UPDATE 2-Saudi Arabia not to increase spending, minister says

By Souhail Karam and Thomas Atkins

RIYADH, Jan 24 (Reuters) - Saudi Arabia, the world's largest oil exporter, will resist pressures to increase spending, as the country aims to keep its fiscal reserves at a 'good level,' the country's finance minister said on Sunday.

Ibrahim al-Assaf also said economic indicators gave cause for optimism for the Saudi economy but more broadly he sounded a note of caution, saying the Group of 20 richest nations should not rush into withdrawing their economic stimulus packages just yet.

'It could lead to another dip in the world economy,' he said, at a conference in the Saudi capital, Riyadh

Saudi Arabia, like other nations, boosted spending on infrastructure, education and healthcare last year seeking to underpin economic growth and has repeatedly warned of the need to keep stimulus packages in place and against early exits.

However, Assaf said there was also a risk that price pressures could increase due to the stimulus measures.

'We have been monitoring -- and here I mean the G20 nations -- the situation, in particular looking at not to withdraw the stimulus packages or to extend them longer than needed,' he said.

Inflation fell sharply across the Gulf in 2009 -- it hit a record of 9.9 percent in Saudi in 2008 -- as oil prices fell from their record mid-2008 peaks and demand stalled in the wake of the global credit crunch.

But there have been signs of inflationary pressures resurfacing with Saudi inflation bouncing back to 4 percent in November from a 28-month low in October.

'The stimulus packages were put in place to counter the decline in demand, so government demand is driving macro demand. The concern at this time is that price pressures occur because of stimulus packages,' he said.

The finance minister also said he expected Saudi growth would be 'more than 4 percent' in 2010, speaking to Al Arabiya TV.

(Writing by Amran Abocar; Editing by Greg Mahlich) Keywords: G20 SAUDI/ ([e-mail]; [phone]; Reuters Messaging: [e-mail]) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.