OREANDA-NEWS. September 27, 2016. Executive Board of the International Monetary Fund (IMF) concluded the 2016 Article IV consultation 1 with Brunei Darussalam.

Brunei Darussalam has responded to sharply lower oil prices by launching policy reforms to transform its oil and gas-dependent economy. While the country is able to absorb the oil revenue slump for several years by drawing on buffers built over the past decades, the authorities have begun a process of structural reforms to reconfigure the government towards enhanced economic performance, combined with fiscal adjustment to ensure long-term sustainability and intergenerational equity.

Real GDP in 2015 registered a smaller decline than in the preceding two years. Oil production, in particular, has been recovering since the second half of 2015 from protracted disruptions since 2012 related to oil facility maintenance and refurbishment. Activity in the non-oil and gas sector slowed due to fiscal consolidation and lower services linked to the oil and gas sector, but was partially offset by government infrastructure construction projects. Inflation averaged -0.4 percent in 2015, driven by the appreciation of the Singapore dollar to which the Bruneian dollar is pegged, relative to neighboring countries which are major sources of Bruneis imports. The current account surplus narrowed mainly on lower oil and gas exports, while the fiscal balance turned into a large deficit.

Real GDP is projected to turn positive in 2016 on the back of a recovery in oil production, but growth will remain moderate until 2019. Lower oil prices are projected to keep the fiscal position in deficit for several years. The current account is projected to register small deficits in 2017 and 2018 due to low oil prices and imports associated with the construction of FDI projects. Nevertheless, growth and macroeconomic balances are expected to strengthen markedly from 2019 onwards as new energy downstream facilities come on-stream. Main risks arise from lower-for-longer oil prices that could severely erode the fiscal position, while delays in production from these new facilities could dampen the medium-term outlook. Slow progress in structural reforms could dim prospects for economic diversification.

The Brunei authorities are implementing measures to adjust to lower oil prices, raise productivity, enhance efficiency, and promote economic diversification. Fiscal adjustments began in the latter part of 2015, aiming to better prioritize expenditures toward economic diversification and efficiency. A cabinet reshuffle in October 2015 led to a reconfiguration of ministries and agencies, resulting in an institutional structure that is better synchronized to improve economic performance and government delivery. Newly created agencies would reinforce this, with the Foreign Direct Investment Action and Support Center facilitating a clear and efficient process for FDI in Brunei, and Darussalam Enterprises providing a one-stop venue for wide-ranging support to small and medium enterprises. Ongoing reforms have been reflected in recent improvements in business environment indicators. In addition, Brunei continues to use its participation in recent international trade agreements to widen market access and transform the domestic economy by raising competitiveness and making the business climate more predictable and transparent in order to attract new investment.

Executive Board Assessment 2

Executive Directors noted that, after over a decade of sizable fiscal and external surpluses from high oil prices, Brunei Darussalams economy is adjusting to a challenging environment of a prolonged period of low oil prices. While the country has sizable buffers, Directors commended the authorities for using the opportunity provided by the low oil prices to reconfigure policies to support enhanced economic performance, long term fiscal sustainability, and intergenerational equity. Against this backdrop, Directors underscored the importance of continuing to push ahead with fiscal and structural policy reforms to strengthen and diversify the economy.

Directors agreed that the FY2016/17 budget provides an appropriate target for fiscal adjustment, but it needs to be buttressed by tight spending controls, increases in non-oil revenue, and improvements in public financial management. Directors noted that the fiscal policy strategy should be anchored in a multi-year program of structural fiscal reforms to improve the efficiency and composition of public spending, while supporting growth. In this regard, they called for measures to tackle price and wage distortions in order to increase the attractiveness of private sector employment as well as promote growth in the non-energy sector. Directors urged freezing the wage bill and reducing untargeted subsidies, particularly through fuel subsidy reform, accompanied by mitigating measures to protect the vulnerable, where appropriate.

Directors noted the banking systems strong capitalization and liquidity. At the same time, they observed that an uptick in non-performing loans and shifts in the domestic banking landscape involving the entry and exit of foreign banks, call for close monitoring. In this regard, the exit of the largest foreign bank should be well phased and coordinated to minimize disruptions and preserve financial stability. Directors encouraged the authorities to strengthen bank supervision in response to emerging pressures on asset quality and to further develop domestic financial markets.

Directors considered that the currency board arrangement with the Singapore dollar has served the country well and remains appropriate as it provides a credible nominal anchor.

Directors commended the recent progress in structural reforms, and encouraged the authorities to sustain efforts to improve the ease of doing business, and promote economic diversification and private sector development. They emphasized the importance of developing human capital, enhancing labor productivity, and expanding international trade linkages. Directors concurred that the high standards embedded in Brunei Darussalams international trade agreements could broaden market access and help drive reforms to raise competitiveness and productivity. They welcomed the continued efforts to improve statistics and build technical capacity, and encouraged the authorities to undertake a data ROSC.

