said in a report.

"Nonetheless, we expect the recovery to be slow-going as fiscal austerity measures bite."

The kingdom also risks losing its edge against other Gulf states, including its principal ally the United Arab Emirates, which introduced VAT at the same time but has so far refrained from raising it beyond five percent.

"Saudi Arabia is taking massive risks with contractionary fiscal policies," said Tarek Fadlallah, chief executive officer of the Middle East unit of Nomura Asset Management.

But the kingdom has few choices as oil revenue declines.

Its finances have taken another blow as authorities massively scaled back this year's hajj pilgrimage, from 2.5 million pilgrims last year to around a thousand already inside the country, and suspended the lesser umrah because of coronavirus.

Together the rites rake in some $12 billion annually.

The International Monetary Fund warned the kingdom's GDP will shrink by 6.8 percent this year -- its worst performance since the 1980s oil glut.

The austerity drive would boost state coffers by 100 billion riyals ($26.6 billion), according to state media.

But the measures are unlikely to plug the kingdom's huge budget deficit.

The Saudi Jadwa Investment group forecasts the shortfall will rise to a record $112 billion this year.

Dubai, Jan 8: A Ukrainian airliner crashed soon after taking off from Tehran's Imam Khomeini airport on Wednesday, killing all 176 people aboard, Iran's state television and Ukraine's leaders said.

The Boeing 737 belonging to Ukraine International Airlines crashed near the airport and burst into flames. Ukraine's embassy in Iran, citing preliminary information, said the plane had suffered engine failure and the crash was not caused by "terrorism".

Ukraine President Volodymyr Zelenskiy said there were no survivors.

"My sincere condolences to the relatives and friends of all passengers and crew," Zelenskiy said in a statement, adding that Ukraine was seeking to establish the circumstances of the crash and the death toll.

Iranian TV said the crash was due to technical problems but did not elaborate. State broadcaster IRIB said on its website that one of the plane's two black boxes - the flight data recorder and the cockpit voice recorder - had been found.

Iranian media quoted an Iranian aviation official as saying the pilot of the airliner did not declare an emergency.

There was no official word from Ukraine International Airlines. It was the Kiev-based airline's first fatal crash.

"The fire is so heavy that we cannot (do) any rescue... we have 22 ambulances, four bus ambulances and a helicopter at the site," Pirhossein Koulivand, head of Iran's emergency services, told Iranian state television.

Ukraine's prime minister and Iranian state TV said 167 passengers and 9 crew were on board. Iranian TV said 32 of those on board were foreigners.

Television footage showed debris and smouldering engine parts strewn across a field, and rescue workers with face masks retrieving bodies of the victims.

According to air tracking service FlightRadar24, the plane that crashed was Flight PS 752 and was flying to Kiev. The plane was three years old and was a Boeing 737-800NG, it said.

The model's twin engines are made by CFM International, a U.S.-French venture co-owned by General Electric and France's Safran.

Modern aircraft are designed and certified to cope with an engine failure shortly after take-off and to fly for extended periods on one engine. However, an uncontained engine failure releasing shrapnel can cause damage to other aircraft systems.

A spokesman for Boeing said the company was aware of media reports of a plane crash in Iran and was gathering more information. The plane manufacturer grounded its 737 MAX fleet in March after two crashes that killed 346 people.

The 737-800 is one of the world's most-flown models with a good safety record and which does not have the software feature implicated in crashes of the 737 MAX.

Under international rules overseen by the United Nations, Iran is responsible for leading the crash investigation.

Ukraine would be involved and the United States would usually be accredited as the country where the Boeing jet was designed and built. France, where the engine maker CFM has half its activities, may also be involved.

There was no immediate word on whether the U.S. National Transportation Safety Board would be involved in the probe amid escalating tensions between the U.S. and Iran. The NTSB usually invites Boeing to give technical advice in such investigations.

The Organisation of Islamic Cooperation (OIC) has said it rejects US President  Donald Trump 's recently unveiled Middle East plan.

The 57-member body, which held a summit on Monday  to discuss the plan in Saudi Arabia's Jeddah, said in a statement that it "calls on all member states not to engage with this plan or to cooperate with the US administration in implementing it in any form".

Requested by the Palestinian leadership, the meeting of the body came two days after the Arab League rejected Trump's so-called "deal of the century", saying: "It does not meet the minimum rights and aspirations of Palestinian people."

Addressing a pro-Israel audience at the White House with Israeli Prime Minister Benjamin Netanyahu by his side, Trump on Tuesday described his long-delayed plan for resolving the Israeli-Palestinian conflict as a "win-win solution" for both sides.

The US president said his proposed deal would ensure the establishment of a two-state solution, promising Palestinians a state of their own with a new capital in Abu Dis, a suburb just outside Jerusalem. Trump also said Jerusalem would be the "undivided capital" of Israel. The Palestinians want both occupied East Jerusalem and the West Bank to be part of a future state.

Palestinian leaders, who were absent during the announcement and had rejected the proposal even before its release, denounced the plan as "a new Balfour Declaration" that heavily favoured Israel and would deny them a viable independent state.

The OIC said in a statement on Twitter on Sunday that its "open-ended executive committee meeting" at the level of foreign ministers would "discuss the organisation's position after the US administration announced its peace plan".

With member states from four continents, the OIC is the second-largest intergovernmental organisation in the world after the United Nations, with a collective population reaching more than 1.8 billion.

The majority of its member states are Muslim-majority countries, while others have significant Muslim populations, including several African and South American countries. While the 22 members of the Arab League are also part of the OIC, the organisation has several significant non-Arab member states, including Turkey, Iran and Pakistan. It also has five observer members, including Russia and Thailand.

Iran 'barred'

Meanwhile, Iran on Monday accused its regional rival Saudi Arabia of blocking its officials from attending the OIC meeting.

"The government of Saudi Arabia has prevented the participation of the Iranian delegation in the meeting to examine the 'deal of the century' plan at the headquarters of the Organization of Islamic Cooperation," Fars news agency quoted Abbas Mousavi, spokesman for Iran's foreign ministry, as saying.

Mousavi said Iran - one of the countries to strongly condemn Trump's plan - had filed a complaint with the OIC and accused its regional rival of misusing its position as the host for the organisation's headquarters.

There was no immediate comment from Saudi officials.

Following the unveiling of Trump's plan, the Saudi foreign ministry expressed appreciation for Trump's efforts and support for direct peace negotiations under Washington's auspices, while state media reported that King Salman had called Palestinian President Mahmoud Abbas to reassure him of Riyadh's unwavering commitment to the Palestinian cause.

The announcement of Trump's plan drew mixed responses from Arab states.

Observers said the reaction was indicative of the division among Arab countries and their inability to prioritise the Palestinian people's plight over domestic economic agendas and political calculations in relation to the Trump administration.