Strong oil prices and high crude output could boost Saudi Arabia’s official foreign assets by more than $100 billion in 2012 while the Gulf kingdom’s economy could swell by around 5.1 per cent, a Saudi investment firm said.

The Riyadh-based Jadwa Investments said the assets, controlled by the Saudi Arabian Monetary Agency (SAMA), central bank, have already soared by nearly $20 billion in the first two months of 2012 following a large budget surplus in the previous year as a result of high oil prices.

The surge in crude prices above $100 a barrel is expected to push the country’s budget revenue to an all time high of around SR1.15 trillion (Dh1.14 trillion), Jadwa said in a report sent to Emirates 24/7.

The report ruled out a sharp rise in public spending this year, adding that actual expenditure could be lower than the record spending in 2011, when massive funds were approved for a bonus to civil servants.

It expected actual spending to surge to around SR757 billion (Dh750 billion) this year “in part because there look to be more Saudi recipients of unemployment benefits than we had anticipated.”

The bulk of the extra oil revenues will be used to build up savings in the form of foreign assets, which were up by $20 billion in the first two months of the year.

“We expect an increase of more than $100 billion in 2012. Higher savings give comfort that elevated levels of spending can be maintained for a number of years, as the reserves can be drawn down in the event of revenue shortfalls.”

SAMA’s foreign assets, including deposits with banks abroad and investment in foreign securities, already jumped by around SR352 billion (Dh348 billion) in 2011 to record their second largest increase since 2008, when they rocketed by nearly SR513 billion (Dh508 billion) because of higher oil prices and output.

Jadwa said high government spending would remain the main stimulus to the Kingdom’s economy, the largest in the Middle East, adding that high oil revenues have supported business and investor confidence so far this year.

Early economic data for 2012 (covering the first two months) has been good, it said, noting that consumer spending, cement sales and various measures of imports were all well up on the same period of last year.

“Our impression is that progress on awarding contracts and project implementation has been stepped up, major new projects have been launched recently and business surveys paint a generally strong picture,” it said.

“This is in line with our expectations and we have not altered our forecast for non-oil growth, but the increase to our projection for oil production means we have raised our target for total real GDP growth to 5.1 percent.”

The report said high growth and strong domestic demand would unlikely spur inflation in Saudi Arabia mainly because of external factors.

“We maintain our view that the weak external environment will cause inflation to moderate over the remainder of 2012. International food prices are down almost 10 percent in year-on-year terms (according to the UN Food and Agriculture Organization), gold prices are close to a three-month low and most other commodity prices have been fairly subdued,” it said.

“There is little sign of dollar weakness or underlying inflationary pressures in the global economy, though oil prices are beginning to push up headline inflation rates. For the Kingdom, rents are the main risk to our inflation forecast.”

Jadwa said higher oil revenue would also keep Riyadh’s external position strong, expecting a current account surplus of $154 billion, almost 25.1 percent of GDP.

Although imports will grow at a faster pace than exports this year, they come from a much lower base, so the trade surplus is expected at $234 billion.

“The risks to our forecast have not changed. Tensions with Iran remain the key risk, and while these have impacted on oil prices, it is not clear that local businesses, particularly stock market investors have fully accounted for them.”