Left Menu
Development News Edition

Brunei Darussalam's growth momentum expected to continue in 2018: IMF

Real GDP in 2017 was stronger than expected, rebounding to 1.3 per cent supported by both the O&G and non-O&G sectors.

IMF | Brunei Darussalam | Updated: 13-10-2018 00:35 IST | Created: 12-10-2018 21:19 IST
Brunei Darussalam's growth momentum expected to continue in 2018: IMF
Over the medium term, economic growth and macroeconomic balances are expected to strengthen further. (Image Credit: Pixabay)

On September 17, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Brunei Darussalam.

Brunei Darussalam's economy has been adjusting well to lower oil prices since 2014, with the authorities undertaking wide-ranging reforms. The decline in oil and gas (O&G) prices led to large budget deficits and narrower current account surpluses. In response, the authorities in 2015 launched a reform program aimed at (i) ensuring long-term fiscal sustainability and intergenerational equity and (ii) fostering economic diversification by improving the business climate. These reforms have started to bear fruit, as growth has begun to rebound and inflation has returned to positive territory.

Real GDP in 2017 was stronger than expected, rebounding to 1.3 per cent supported by both the O&G and non-O&G sectors. Higher liquified natural gas (LNG) and methanol production drove O&G sector growth, more than offsetting lower oil production, while non-O&G growth was mainly underpinned by the ongoing downstream construction projects. Recent data indicate that the recovery carried over into early 2018.

The growth momentum is expected to continue, with growth accelerating to 2.3 per cent in 2018. Over the medium term, economic growth and macroeconomic balances are expected to strengthen further. The start of downstream production—including from the Hengyi refinery and Brunei Fertilizer Industries (BFI)—and stronger O&G activities, will result in robust GDP growth and exports in 2019–23. Imports linked to the FDI project execution are likely to keep the current account at a moderate surplus in 2018, but the surplus is expected to increase from 2019 onward. The fiscal position is also expected to recover over the medium term but remains vulnerable to O&G price shocks. Inflation is expected to remain low but positive. Risks to the near-term outlook are broadly balanced, although substantial uncertainty surrounds O&G prices.

The authorities have made progress in implementing fiscal consolidation, adjusting financial sector regulation, improving the business climate, attracting foreign direct investment (FDI), and supporting micro, small and medium enterprises (MSMEs). From 2016 to 2018, Brunei experienced the largest cumulative improvement in the World Bank Doing Business score, particularly with a remarkable improvement in access to credit. Major FDI projects underway in the downstream sector—the Hengyi refinery and BFI—together with other FDI projects within other priority business clusters should contribute towards achieving the goals of more dynamic and sustainable economic growth under the Wawasan 2035 development plan. The Financial Sector Blueprint articulates the authorities' plans for the financial sector's developments over the medium-term. Its five pillars identify areas for action that would help foster new international financial linkages for the country and boost the financial sector's contribution to GDP—a central component of the diversification strategy.

Executive Board Assessment

Executive Directors noted that Brunei Darussalam has been adjusting well to lower oil and gas (O&G) prices since 2014. Directors welcomed the rebound in economic growth and the prospects for continued recovery over the medium term. They commended the authorities for their wide-ranging reforms. Directors noted, however, that important risks are clouding the outlook, including uncertainty surrounding O&G prices and production, rising protectionism and tighter global financial conditions. Against this background, they underscored the need to continue reform implementation to ensure long-term sustainability and intergenerational equity, increase productivity and competitiveness, diversify the sources of growth, and build resilience to shocks.

Directors emphasized that continued fiscal consolidation is needed to bring the fiscal position closer to that required by intergenerational equity considerations. They stressed that fiscal policy reforms should focus on rationalizing current expenditure, including gradually reforming fuel subsidies and containing the wage bill by streamlining the civil service, as well as diversifying revenues. Directors encouraged the authorities to formalize a medium-term fiscal framework and intensify public financial management reforms. This would require incorporating subsidies and extra-budgetary funds in the budget presentation, improving management, and better monitoring of public expenditure.

Directors noted that the Brunei dollar's peg to the Singapore dollar remains appropriate, providing a credible monetary anchor and stability to the financial system.

Directors encouraged further efforts towards financial sector development, while also underscoring the need for improvements in banking regulation and supervision to preserve financial stability. They underscored the benefits of broadening the investor base, establishing a secondary bond market, and creating a stock exchange. Directors welcomed plans to operationalize the macroprudential surveillance framework and supported the ongoing development of a contingency planning and crisis management framework for the banking system.

Directors commended the authorities' efforts towards economic diversification. They considered that sustained efforts in enhancing the business environment, supporting the growth of micro, small and medium enterprises (MSME) and raising human capital would help develop the non-O&G and private sectors and attract FDI. However, further measures are needed to generate stronger positive spillovers from FDI to the rest of the economy. Support for MSMEs should also be assessed regularly.

Directors welcomed the steps taken to improve statistical compilation and build technical capacity. They encouraged further efforts to address remaining data and dissemination gaps. In this context, they encouraged the authorities to undertake a data ROSC.


TRENDING

OPINION / BLOG / INTERVIEW

COVID-19 seems cooking biggest ever global scam

The increasing number of corruption cases on COVID-19 funds from throughout the world and involvement of high profile persons indicate that the countries cant ignore corruption in their pandemic response programs. This has generated the nee...

Health Management Information Systems lack holistic, integrated, and pandemic resilient character

Being a part of the United Nations system, the World Health Organization WHO deserves its share of rebuke for its alleged failure issue COVID-19 health emergency alerts on appropriate time. However, the pandemic has also exposed loopholes i...

Pride in the time of coronavirus: a welcome move online?

This year is different in many ways not least as celebrations are also taking place against the dramatic backdrop of a global health crisis and a resurgence in grassroots activism following the death of George Floyd in Minneapolis. ...

COVID-19: Weighing up the benefits and limitations of edtech platforms

Edtech companies shouldnt focus on merely pushing contents, but to provide an interactive, effective teaching and learning environment. ...

Videos

Latest News

US STOCKS-Futures firm on bets of China-led rebound

U.S. stock index futures rose on Monday as bets on China leading the revival from a coronavirus-driven downturn helped investors look past a domestic surge in new infections over the long weekend.A slew of encouraging U.S. economic data, in...

New Zealand offers to host IPL after UAE and Sri Lanka: BCCI Official

New Zealand is the latest country after UAE and Sri Lanka which has offered to host the IPL in case the billion dollar league cant be held in India due to rising cases of coronavirus. The postponement announcement of the T20 World Cup, to b...

World must stand in solidarity with the Hong Kongers: Joshua Wong

The world must stand in solidarity with the Hong Kongers, said pro-democracy activist Joshua Wong on Monday outside a court where he along with several other campaigners were being prosecuted for their involvement in demonstrations last yea...

Three consultancies clear technical evaluation round for assisting DPIIT in startup initiatives

Three consultancy agencies -- PricewaterhouseCoopers, Ernst Young, and KPMG Advisory -- have cleared the technical evaluation round for assisting the Department for Promotion of Industry and Internal Trade DPIIT in effective implementati...

Give Feedback