UPDATE 2-Egypt expands economic stimulus plan
* Egypt plans bigger stimulus package in January
* Minister says funds to come from Gulf aid, savings
* Says not 'worried sick' by soaring inflation
* Police fire teargas in Tahrir Square
By Asma Alsharif and Shadia Nasralla
CAIRO, Dec 16 (Reuters) - Egypt plans to spend around 30 billion Egyptian pounds ($4.36 billion) in a second stimulus package to be launched in January, the finance minister said on Monday, 25 percent more than previously announced.
It means the army-backed authorities have set aside some $8.5 billion to stimulate the ailing economy since the military deposed Islamist President Mohamed Mursi in July. The first stimulus package, also around 30 billion pounds, was launched in August.
Ahmed Galal, the finance minister, said the new spending would be financed by savings and aid from Saudi Arabia, Kuwait and the United Arab Emirates, which pledged $12 billion in support to Egypt after Mursi was toppled.
"We have the resources to do it," Galal said. "The money that came from the Gulf was not part of the first stimulus package," he said. "It's going to be part of the second one."
Three years of political unrest have scared away investors and tourists, weighing on economic growth which stood at just 2.1 percent in the year to the end of June.
Analysts say the army-backed authorities are anxious to get the economy moving to shore up public support and curb the scope for more unrest as the government moves along a political transition plan leading to elections next year.
The next step in that plan is a referendum on a new constitution, set for mid-January.
As Galal spoke at government offices in central Cairo, police fired teargas in the nearby Tahrir Square during a protest by activists to commemorate the second anniversary of lethal confrontations with the security forces.
Several hundred activists had gathered in the square, epicentre of the historic 2011 uprising against former President Hosni Mubarak, to mark the eruption of the clashes near the cabinet offices that lasted a week and killed 17 people.
In a statement on Monday's skirmishes, the Interior Ministry said a group of youths had thrown petrol bombs, fireworks and rocks at the police, injuring two. It also said a taxi driver was killed in Mansoura, north of Cairo, by people it described as members of Mursi's Muslim Brotherhood who were demonstrating there.
NOT "WORRIED SICK" BY INFLATION
Galal said 20 billion pounds of the stimulus package would be spent on public investment. The rest would be used to cover a public sector minimum wage.
"The reason for January is because we committed ourselves to paying minimum wages in January," Galal said, explaining the timing.
The economy grew at around 7 percent for several years before Mubarak's downfall.
Helping to get the economy moving, the central bank has cut interest rates three times by a total of 150 basis points since Mursi's removal. The last cut of 50 basis points was on Dec. 5.
But inflation is also soaring, last month touching its highest annual rate in nearly four years. Urban consumer prices rose 13 percent in November year on year.
"It's not high in the sense that it makes you worried sick," Galal said, referring to inflation.
"I worry sick about the budget deficit that's 14 pct of GDP (gross domestic product)," he added. Bringing the deficit level down to the government's target of 10 percent of GDP was "a lot more important and a lot more useful", he said.
Critics argue the government could do more to help the economy by cutting corporate tax rates, which were increased during Mursi's year in office.
"If the government is really serious about changing sentiment and boosting private sector investment, they should take that Muslim Brotherhood tax rise away," said Angus Blair, chairman of business and economic forecasting think-tank Signet.