LONDON: While the introduction of value-added-tax (VAT) in Saudi Arabia on Jan. 1 has helped to push up inflation in the Kingdom, the impact of the new charge is expected to fade over the next 12 months, analysts said.
Consumer prices in the Kingdom rose by 3 percent in January year-on-year, according to official figures released on Feb. 25. This compares to a decline of 1.1 percent year-on-year in December.
Saudi Arabia brought in the 5 percent VAT charge as well as cuts to fuel and electricity subsidies last month in an effort to balance its budget and decrease its dependency on oil revenues.
Analysts said the impact of the VAT charge on inflation will be relatively short-term.
“We do not want to downplay the various impacts of the VAT, but we emphasize that on the inflation front the base effect linked to the VAT’s introduction will dissipate in 12 months from now,” Paul Wetterwald, chief economist for Indosuez Wealth Management said in a research note on Feb 26.
Wetterwald drew a comparison with Japan, where in April 2014 the country increased VAT from 5 to 8 percent which helped push up inflation to 3.7 percent year-on-year in May that year. The inflation rate retracted to 0.5 percent 12 months later.
Jason Tuvey, Middle East economist at Capital Economics, said that he expected inflation in Saudi Arabia to “hover around its current rate for the remainder of the year.”
He added that the hit to household budgets would be offset by an expected raft of bonuses for public sector workers.
Tuvey also noted that Saudi Arabia changed the base year used to calculate consumer prices from 2008 to 2013, which helped depress inflation figures, compared to if they had been calculated with the old data series.
The cost of food in the Kingdom was particularly affected by the VAT charge, with inflation in that sector rising from 0.5 percent in December to 6.8 percent year-on-year in January. All food items are subject to VAT.
Transport costs rose by 10.5 percent in January year-on-year following a number of price hikes, while inflation in housing and utilities reached 1.3 percent year-on-year.
The impact of VAT has also had an impact on the business climate within the non-oil sector, with Saudi Arabia’s purchasing managers’ index (PMI) declining to a measure of 53 in January compared to 57.3 recorded in December. Any measure above 50 indicates an expansion rather than contraction.
Saudi Arabia’s VAT inflation impact to fade over year, say analysts
Saudi Arabia’s VAT inflation impact to fade over year, say analysts
‘The future is renewables,’ Indian energy minister tells World Economic Forum
- ‘In India, I can very confidently say, affordability (of renewables) is better than fossil fuel energy,’ says Pralhad Venkatesh Joshi during panel discussion
- Renewables are an increasingly important part of the energy mix and the technology is evolving rapidly, another expert says at session titled ‘Unstoppable March of Renewables?’
BEIRUT: “The future is renewables,” India’s minister of new and renewable energy told the World Economic Forum in Davos on Wednesday.
“In India, I can very confidently say, affordability (of renewables) is better than fossil fuel energy,” Pralhad Venkatesh Joshi said during a panel discussion titled “Unstoppable March of Renewables?”
The cost of solar power has has fallen steeply in recent years compared with fossil fuels, Joshi said, adding: “The unstoppable march of renewables is perfectly right, and the future is renewables.”
Indian authorities have launched a major initiative to install rooftop solar panels on 10 million homes, he said. As a result, people are not only saving money on their electricity bills, “they are also selling (electricity) and earning money.”
He said that this represents a “success story” in India in terms of affordability and “that is what we planned.”
He acknowledged that more work needs to be done to improve reliability and consistency of supplies, and plans were being made to address this, including improved storage.
The other panelists in the discussion, which was moderated by Godfrey Mutizwa, the chief editor of CNBC Africa, included Marco Arcelli, CEO of ACWA Power; Catherine MacGregor, CEO of electricity company ENGIE Group; and Pan Jian, co-chair of lithium-ion battery manufacturer Contemporary Amperex Technology.
Asked by the moderator whether she believes “renewables are unstoppable,” MacGregor said: “Yes. I think some of the numbers that we are now facing are just proof points in terms of their magnitude.
“In 2024, I think it was 600 gigawatts that were installed across the globe … in Europe, close to 50 percent of the energy was produced from renewables in 2024. That has tripled since 2004.”
Renewables are an increasingly important and prominent part of the energy mix, she added, and the technology is evolving rapidly.
“It’s not small projects; it’s the magnitude of projects that strikes me the most, the scale-up that we are able to deliver,” MacGregor said.
“We are just starting construction in the UAE, for example. In terms of solar size it’s 1.5 gigawatts, just pure solar technology. So when I see in the Middle East a round-the-clock project with just solar and battery, it’s coming within reach.
“The technology advance, the cost, the competitiveness, the size, the R&D, the technology behind it and the pace is very impressive, which makes me, indeed, really say (renewables) is real. It plays a key role in, obviously, the energy demand that we see growing in most of the countries.
“You know, we talk a lot about energy transition, but for a lot of regions now it is more about energy additions. And renewables are indeed the fastest to come to market, and also in terms of scale are really impressive.”
Mutizwa asked Pan: “Are we there yet, in terms of beginning to declare mission accomplished? Are renewables here to stay?”
“I think we are on the road but (its is) very promising,” Pan replied. There is “great potential for future growth,” he added, and “the technology is ready, despite the fact that there are still a lot of challenges to overcome … it is all engineering questions. And from our perspective, we have been putting in a lot of resources and we are confident all these engineering challenges will be tackled along the way.”
Responding to the same question, Arcelli said: “Yes, I think we are beyond there on power, but on other sectors we are way behind … I would argue today that the technology you install by default is renewables.
“Is it a universal truth nowadays that renewables are the cheapest?” asked Mutizwa.
“It’s the cheapest everywhere,” Arcelli said.
