By Hadeel Al Sayegh, Tom Arnold and Katie Paul

DUBAI/RIYADH, Feb 19 (Reuters) - Saudi Binladin Group (SBG) has received substantial payments from the Saudi Arabian government to settle debts since the start of this year, a boost to the struggling construction conglomerate and to the kingdom's economy, banking sources said.

SBG has received 2.4 billion riyals ($640 million) so far this year for its work on state projects including the King Abdulaziz International Airport in Jeddah, one banker said, declining to be named because the matter is not public.

A second banker, whose institution has direct exposure to SBG, put the figure for payments to the group since the beginning of 2017 at 3.1 billion riyals. Details of banks' financial information on SBG can vary because they are involved in different loans to it.

"Government payments have come through to contracting firms - I've seen them show up in the accounts," a third banker said, though he added that overall, the government still had considerable unpaid debts to the Saudi construction sector.

Binladin and a spokesman for the Saudi Ministry of Finance did not respond to requests for comment.

The Saudi building sector was hit hard last year as the government, its finances strained by low oil prices, delayed paying contractors for their work - in some cases, by more than a year. The situation began to improve towards the end of 2016, however, after Riyadh raised $17.5 billion in an international bond issue.

Finance minister Mohammed al-Jadaan told Reuters in late December that the government had paid 100 billion riyals to the private sector over the previous two months, and expected to pay an additional 30 billion riyals soon. He also pledged to pay future debts within 60 days of receiving the invoice.

The latest payments to SBG are important for the economy because they suggest the government is so far keeping its promises and has not resumed freezing payments at the start of the new fiscal year.

Last year's freeze caused a funding squeeze in the money markets that sent the three-month interbank offered rate soaring to an eight-year high of 2.386 percent in late October. This threatened to hurt the economy by making it much more expensive for companies to raise operating money.

The resumption of government payments late last year began to pull money rates back down, and in the last few weeks the drop has accelerated as fresh funds have flowed into the economy from the government. The three-month rate hit 1.863 percent on Sunday, its lowest level since April 2016.

Bankers said further falls in money rates over the coming weeks would depend largely on whether the government continued paying its debts. Officials have not disclosed how much outstanding debt remains to be paid; some bankers estimate that around 70 percent of all the goverment's arrears have been settled.