Dubai: Saudi Arabia has paid 2 billion riyals ($533 million) in the first monthly installment of a new welfare system for low and middle-income Saudi families that make up approximately half of the kingdom’s population.

The payments come ahead of the introduction of a tax on most goods and services and subsidy cuts that will raise the price of electricity and gasoline next year.

Minister of Labour and Social Development Ali Al Ghafees told state-run Saudi Press Agency the payments began on Thursday, with bank transfers to approximately 3 million families reaching around 10.6 million beneficiaries.

He says half of those families received the maximum payment of 938 riyals ($250). The minimum payment is 300 riyals ($80).

Around 20 per cent of those who applied for the assistance did not qualify.

Reforms such as fuel price hikes and changes to public sector salaries and allowances have reduced the disposable incomes of many households, and more such reforms are on the way as the government strengthens its finances in an era of low oil prices.

In its December statement, the government said it would pay the allowance directly to households in cash, and that the first payment would be made before the next hike in energy prices.

Allowances would be designed to avoid promoting excessive consumption, and would vary depending on the size and affluence of households.

Only lower-income Saudi households would be fully compensated for the economic burden of the reforms.

For example, the government estimated that a family of six earning up to 8,699 riyals ($2,320) a month might initially receive a monthly allowance of 1,200 riyals.

The government initially aimed to introduce the system during 2017 but it was delayed, partly by planning difficulties, sources said.

Authorities originally envisaged spending between 20 billion and 25 billion riyals on the scheme in 2017, rising to 60-70 billion riyals in 2020.