## 1.  Implications of Oil and Gas Price Developments for the Outlook

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### Context and Recent Developments
- Health and pandemic timeline:
  - First confirmed COVID-19 case: March 9, 2020.
  - First COVID-19 fatality: March 28, 2020.
  - COVID-19 cases rose to 100 in 15 days from first case; as of mid-July 2021, no cases of community transmission since May 5, 2020.
- Macroeconomic and sectoral performance:
  - Global oil and gas prices dropped by 22 percent from 2019 to 2020.
  - Real GDP growth in 2020: 1.1 percent.
  - O&G sector Q4 2020: -8.6 percent yoy (large contraction due to unscheduled shutdown and maintenance of offshore facilities).
  - Downstream non-O&G growth in 2020: +324 percent yoy; contributed 4.6 percentage points to real GDP growth in 2020.
  - Contact-intensive sectors (hotels, restaurants, air transport) contracted by 1.6 percent.
- Employment and labor force:
  - Increase in local employment due to positive growth and programs (JobCentre Brunei, I-Ready Apprenticeship).
  - Non-local employment negatively impacted by entry restrictions; combined result: decline of the labor force and potential increase in unemployment.
  - Employment rose in wholesale and retail, health and social work, and construction; declined slightly in manufacturing and mining and quarrying.
  - Workers paying pension contributions: July 2020: 58,630; January 2021: 61,088.
- Inflation:
  - Headline inflation in 2020: 1.9 percent.
- Fiscal developments (Text Table: Fiscal Development):
  - Revenue (percent of GDP): 2019/20: 26.4; 2020/21: 12.5.
  - Oil & Gas revenue (percent of GDP): 2019/20: 19.8; 2020/21: 7.7.
  - Non-Oil & Gas revenue (percent of GDP): 2019/20: 6.5; 2020/21: 4.9.
  - Expenditure (percent of GDP): 2019/20: 31.9; 2020/21: 32.2.
    - Current expenditure (percent of GDP): 2019/20: 29.5; 2020/21: 30.9.
    - Capital expenditure (percent of GDP): 2019/20: 2.4; 2020/21: 1.3.
  - Overall Balance (percent of GDP): 2019/20: -5.6; 2020/21: -19.7.
  - Non-O&G Balance (% of Non-O&G GDP): 2019/20: -54.0; 2020/21: -53.0.
  - Nominal GDP (millions of BND): 2019/20: 18,385; 2020/21: 16,213.
  - Nominal non-O&G GDP (millions of BND): 2019/20: 7,710; 2020/21: 7,815.
- Government response and fiscal measures:
  - Health allocation in FY2020/21: BND15 million.
  - Economic relief package: BND450 million (about 2.7 percent of GDP).
  - Relief measures included: deferment of payments on Employee Trust Fund and Supplemental Contributory Pensions contributions; discounts on corporate income taxes, rents and utilities; deferment on principal payments of financing to all sectors; 25 percent payroll subsidies to affected MSMEs with less than 100 employees.
- External and financial positions:
  - Current account surplus in 2020: 4.5 percent of GDP (2019: 6.6 percent of GDP).
  - External position assessed as substantially weaker than level implied by medium-level fundamentals and desirable policies.
  - Banking system indicators:
    - Bank capital ratio (2020): 20.8 percent.
    - Gross performing loan ratio (2020): 4.7 percent.
  - Private sector credit growth slowed since Q1 2020.
- Authorities’ observations:
  - Authorities agreed broadly with assessment; noted increased domestic consumption benefiting wholesale and retail sectors and success of ‘whole-of-government’ approach in containing virus and enabling swift re-opening.
  - Noted robust downstream non-O&G activity mitigating upstream O&G decline.

