Saudi Arabia will post a SR95 billion ($25 billion) surplus this year, despite its record spending plans, based on an average oil price of $95 per barrel, a state-owned bank said on Saturday.

The biggest Arab economy rolled out its third consecutive record budget for 2011, planning to spend SR580 billion, and has also announced additional fiscal handouts of over $100 billion to be spent on infrastructure and other projects.

"Our estimates for the surplus, despite the government's increased spending plans, are expected to reach close to SR95 billion and government spending is expected to reach close to 846 billion riyals," National Commercial Bank's chief economist Said al-Shaikh said.

Speaking at a press conference in Jeddah, Al-Shaikh said business confidence in the world's biggest oil exporter will increase in the second quarter over various sectors as a result of this increased spending.

"We see a jump in optimism across all variables, whether we are talking volume of sales, new orders, selling prices, or profit, all is showing an increase," he said.

NCB in collaboration with Dun & Bradstreet released on Friday its survey for the Business Optimism Index for the second quarter of 2011, surveying 500 businesses in the country, which revealed record levels in the non-oil sector.

The non-oil sector rose to 68 points in the second quarter from 65 points the previous quarter, its highest level since the survey began in Q1 2009, while the manufacturing composite index rose to 70 points from 64 points, the index showed.

Saudi Arabia's construction sector, supported by government plans to boost its infrastructure development, rose to 71 points from 66 points.

GDP, inflation and lending

Al-Shaikh expects that with higher oil production, expected to reach 9 million barrels a day in 2011, Saudi Arabia will see GDP growth of 5.8 per cent. Its non-oil sector will also rise by 5 per cent as the government pushes forward with infrastructure projects.

Inflation, which dropped to 4.7 per cent in March from 4.9 a year earlier, is expected to rise on the increased spending but will not exceed 6 percent, Al-Shaikh said.

"The spending programme ... is expected to raise inflation levels but we expect it to remain between 5-6 per cent. We do not see it exceeding that figure, at least not this year," he said.

Al-Shaikh also expected loan growth to continue in 2011, reaching growth levels of 10-12 per cent as banks start lending again to the private sector.

Bank lending slowed down in 2009 on concerns over non-performing loans during the financial crisis but has risen after banks took provisions to protect them against bad loans.

Last year, Saudi Arabia's Central Bank Governor Mohammad al-Jasser urged banks to be more conservative and make sure provisions for bad loans exceed 100 per cent of their value.

Al-Shaikh said provisions for bad loans in Saudi Arabia were covered by 116 per cent in 2010. Bad loans reached SR27 billion, around 3.4 percent of total lending portfolios in Saudi banks, he said. – Reuters