IMF Executive Board Concludes 2013 Article IV Consultation with Brunei Darussalam

Public Information Notice (PIN) No. 13/71
June 26, 2013

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On April 18, 2013, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Brunei Darussalam and considered and endorsed the staff appraisal without a meeting on a lapse-of-time basis.2


Brunei’s economy is highly dependent on oil and gas production, which accounts for two thirds of nominal GDP, 98 percent of exports, and 93 percent of government revenues. This has allowed the government to fund high social benefits and public sector employment; 56 percent of working citizens and permanent residents are employed by the government, and non energy GDP is dominated by the government and private sector enterprises dependent on government contracts. The government has embarked on an ambitious long term strategy to diversify the economy away from the energy sector and boost non energy output and employment.

Prudent macroeconomic management has helped buffer Brunei’s economy against volatility in hydrocarbon revenues. Real GDP growth slowed to 1.3 percent in 2012 as scheduled refurbishment of oil and gas infrastructure led to a 3.2 percent decline energy sector output. However, the non­energy sector grew at a robust 5.1 percent, supported by higher public capital spending. Moderating regional food prices helped reduce CPI inflation to 0.5 percent year­on­year in 2012. The current account surplus strengthened to 49 percent of GDP as higher energy prices offset a fall in export volumes.

The authorities have made encouraging progress in implementing reforms needed to foster private sector development and improve economic policy management. Recent initiatives to improve business environment emphasize adopting technology to streamline bureaucratic processes. These include voluntary self assessment scheme for corporate tax and electronic tax filing and payments. Public financial management reforms, such as the establishment of a Fiscal Forecasting Unit (FFU) and pilot project for program and performance budgeting, are well underway. The compilation and dissemination of economic data has continued to improve, strengthening the basis for sound policymaking.

Commercial banks remain well capitalized, profitable, and highly liquid, while the Authoriti Monetari Brunei Darussalam (AMBD) has introduced various initiatives to help maintain financial stability. These include establishing a credit bureau, refining the implementation of the Asset Maintenance Requirement as part of the national deposit insurance scheme, and tighter consumer lending regulations. In March 2013, in order to facilitate credit access, ensure adequate returns to depositors and support long term diversification plans, the AMBD introduced interest rate controls on some products provided by financial institutions to their customers.

Short term risks to the economy are mostly limited to petroleum revenue volatility. However, the current high fiscal surplus, along with other fiscal reserves, should allow the government to maintain spending even if oil prices were to fall sharply. This would lessen the impact on non energy growth and employment.

The medium term outlook for growth is favorable. Real GDP growth is expected to accelerate to 5.6 percent on average over the next five years, as planned large petrochemical and refinery projects begin production. These projects are expected to generate significant spillovers, boosting growth and employment in other sectors. The currency board arrangement with the Singapore dollar will continue to underpin price and exchange rate stability

Executive Board Assessment

In concluding the 2013 Article IV consultation with Brunei Darussalam, Executive Directors endorsed staff’s appraisal, as follows:

Sound policies have helped maintain macroeconomic stability, despite a temporary downturn in hydrocarbon production. Staff welcome the increase in development spending, which, in addition to mitigating the impact of the lower hydrocarbon production on the non energy sector, should also help boost medium term growth prospects. Overall, fiscal policy remains prudent, allowing the government to continue building savings that will help maintain the welfare of the population over the long term and provide a buffer against short run shocks to the energy sector. The currency peg has underpinned both exchange rate and domestic price stability. The real exchange rate appears to be broadly in line with fundamentals.

Staff are encouraged by prospects for strong medium term growth, driven by planned downstream projects. These projects are likely to generate substantial growth and employment spillovers for related sectors such as retail, transportation and services. However, sustaining high growth rates on an ongoing basis will require the successful implementation of the authorities’ ambitious diversification strategies.

Short term risks are manageable. Both the fiscal and current account surpluses appear resilient even to a large decline in energy prices, and substantial fiscal reserves provide an additional buffer. However, over the long term, uncertainty regarding the economic viability of deep water petroleum projects could hasten the need for structural reform and fiscal consolidation. Lasting declines in global asset prices could reduce the value of the government’s foreign assets, but a lack of information precludes a more detailed assessment of the possible risks.

Improvements to PFM are welcome, as are plans to further develop modeling and forecasting capabilities in the FFU. Forecasting methods should address the volatile and uncertain nature of hydrocarbon revenues, including through the use of simulation models developed by the IMF. There is also a need to further develop capacity to analyze the tradeoffs between public investment and savings, and formulate long run fiscal objectives. Analytical tools recently developed by the IMF may be useful in this regard.