### Outlook and Risks
- Growth projections:
  - O&G sector: projected to recover marginally in 2021: +0.5 percent yoy.
  - Non-O&G sector: downstream activities expected to remain strong; contact-intensive non-O&G expected to pick up in 2021.
  - Growth projection for 2021-22: accelerate to 2-3 percent, before slowing to around 2 percent over the medium term.
  - Share of non-O&G projected to rise to 52 percent of GDP by 2026.
- Employment and inflation outlook:
  - Employment expected to increase in 2021; non-local employment will remain negatively affected by travel restrictions and border closure.
  - Headline inflation projected to average 2.5 percent in 2021.
  - Medium-term price pressure expected to subside; structural factors (subsidies and currency peg to the Singapore dollar) will help mitigate upside risks.
- Fiscal outlook:
  - Fiscal deficit projected to fluctuate at 9-11 percent of GDP during FY2021/22-2026/27 absent strong consolidation measures.
  - Revenues projected at about 18.7 percent of GDP in FY2026/27.
  - Expenditures projected at about 29.8 percent of GDP in FY2026/27.
- Current account and reserves:
  - Current account surplus projected at about 5 percent of GDP in 2021-22; about 13 percent of GDP in 2026.
  - New SDR allocation of about US$650 billion in 2021 (Brunei’s allocation: US$412 million) would result in reserves (excluding gold) at around 210 percent of the Fund’s ARA composite metric in 2021 under the baseline scenario.
  - Under a non-SDR allocation alternative scenario, reserves (excluding gold) stand at around 190 percent of the Fund’s ARA metric in 2021.
- Principal downside risks (skewed to the downside):
  - Continuing weakness in O&G sector could weigh on growth.
  - Resurgence of the pandemic, delayed structural transformation, new virus strains, and regional COVID-19 spillovers.
  - Unexpected changes in energy production and delays in large-scale FDI projects.
  - Upside risk: stronger energy prices.
  - Fiscal buffers available to deploy if necessary.

### Box — Oil & Gas Price Scenarios and Economic Impacts (Box 1)
- Baseline O&G price assumptions:
  - Brunei oil price assumed at USD64.2/barrel and gas price at 5.84 per million metric British thermal unit (MMBTU) (World Economic Outlook April 2021 vintage).
- Downside tail risk scenario (relative to baseline, average over 2021–26):
  - Assumes oil price at USD29.34/barrel and gas price at USD2.8/MMBTU, with these low prices sustained until 2026.
  - Fiscal deficit: projected to widen by 11 percentage points of GDP on average, over 2021-26.
  - Current account: would shift to a deficit of 2 percent of GDP on average, over 2021-26.
- Upside risk scenario (relative to baseline, average over 2021–26):
  - Assumes oil price at USD70/barrel and gas price at USD9/MMBTU, sustained.
  - Improvement in fiscal deficit: around 50 percent compared to the baseline, on average over 2021-26.
  - Improvement in current account: around 70 percent compared to the baseline, on average over 2021-26.
- Quantitative model finding:
  - A one standard deviation increase in global oil prices uncertainty would lower output by close to 2 percent over a four-year period (VAR(3) model cumulative orthogonalized IRF).
- Modeling notes:
  - Downside reference prices based on Q2 2020 lows: oil USD29.34/barrel; gas USD2.8/MMBTU.
  - Upside reference prices: oil USD70/barrel; gas USD9/MMBTU.

### Economic Relief, Public Health, and External Sector Measures
- Economic relief package and targeted fiscal support:
  - Size of stimulus package: BND450 million (about 2.7 percent of GDP).
  - Temporary fiscal measures effective April 1, 2020 targeted MSMEs and self-employed in tourism, hospitality, transport and restaurants.
  - TAP and SCP specifics: deferment on payments of Employee Trust Fund (TAP) of 5 percent, and Supplemental Contributory Pensions (SCP) contributions of 3.5 percent for local employees earning less than $1,500 per month in all sectors under MSMEs with less than 100 employees. Government provides full SCP contributions to the registered self-employed.
  - Measures extended to end-September 2021 (and later containment-related measures extended to December 31, 2021 in staff/authorities statements).
- Targeted business support measures (selected):
  - Deferment on principal repayments on business and personal financing/loans across all sectors; restructuring with a period not exceeding 10 years.
  - Waiver of trade and payment transaction fees for companies in tourism, restaurants, air transport, food and medicine sectors.
  - 50 percent tax discount on corporate income tax for the year of assessment 2021 in Targeted Sectors.
  - Co-Matching Grants for e-commerce (e-Kadai) and logistic services.
- Public health measures and vaccination:
  - Gradual COVID-19 de-escalation plan started May 16, 2020.
  - Brunei rolled-out COVID-19 vaccination program on April 3, 2021.
  - Vaccine deliveries: 52,000 doses of Sinopharm received in early February 2021; COVAX secured 100,800 doses of AstraZeneca vaccines with 24,000 doses shipped in April; government expects delivery of Pfizer (300,000 doses) and Moderna (200,000 doses) later in 2021 under bilateral arrangements.
  - Vaccination target: vaccinate at least 70 percent of the population.
- External sector — key statistics:
  - Exports of goods declined -9.3 percent yoy in 2020.
  - O&G production: 110 thousand barrels per day in 2020 (2019: 121 thousand barrels per day).
  - Inward FDI flows reached about BND800 million in 2020.
  - International reserves (excluding gold) in 2020: USD 3.7 billion (equivalent to 6 months of imports, or 30 percent of broad money).
  - Reserves cover around 170 percent of the monetary base in 2020.
  - REER Gap estimates: 19.6 (CA model) and 36.9 (REER model) in percent.
  - Elasticity reported as -0.37.

