Saudi handout won't fuel inflation: central banker

The Saudi king's $130 billion in handouts to boost wages, create jobs and build houses are not likely to exacerbate inflation, the country's central bank governor said on Thursday. Worried by spreading unrest across the Gulf region, the government plans to spend nearly 30 per cent of its annual economic output to ease social tensions in the kingdom, where over 10 per cent of locals are out of work.

"I doubt that the measures will boost inflation," Central Bank Governor Muhammad al-Jasser said on the sidelines of a meeting of regional central bankers and bank executives. "The extra spending may not go into extra food demand because people are already consuming what they need."

"But most of the spending is really to increase the supply of housing. Even if there is a little uptick in the beginning, it will definitely peter out and start to decline later on because of huge spending on housing creation," he said.

Saudi annual inflation slowed to a 10-month low of 4.9 per cent in February, with growth in housing and transport costs subsiding, though analysts said the slowdown was temporary due to robust global food prices and crude above $100 per barrel.

"It would be very difficult to imagine that there wouldn't be some inflationary impacts," said Gabriel Sterne, senior economist at London-based Exotix.

"I would have thought that if there was a building boom plus injecting money into the economy and domestic pockets that would almost inevitably add inflationary pressures," he said.

Protests against autocratic regimes and economic hardships have shaken the Arab world, challenging rulers of Bahrain and Oman and also Yemen's president. The turmoil has raised debt insurance costs across the Gulf and weighed on stocks.

Officials meeting in Qatar told reporters that there were no significant shifts in economic conditions or movements of money, such as in Oman where public unrest has also flared up.

Asked whether the kingdom plans any sovereign bond issues this year, Jasser said: "We don't need to raise any funds."

The Saudi finance minister said last month after the king's initial $37bn worth of social spending was announced that the world's top crude exporter would tap into its large foreign asset reserves, which stood at record $445bn in January.

Jasser's Omani counterpart Hamood Sangour al-Zadjali also said at the same conference in Qatar that the sultanate - hit by a wave of protests and strikes - had no plans to issue sovereign debt.

Non-Opec Oman, which usually favours only small issues of development bonds, is expected to get $10bn from wealthier fellow Gulf oil exporters over the next 10 years to defuse tensions through housing upgrades, the same amount as Bahrain.

"No, no plans," he said but declined to comment how the aid package would be spent and what the contributions were.

Asked whether he expected any capital outflows due to the turmoil and what was his expectation of 2011 economic growth, he told Reuters: "No, we have not seen any signs of capital outflow. It's normal."

"It (growth forecast) is about five to six per cent. Things are in a good shape," he said.

Analysts polled by Reuters in March recently trimmed Oman's growth outlook for 2011 to 4.1 per cent from 4.6 per cent. The unrest forced its sultan to raise wages, social benefits and reshuffle the cabinet.