Brunei Darussalam: Selected Economic and Financial Indicators, 201321

2013

2014

2015

2016

2017

2018

2019

2020

2021

Proj.

Proj.

Proj.

Proj.

Proj.

Proj.

Proj.

Output and prices

Nominal GDP (millions of Brunei dollars)

22,639

21,695

17,777

14,696

16,530

17,625

20,195

23,432

26,947

Nominal non-oil and gas GDP (millions of Brunei dollars)

7,681

7,764

7,657

7,433

7,913

8,078

9,830

11,765

13,348

Real GDP (percentage change) 1/

-2.1

-2.3

-0.6

0.4

3.9

1.7

9.1

13.0

13.2

Oil and gas sector GDP

-6.3

-3.7

-0.2

2.3

1.3

1.3

1.3

8.0

13.0

Non-oil and gas sector GDP

4.9

-0.4

-1.0

-2.4

7.9

2.3

19.9

19.0

13.4

Oil production ('000 barrels/day)

135

126

127

133

137

141

145

150

152

Natural gas output (millions cu. ft./day)

1,199

1,170

1,228

1,236

1,240

1,243

1,247

1,379

1,644

Average Brunei oil price (U.S. dollars per barrel) 2/

115.0

104.4

53.9

37.4

43.7

47.7

50.9

52.9

54.1

Average Brunei gas price (U.S. dollars per million BTU) 2/

16.9

16.6

10.6

7.4

8.6

9.4

10.0

10.4

10.6

Consumer prices (period average, percentage change)

0.4

-0.2

-0.4

-0.3

0.0

0.1

0.0

0.2

0.1

Consumer prices (end of period, percent change)

0.1

1.3

-1.0

0.4

0.1

0.2

0.1

0.3

0.2

(In percent of GDP, calendar year basis estimates)

Public finances: budgetary central government

Total revenue

46.6

37.6

24.1

14.4

24.5

26.8

25.8

25.9

27.4

Oil and gas

39.8

32.9

18.4

9.2

19.7

22.2

21.3

21.6

23.5

Other

6.8

4.7

5.7

5.2

4.8

4.6

4.5

4.2

3.9

Total expenditure

33.6

34.0

38.6

40.6

38.1

36.1

31.5

27.4

24.1

Current

23.9

25.3

29.6

31.3

28.2

27.1

24.1

21.4

19.3

Capital

9.6

8.8

9.1

9.3

9.9

9.0

7.4

5.9

4.8

Of which: development expenditure

6.2

5.3

5.3

4.8

5.4

4.5

3.5

2.6

1.9

Overall primary balance 3/

13.0

3.6

-14.5

-26.2

-13.6

-9.3

-5.7

-1.5

3.2

Non-oil and gas overall primary deficit

-23.3

-26.2

-29.1

-31.7

-29.9

-28.0

-23.7

-19.9

-16.9

(12-month percent change)

Money and banking

Private sector credit

5.9

1.8

2.5

0.5

Narrow money

4.0

-1.5

6.4

-2.9

Broad money

1.5

3.2

-1.8

-4.3

(In millions of U.S. dollars, unless otherwise indicated)

Balance of payments

Goods

6,923

7,479

3,277

1,874

798

890

2,527

3,036

3,705

Exports

11,834

11,149

6,517

4,795

5,587

6,132

7,229

8,667

10,225

Of which: oil and gas

10,935

9,604

5,909

4,169

4,937

5,455

5,514

5,839

6,610

Imports

4,911

3,670

3,240

2,922

4,790

5,243

4,702

5,631

6,521

Services (net)

-2,366

-955

-999

-1,064

-1,068

-1,098

-1,169

-1,191

-1,192

Primary income (net)

-202

-20

-24

414

624

959

1,156

1,162

1,123

Secondary income (net)

-577

-1,045

-699

-773

-839

-770

-794

-800

-788

Current account balance 2/

3,778

5,459

1,556

452

-486

-20

1,720

2,207

2,847

Current account balance (in percent of GDP)

20.9

31.9

12.0

4.3

-4.1

-0.2

12.0

13.3

15.1

Gross official reserves 4/

3,399

3,471

3,211

3,288

3,208

3,213

3,277

3,441

3,673

In months of next year's imports of goods and services

7.8

8.6

8.4

6.1

5.5

5.9

5.3

4.9

5.0

Brunei dollars per U.S. dollar (period average)

1.25

1.27

1.37

Brunei dollar per U.S. dollar (end of period)

1.26

1.32

1.41

Sources: Data provided by the Brunei authorities; and Fund staff estimates.

1/ Non-oil and gas GDP includes the downstream sector.

2/ Based on March 2016 WEO projections for oil prices. Gas price projections are also adjusted using staff estimates to account for recent revisions.

3/ Overall primary balance excludes interest payments on government liabilities from expenditure, and in the absence of such payments in Brunei, it also represents the overall budget balance.

4/ Comprises foreign exchange assets of Autoriti Monetari Brunei Darussalam, SDR holdings, and reserve position in the Fund.




1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

2 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.