Staff support recent structural reform measures. Potential spillovers from downstream projects provide a good opportunity to boost private sector development. However, initiatives on educational and vocational training, procedural streamlining, and small and medium enterprise financing could all be better coordinated across agencies, and directed to the needs of the economy to prevent inefficiency and duplication of resources. In addition, there is room to improve productivity in the government sector. Fuel subsidy reform over the medium term could provide fiscal space to maintain development expenditures and reduce distortions that could limit diversification efforts. In this context, improving the data on the cost and incidence of subsidies would support necessary policy analysis.

Recent efforts by the AMBD to strengthen its regulatory framework and improve financial infrastructure are commended. The establishment of the Credit Bureau and plans to modernize the payments system should both eventually promote financial deepening and reduce vulnerabilities. Staff advise the AMBD to press ahead with efforts to strengthen its supervisory and macroprudential capacities.

The recent interest rate controls imposed by the AMBD could have a negative effect on financial intermediation. While it is too early to assess the impact of these controls, bank profitability could fall, and access to credit may be reduced as banks are less able to adjust loan pricing to reflect risk.

Staff welcome the ongoing program to strengthen the compilation and dissemination of macroeconomic data. Improvements have been made in the timely reporting of real and monetary data to the Fund, and staff look forward to planned improvements to balance of payments statistics. Nevertheless, there is still room for further improvements to the statistical framework.

Brunei Darussalam: Selected Economic and Financial Indicators, 2009–12




2009 2010 2011 2012






Output and prices


Nominal GDP (millions of Brunei dollars)

15,611 16,867 20,579 20,780

Nominal non energy GDP (millions of Brunei dollars)

6,194 6,406 6,656 7,039

Real GDP (percentage change)

1.8 2.6 2.2 1.3

Energy sector GDP

4.6 2.2 0.7 3.2

Non energy GDP

0.9 3.0 3.5 5.1

Average oil price (U.S. dollars per barrel) 1/

64.4 79.3 116.2 120.0

Average gas price (U.S. dollars per million BTU) 1/

10.5 11.6 16.5 17.6

Consumer prices (period average, percentage change)

1.0 0.4 2.0 0.5

Consumer prices (end of period, percent change)

0.5 0.9 1.8 0.5
      (In percent of GDP)

Public finances: budgetary central government 2/


Total revenue

42.5 48.5 62.3 62.7

Oil and gas

36.8 42.8 56.9 58.2


5.7 5.7 5.4 4.5

Total expenditure

38.7 40.1 33.6 36.4


30.1 29.0 25.9 26.1


8.6 11.1 7.7 10.3

Of which: development expenditure

4.3 5.6 5.6 6.6

Overall primary balance

3.8 8.4 28.7 26.4

Overall primary balance excluding royalties

3.8 8.3 28.5 26.4

Non energy overall primary deficit

28.4 29.4 22.7 26.2
      (12 month percent change)

Money and banking 3/


Private sector credit

3.0 1.2 5.0 0.9

Narrow money

22.9 29.2 10.9 19.2

Broad money

9.7 4.8 10.1 4.0
      (In millions of U.S. dollars, unless otherwise indicated)

Balance of payments 4/


Trade balance

4,876 6,439 6,963 10,105


7,159 8,770 9,042 12,992

Of which: oil and gas

6,878 8,472 8,727 12,667


2,282 2,331 2,079 2,887

Services (net)

519 558 801 867

Income (net) 5/

385 217 320 598

Current transfers

445 475 548 579

Current account balance 5/

4,297 5,623 5,294 8,061

Current account balance (percent of GDP)

40.0 45.5 32.4 48.5

Gross official reserves 6/

1,357 1,563 2,487 2,245

Foreign exchange cover of currency issued (in percent) 6/

146.5 152.6 164.2 164.2


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

1.45 1.36 1.26 1.25

Sources: Data provided by the Brunei authorities; and IMF staff estimates.
1/ Based on WEO January 2013 projections for oil and gas prices.
2/ On a calendar year basis; excludes interest and investment income; based on GFSM 1986, while Table 7 contains GFSM 2001 format.
3/ Data for 2012 are as of end November 2012.
4/ It includes official revisions from 2006–08.
5/ Fund staff estimates.
6/ Comprises foreign exchange assets of Autoriti Monetari Brunei Darussalam (Brunei Currency and Monetary Board prior 2011), 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. 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:

The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.


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