Ryad (AFP)

Saudi Arabia, the world's largest exporter of crude oil, announced on Monday an austerity plan in which it will triple its value added tax and end monthly allowances to its citizens after the historic drop in oil prices and the new coronavirus pandemic.

The country hopes to derive 100 billion riyals (24.61 billion euros) from these measures, which could cause some public dissatisfaction.

"It was decided to end the payment of the cost of living allowance (paid to the Saudis) from June 2020 and that the VAT would drop from 5% to 15% from July 1," the agency said. of official SPA press the Minister of Finance Mohammed al-Jadaan.

In addition, the government "cancels, spreads or postpones" spending on major development projects intended to modernize the country's economy and make it less dependent on oil exports, he added.

The minister said the move was made necessary by the "unprecedented drop" in global demand for black gold and the "sharp drop in oil revenues" for the country.

He also cited two other "shocks" to the Saudi economy: the slowdown in activity related to containment measures and "unplanned" public spending in the health sector.

Saudi Arabia is the Arab country in the Gulf most affected by the pandemic, with more than 39,000 cases of infection and 246 deaths from the disease, according to the latest official figures.

The previous week, Mohammed al-Jadaan had warned that "painful" and "drastic" measures for the country's budget would be necessary.

Like other Gulf countries, Arabia only introduced VAT on January 1, 2018, starting with this rate of 5%, against the backdrop of falling oil prices since 2014.

To compensate for the increase in the cost of living for the less fortunate, it had then created an allowance, which represents billions of dollars in spending each year.

- "Expenditure control" -

The government estimates that Riyadh could lose half of its petroleum-related tax revenues, which account for 70% of the total.

While the first economic effects of the coronavirus pandemic were felt, in March, Saudi Arabia had launched into a price war by increasing its production and lowering the cost of delivery for its customers, in the hope to preserve or even increase its market share. This risky strategy has cut Saudi oil prices by about three since the start of the year.

The Saudi kingdom plans to borrow nearly $ 60 billion over the year to finance its budget deficit. After having been in surplus for a long time, the state budget has been constantly in the red since 2014.

The International Monetary Fund (IMF) projected a contraction of 2.3% of the kingdom's gross domestic product in April in 2020.

"Saudi citizens are starting to feel the economic impact of the virus in concrete terms," ​​observes Yasmine Farouk, a Saudi Arabian specialist at the Carnegie Endowment for International Peace think tank.

"The (economic) difficulties will be accompanied by greater control of state spending, especially the millions spent on (...) entertainment events," she said.

If the strong man of the kingdom, the Saudi crown prince Mohammed bin Salman, launched an ambitious program of modernization of the country, its financing depended heavily on oil. However the courses did not take the hoped direction.

One of the emblematic projects, consisting in building from scratch a futuristic megalopolis called Neom on the coasts of the Red Sea, in the northwest, seems thus compromised.

The question of its staggering cost, for 500 billion dollars, is not the only one at stake. Unexpected resistance has risen among the local population, in a country not very open to discordant voices.

In April, the sling led to the death of a member of the Houweitat tribe, killed in a shootout with the security forces when he refused to cede his land.

© 2020 AFP