### Fiscal Policy, Subsidy Reform, Public Wages, and Revenue Diversification
- Policy stance and short-term guidance:
  - Continue macroeconomic mix that supports short-term recovery while strengthening resilience and promoting economic transformation over the long term.
  - Maintain supportive fiscal policy until private sector recovery is entrenched.
  - Keep expenditure in FY2021/22 unchanged at FY2020/21 level appropriate given slack in non-downstream non-O&G sector.
  - Phase out broad lifelines gradually and withdraw support once self-sustained recovery in private domestic demand is evident; reallocate future support to resource re-allocation into green and digital sectors.
- Subsidy reform — recommendations and recent actions:
  - Manage subsidies in a consolidated way and include them as formal budgetary items.
  - Initiate a strategy for subsidy reform with: (i) careful and gradual implementation; (ii) clear and continuous communication; and (iii) compensatory measures for the vulnerable.
  - Reduce subsidies gradually—away from more distorting items (such as fuel) and away from high-income groups (such as abolition of fuel subsidy on luxury cars).
  - Recent authority actions: launched high quality fuel without subsidy; installed a smart metering system for electricity and water in 2020; established the digitalized National Welfare System in July 2020; discussed electricity tariff adjustment; MoFE consolidating subsidies data via Treasury Accounting and Financial Information System 2.0 project.
  - Scope: subsidies widespread (fuel, electricity, water, food, housing, healthcare); IMF TA (2015) estimated fuel cost at 1-1.5 percent of GDP.
- Public wages, labor market duality, and fiscal implications:
  - Public wages represent more than 30 percent of government expenditure.
  - Salaries budget per government employee: BND32,089 in FY2019/20.
  - Average income: BND19,368 in 2019.
  - Salaries and number of government employees: FY2020/21 budget BND1.99 billion and 67,126 → FY2021/22 budget BND2.02 billion and 65,281.
  - Recommendations: contain civil service hiring through intensified manpower auditing; control level of public salaries; strengthen labor productivity in public sector.
- Curtailing reliance on O&G and tax policy:
  - Curtailing reliance on O&G would reduce fiscal vulnerabilities.
  - Non-O&G tax revenue represents 9.9 percent of total revenue and 2.0 percent of GDP on average during FY2018/19-FY2020/21.
  - Recommendations: strengthen tax administration; broaden tax system by recalibrating property taxes, expanding excise taxes (health/environment), and adopting a Goods and Services Tax (GST).
- Fiscal consolidation and intergenerational equity:
  - Resume medium-term fiscal consolidation efforts.
  - Gap between expenditure and sustainable long-term expenditure under the PIH projected at about 2.6 percent of GDP in 2026.
  - Leverage substantial fiscal buffers and virtually no public debt to adjust public finance gradually, limiting negative growth impact.
- Fiscal consolidation strategies and PFM:
  - Preserve growth-enhancing spending while reducing inefficient spending.
  - Government requested ministries prepare five-year plans to reduce inefficient spending.
  - Government expenditure declined from 39.3 percent of GDP in FY2016/17 to 32.2 percent in FY2020/21.
  - Spending on physical infrastructure curtailed substantially; limited progress in restraining current spending.
  - Adopt fiscal rules—including introduction of a primary balance-to non-hydrocarbon GDP target—and a contingency plan for sharp drops in energy prices.
  - Reduce budget-execution gap and off-budget measures through strict controls on budget execution and reduced extra-budgetary activities.

