Saudi Arabia triples VAT, suspends handouts amidst corona crisis

News Network
May 11, 2020

May 11: Saudi Arabia will triple its value-added tax rate and suspend a cost of living allowance for state workers, it said on Monday, seeking to shield finances hit by low oil prices and a slump in demand for its lifeline export worsened by the new coronavirus.

Historic oil output cuts agreed by Riyadh and other major producers have given only limited support to prices after they sank on oversupply caused by a war for petroleum market share between the kingdom and its fellow oil titan Russia.

Saudi Arabia, the world's largest oil exporter, is also being hit hard by measures to fight the new coronavirus, which are likely to curb the pace and scale of economic reforms launched by Crown Prince Mohammed bin Salman.

"The cost of living allowance will be suspended as of June 1, and the value added tax will be increased to 15% from 5% as of July 1," Finance Minister Mohammed al-Jadaan said in a statement reported by the state news agency. "These measures are painful but necessary to maintain financial and economic stability over the medium to long term...and to overcome the unprecedented coronavirus crisis with the least damage possible."

The austerity measures come after the kingdom posted a $9 billion budget deficit in the first quarter.

The minister said non-oil revenues were affected by the suspension and decline in economic activity, while spending had risen due to unplanned strains on the healthcare sector and the initiatives taken to support the economy.

"All these challenges have cut state revenues, pressured public finances to a level that is hard to deal with going forward without affecting the overall economy in the medium to long term, which requires more spending cuts and measures to support non-oil revenues stability," he added.

The government has cancelled and put on hold some operating and capital expenditures for some government agencies, and cut allocations for some reform initiatives and projects worth a total 100 billion riyals ($26.6 billion), the statement said.

Central bank foreign reserves fell in March at their fastest rate in at least 20 years and to their lowest since 2011, while oil revenues in the first three months of the year fell 24% from a year earlier to $34 billion, pulling total revenues down 22%.

"The reforms are positive from a fiscal side as greater adjustment is essential. However, the tripling of VAT is unlikely to help that much in 2020 revenue wise with the expected fall in consumption," said Monica Malik, chief economist at Abu Dhabi Commercial Bank.

She said she kept unchanged her deficit forecast of 16.3% of GDP for this year, which already factors in a greater than previously announced spending cut.

About 1.5 million Saudis are employed in the government sector, according to official figures released in December.

In 2018, Saudi Arabia's King Salman ordered a monthly payment of 1,000 riyals ($267) to every state employee to compensate them for the rising living costs after the government hiked domestic gas prices and introduced value-added tax.

DIFFICULT TIMES

A committee has been formed to study all financial benefits paid to public sector employees and contractors, and will submit recommendations within 30 days, the statement said.

In late 2015, when oil prices fell from record highs, the kingdom slashed lavish bonuses, overtime payments and other benefits once considered routine perks in the public sector.

In a country without elections and with political legitimacy resting partly on distribution of oil revenue, the ability of citizens to adapt to such reforms is crucial for stability.

"Tripling the VAT will test the limits of the balance between revenues and consumption as the economy dives into a deep recession. The move will impact consumption and could also lower the expected revenues," said John Sfakianakis, a Gulf expert at the University of Cambridge.

"These are pro-austerity and pro-revenue moves rather than pro-growth ones," he said.

Hasnain Malik, head of equity strategy at Tellimer, said the VAT rise could bring about $24-$26.5 billion in additional non-oil fiscal revenue. The rise would hit consumer spending further but was a needed step towards fiscal sustainability, he said.

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Agencies
August 2,2020

Dubai, Aug 2: The United Arab Emirates (UAE) announced on Saturday that it has started operations in the first of four reactors at the Barakah nuclear power station - the first nuclear power plant in the Arab world.

Emirates Nuclear Energy Corporation (ENEC), which is building and operating the plant with Korea Electric Power Corporation (KEPCO) said in a press release that its subsidiary Nawah Energy Company "has successfully started up Unit 1 of the Barakah Nuclear Energy Plant, located in the Al Dhafrah Region of Abu Dhabi".

That signals that Unit 1, which had fuel rods loaded in March, has achieved "criticality" - a sustained fission chain reaction.

"The start-up of Unit 1 marks the first time that the reactor safely produces heat, which is used to create steam, turning a turbine to generate electricity," said ENEC.

Barakah, which was originally scheduled to open in 2017, has been dogged by delays and is billions of dollars over budget. It has also raised myriad concerns among nuclear energy veterans who are concerned about the potential risks Barakah could visit upon the Arabian Peninsula, from an environmental catastrophe to a nuclear arms race.

