Saudi's Finance Minister said on Saturday that the Kingdom's surge in government spending will increase inflationary pressures but have a positive long-term effect, as planned state-sponsored housing will tackle the problem of high rents.

Ibrahim Al-Assaf told Saudi's Al Arabiya television: "If a large sum is put into the economy then it will lead to inflation, but we hope to be spending within the limits which the Saudi economy can absorb."

Al-Assaf claimed the main driver of high inflation in the Kingdom is continually rising rent and that government spending to provide housing for impoverished citizens will help remedy that.

"When we look at the long term the impact of this spending will be positive on inflation," he said.

Saudi's King Abdullah last month announced grants worth US$93 billion, including salary rises and the allocation of 250 billion riyals ($66.7bn) for the construction of 500,000 new homes.

The upper limit for housing loans will also be raised from 300,000 to 500,000 riyals. These were in addition to a $37 billion welfare package announced in late February.

Housing experts say between 30 and 50 per cent of Saudis own their own homes while the majority cannot because they do not earn the minimum salary required to obtain a mortgage. Only two percent of the Saudi population is thought to have a mortgaged home.