IMF Concludes 2021 Article IV Consultation with Brunei Darussalam

Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation[1]with Brunei Darussalam.

Brunei’s economic performance-which was strong before the COVID-19 pandemic-has been buffeted by the health crisis and a pandemic-induced oil and gas (O&G) price shock. The authorities responded fast and decisively. The number of new infections was quickly suppressed, thanks to a swift public health response, effective health measures and non-pharmaceutical interventions. The O&G sector saw a significant output contraction in 2020-the largest since the oil price shock in mid-2014. In the non-O&G sector, growth performance was more heterogenous. Stringent containment measures implemented in the early stages of the pandemic negatively affected contact-intensive sectors (such as hotels, restaurants and air transport) which contracted by 1.6 percent in 2020. In contrast, growth in the downstream non-O&G sector, led by manufacture of petroleum and chemical products, was exceptionally strong, contributing 4.6 percentage points to real GDP growth in 2020. Strong fiscal and monetary policy responses helped sustain production and household income and consumption. As a result, the economy performed strongly in 2020, with real GDP posting positive growth of 1.1 percent-a rare outcome amidst negative growth in the region.

Economic activity is projected to strengthen in 2021-22, albeit at varying speeds across sectors, and to continue improving over the medium term on the back of further diversification. The outlook remains, however, subject to unusual uncertainty, with significant risks skewed to the downside. In particular, the recent resurgence of the pandemic and associated containment measures would slow the recovery, especially in the contact-intensive sectors. However, the strong fiscal and regulatory policy responses would help sustain production and household income and consumption. Stronger vaccine rollouts and energy prices could surprise to the upside.

Real GDP growth is projected at around 2 percent over the medium term and, reflecting important diversification efforts, the share of non-O&G is projected to rise further to around 52 percent of GDP by 2026. Employment is expected to increase as the recovery strengthens. Headline inflation is projected to remain relatively high, averaging 2.5 percent in 2021. Over the medium term, price pressure is expected to subside. The fiscal position is also expected to recover over the medium term. The current account surplus is expected to increase in the medium term, reflecting stronger exports of O&G and downstream products.

The high uncertainty about the path of the pandemic and global economic outlook as well as vulnerabilities to global oil price shocks pose major headwinds for Brunei. The macroeconomic policy mix should continue to support the recovery in the short term, while aiming to strengthen resilience and promote economic transformation in the longer term. Continued short-term fiscal support is necessary to put the recovery on a solid footing. Brunei’s ample fiscal reserves, with virtually no public debt, should be leveraged to underpin the recovery in private demand, while incentivizing resource re-allocation. At the same time, reforms aimed at improving the fiscal position-including a strengthening of the medium-term fiscal framework-should continue in order to achieve sustainable long-term expenditure and improve intergenerational equity. Financial sector regulation and supervision should remain vigilant. The development of a holistic macroprudential framework should be stepped-up to safeguard financial stability, while continuing to ensure access by productive sectors to financing. Structural policies to build human capital and attract higher value-added FDI would need to be strengthened. Accelerating digital and green growth will be critical to foster resilience.

Brunei has made noticeable efforts in fiscal consolidation and economic diversification, facilitating private sector employment and FDI attraction. Several initiatives to improve fiscal positions have been implemented, including a fiscal consolidation program aimed at reducing wasteful spending in the medium term, the establishment of a medium-term fiscal framework, a containment in public employment, and a first step of a subsidy reform-such as the launch of high-quality fuel without subsidy, a smart metering system for power and water, and the digitalized National Welfare System. The authorities have accelerated their efforts to diversify the economy with commencement of the Economic Blueprint, emphasizing human capital development and linkage to regional and global trade. Private sector employment has been enhanced with a variety of measures such as JobCentre Brunei, Politeknik Brunei, I-Ready, Lifelong Learning Center, SkillsPlus to facilitate job matching and training. Sizable FDI has been attracted mainly in the downstream industry thanks to customized supports from the authorities and improved business environment particularly in starting a business. Also, the authorities have established new policy packages on digitalization and climate change response for smart and green growth. The authorities remain committed to further fostering the development of the financial sector, while putting in place regulatory safeguards to preserve financial stability, including strengthening the AML/FCT framework to maintain overall financial system integrity.

Executive Board Assessment[2]

Executive Directors commended the authorities for the strong, timely, and multi-pronged policy response to the COVID-19 pandemic and associated decline in oil and gas prices. Noting the still very uncertain outlook, with risks skewed to the downside, Directors stressed the need to maintain supportive policies until the recovery is on a firm path. They also underscored the importance of continued reforms to support economic transformation, strengthen resilience, and foster green, digital, and inclusive growth.

Directors welcomed the authorities’ continuous efforts to strengthen the fiscal position. In this regard, they were encouraged by several recent initiatives, including the establishment of a credible medium-term budget framework, measures to increase efficiency of public spending, rationalization of public employment, and steps to reform subsidies. Directors saw scope for further efforts in these areas over the medium term to reduce vulnerabilities and support intergenerational equity.

Directors agreed that the peg to the Singapore dollar remains appropriate, providing a credible nominal anchor for macroeconomic and financial stability, and helping to deepen trade and investment linkages, including with Singapore.

Directors noted the resilience of the banking sector. They commended the authorities’ initiatives to enhance risk-based supervision through an early warning exercise, introduce the Basel III framework, and develop a holistic macroprudential framework. Directors also welcomed the recent legislative changes aimed at strengthening the AML/CFT regulatory and supervisory framework.