Paul Dorfman, an honorary senior research fellow at the Energy Institute, University College London and founder and chair of the Nuclear Consulting Group, has criticised the Barakah reactors' "cheap and cheerful" design that he says cuts corners on safety.

Dorfman authored a report (PDF) last year detailing key safety features Barakah's reactors lack, such as a "core catcher" to literally stop the core of a reactor from breaching the containment building in the event of a meltdown. The reactors are also missing so-called Generation III Defence-In-Depth reinforcements to the containment building to shield against a radiological release resulting from a missile or fighter jet attack.

Both of these engineering features are standard on new reactors built in Europe, says Dorfman.

There have been at least 13 aerial attacks on nuclear facilities in the Middle East - more than any other region on earth.

The vulnerability of critical infrastructure in the Arabian Peninsula was further laid bare last year after Saudi Arabia's oil facilities at Abqaiq and Khurais were attacked by 18 drones and seven cruise missiles - an assault that temporarily knocked out more than half of the kingdom's oil production.

On Saturday, Dorfman reiterated his concern that there is no regional protocol in place to determine liability should an accident or incident at Barakah result in radioactive contamination spreading from the UAE to its neighbours. 

"Given Barakah has started up, because of all the well-rehearsed nuclear safety and security problems, it may be critically important that the Gulf states collectively evolve a Nuclear Accident Liability Convention, so that if anything does go wrong, victim states may have some sort of redress," Dorfman told Al Jazeera. 

The UAE has substantial oil and gas reserves, but it has made huge investments in developing alternative energy sources, including nuclear and solar.

Experts though have questioned why the UAE - which is bathed in sunlight and wind - has pushed ahead with nuclear energy - a far more expensive and riskier option than renewable energy sources.

When the UAE first announced Barakah in 2009, nuclear power was cheaper than solar and wind. But by 2012 - when the Emirates started breaking ground to build the reactors - solar and wind costs had plummeted dramatically.

Between 2009 and 2019, utility-scale average solar photovoltaic costs fell 89 percent and wind fell 43 percent, while nuclear jumped 26 percent, according to an analysis by the financial advisory and asset manager Lazard.

There are also concerns about the potential for Barakah to foment nuclear proliferation in the Middle East - a region rife with geopolitical fault lines and well-documented history of nuclear secrecy.

The UAE has sought to distance itself from the region's bad behaviour by agreeing not to enrich its own uranium or reprocess spent fuel. It has also signed up to the United Nation's nuclear watchdog's Additional Protocol, significantly enhancing inspection capabilities, and secured a 123 Agreement with the United States that allows bilateral civilian nuclear cooperation.

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News Network
June 15,2020

New Delhi, Jun 15: With an increase of 11,502 cases in the past 24 hours, the COVID-19 count in India reached 3,32,424 on Monday, according to the Union Health and Family Welfare Ministry.

The spike is marginally lower than the highest-ever spike of 11,929 new cases the country registered a day earlier.

With 325 deaths being reported from across the country, the toll due to COVID-19 has now reached 9,520.

The COVID-19 count includes 1,53,106 active cases while 1,69,798 patients have been cured and discharged or migrated so far.

Maharashtra with 1,07,958 cases continues to be the worst-affected state in the country with 53,030 active cases while 50,978 patients have been cured and discharged in the state so far. 3,950 deaths have been reported due to the infection so far from Maharashtra.

It is followed by Tamil Nadu with 44,661 cases and the national capital with 41,182 confirmed cases.

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Agencies
February 16,2020

Al-Jawf, Feb 16: At least 31 people were killed and 12 others were injured here in the al-Maslub district in airstrikes by the Saudi-UAE-led military coalition on Saturday.

"Preliminary field reports indicate that as many as 31 civilians were killed and 12 others injured in strikes that hit al-Hayjah area of the al-Maslub district in al-Jawf governorate," said a statement from the office of the UN resident coordinator and humanitarian coordinator for Yemen.

According to Al Jazeera, the airstrike was conducted hours after the Yemeni Houthis said that they downed a Saudi fighter jet in the same region.

Commenting on the air raids, Lise Grande, the UN's humanitarian coordinator for Yemen, said: "We share our deep condolences with the families of those killed and we pray for the speedy recovery of everyone who has been injured in these terrible strikes."

"So many people are being killed in Yemen - it's a tragedy and it's unjustified. Under international humanitarian law, parties that resort to force is obligated to protect civilians," Grande was quoted as saying.

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