Directors encouraged the authorities to continue to build on their efforts to diversify the economy, further attract FDI, and enhance human capital and improve private employment. They welcomed the policy priorities of the recently released Economic Blueprint, and highlighted the importance of accelerating digital and green growth to foster job creation and enhance resilience.

Directors welcomed the steps taken to address data gaps and the authorities’ commitment to further improve data compilation and reporting. They noted the authorities’ plan to request further capacity development support from the IMF to improve data collection and dissemination.

Table 1. Brunei Darussalam: Selected Economic and Financial Indicators, 2016-26

Area: 5,765 sq. kilometers

Population (2019): 433,285

Nominal GDP per capita (2019): US$31,087

Main export destinations (2019): Japan (34.7), Thailand (10.1), Australia (8.8), Korea (8.6)

Unemployment rate (2019): 6.8%

Labor force participation rate (2019): total 64.3%; male 72.5%; female 54.8%

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

Proj.

Proj.

Proj.

Proj.

Proj.

Proj.

Output and prices

Nominal GDP (millions of Brunei dollars)

15,748

16,747

18,301

18,375

16,561

20,626

21,086

20,237

20,141

20,192

20,356

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

7,463

7,514

7,572

7,733

7,642

8,333

8,550

8,705

8,869

9,046

9,233

Real GDP (percentage change) 1/

-2.5

1.3

0.1

3.9

1.1

2.0

2.6

2.4

2.2

2.1

2.1

Oil and gas sector GDP

-2.8

1.2

-2.8

3.9

-4.9

0.5

0.9

1.1

1.4

1.3

1.3

Non-oil and gas sector GDP

-2.0

1.5

3.9

3.9

8.8

3.6

4.4

3.7

3.0

2.8

2.8

Oil production (‘000 barrels/day)

121

113

112

121

110

109

108

106

105

102

101

Natural gas output (millions BTUs/day)

1,397

1,430

1,372

1,313

1,077

1,065

1,081

1,094

1,123

1,158

1,192

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

44.6

55.9

73.2

68.6

43.1

62.7

62.9

58.9

57.2

55.7

55.1

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

7.3

8.3

10.5

9.1

6.7

7.1

8.7

7.3

7.3

7.3

7.3

Consumer prices (period average, percentage change)

-0.4

-1.3

1.1

-0.4

1.9

2.5

1.5

1.0

1.0

1.0

1.0

(Fiscal Year, In percent of GDP)

Public finances: budgetary central government

Total revenue

22.7

22.7

32.7

26.4

12.5

19.1

19.4

18.5

19.1

18.8

18.7

Oil and gas

16.2

17.5

26.4

19.8

7.7

13.6

13.8

12.6

13.1

12.7

12.4

Other

6.5

5.3

6.3

6.5

4.9

5.5

5.6

5.9

6.0

6.1

6.3

Total expenditure

39.3

35.6

32.5

31.9

32.2

28.4

28.8

29.0

29.6

29.7

29.8

Current

31.2

30.4

29.8

29.5

30.9

26.0

26.2

27.1

27.3

27.4

27.3

Capital

8.1

5.2

2.7

2.4

1.3

2.4

2.6

2.0

2.3

2.3

2.4

Overall balance 2/

-16.6

-12.9

0.2

-5.6

-19.7

-9.3

-9.4

-10.5

-10.5

-10.9

-11.1

Non-oil and gas balance

-65.1

-63.2

-56.9

-54.0

-53.0

-52.4

-52.1

-49.8

-49.9

-49.1

-47.1

(In percent of non-oil and gas GDP)

(12-month percent change)

Money and banking

Private sector credit

-6.1

-5.3

-3.1

2.0

0.2

2.5

1.9

1.5

1.5

1.4

1.3

Narrow money

-0.1

-5.7

-3.0

6.6

20.8

15.1

4.5

2.4

1.9

1.9

1.0

Broad money

1.5

-0.4

2.8

4.3

-0.4

3.7

3.2

2.8

1.8

1.8

1.7

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

Balance of payments

Goods

2,154

2,403

2,358

2,212

1,385

1,213

862

507

923

1,009

1,388

Exports

4,813

5,475

6,448

7,213

6,541

7,481

7,881

8,375

9,355

9,900

10,789

Of which: oil and gas

4,321

5,021

2,691

3,244

2,943

3,883

4,536

4,051

4,130

4,207

4,205

Imports

2,659

3,072

4,089

5,001

5,156

6,268

7,019

7,868

8,432

8,892

9,401

Services (net)

-1,114

-698

-1,002

-1,189

-854

-869

-891

-914

-938

-961

-985

Primary income (net)

835

721

85

362

362

893

1,344

1,781

1,967

2,094

2,113

Secondary income (net)

-404

-442

-504

-490

-350

-448

-429

-409

-429

-422

-420

Current account balance

1,470

1,985

937

895

542

789

886

965

1,523

1,719

2,096

Current account balance (in percent of GDP)

12.9

16.4

6.9

6.6

4.5

5.1

5.5

6.1

9.7

10.8

13.0

Gross official reserves 3/

3,322

3,300

3,221

4,052

3,721

4,242

4,352

4,462

4,574

4,686

4,798

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

9.2

7.0

5.7

7.6

6.0

6.1

5.7

5.5

5.4

5.2

5.1

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

1.38

1.38

1.35

1.36

1.38

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

1.44

1.35

1.37

1.36

1.33

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

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

2/ In absence of government debt and interest payments, this is also primary balance.

3/ Comprises foreign exchange assets of Brunei Darussalam Central Bank, 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:https://www.IMF.org/external/np/sec/misc/qualifiers.htm.

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