### Fiscal Impact Scenarios (Text Table: Medium-Term Fiscal Balances)
- Baseline scenario — Fiscal balance (percent of GDP):
  - 2021/22: -9.3
  - 2022/23: -9.4
  - 2023/24: -10.5
  - 2024/25: -10.5
  - 2025/26: -10.9
  - 2026/27: -11.1
  - cumulative 2021/22-2026/27: -61.7
- Policy adjustments 1/ — Fiscal balance (percent of GDP):
  - 2021/22: -9.3
  - 2022/23: -8.7
  - 2023/24: -9.5
  - 2024/25: -9.1
  - 2025/26: -9.5
  - 2026/27: -9.7
  - cumulative 2021/22-2026/27: -55.7
- Note 1/: Policy adjustments relative to the baseline: containing wage bill (0.2 percent of GDP) and fuel subsidy reform (1.2 percent of GDP) gradually from 2022/23 to 2024/25, and sustained in the medium term.
- Remaining gap closure options:
  - Bolster subsidy reforms on housing, electricity, water, food, and healthcare.
  - Cut inefficient spending.
  - Implement corporatization and privatization.

### Public Investment and Efficiency (Appendix IV)
- Need and constraints:
  - Fixed capital formation including public investment accounted for 37 percent of the GDP in 2015-19.
  - Public capital expenditure declined from 4.7 percent of GDP in 2017 to 1.7 percent in 2020.
- Assessment and recommendations:
  - Staff analysis finds Brunei has a relatively low level of public investment efficiency.
  - Recommendations: introduce systematic, consistent appraisal and evaluation across projects; conduct an in-depth and independent diagnosis; implement IMF’s Public Investment Management Assessment (PIMA).
  - PIMA reviews institutional design and effectiveness of 15 key practices across the public investment cycle.
  - Consider creating an independent and centralized agency for public investment management (example cited: Korea’s PIMAC).
  - Encourage private sector participation (PPP) to harness innovation, improve project quality, and hedge risks.
  - Reduce revenue dependence on natural resources to improve appraisal incentives.

### Financial Stability, Monetary Policies, and Macroprudential Measures
- Currency arrangement:
  - Currency-Interchangeability Agreement with Singapore obliges acceptance/exchange at par; Brunei dollar anchored to Singapore dollar.
  - Inflation in Brunei averaged 1.1 percent over 1983–2020.
- Banking system and credit:
  - Banking system sound; loan-to-deposit ratio has declined and remains much lower than peers.
  - Composition of lending shifted towards the business sector in recent years.
- Macroprudential and regulatory reforms:
  - Steps to put all three pillars of Basel II in place; BDCB issued consultation on Basel III Implementation Roadmap.
  - Development of holistic macroprudential framework, including preliminary assessment of countercyclical capital buffer.
  - Credit Bureau rolling out Portfolio Alerts and Monitoring module by end of the year.
  - AML/CFT framework strengthened: two laws amended in 2020 (Criminal Asset Recovery Order and Companies Act); further amendments being prepared; Counter Proliferation Financing Order being finalized.
- Risks and recommendations:
  - Volatility in global oil price necessitates careful monitoring of banks’ placement of excess liquidity abroad due to foreign currency exposure risks.
  - Recommendation: strengthen risk management framework for monitoring and controlling liquidity risk.
- Monetary policy and access to finance:
  - Targeted financial assistance helped alleviate distress.
  - Bank Capital Ratio remains adequate and well above regulatory requirements.
  - Gross performing loans ratio remains stable due to policy support.
  - Authorities to enhance access to financing for MSMEs; Credit Bureau to promote lending transparency.

### Private Sector Development, FDI, Digitalization and Human Capital
- Private sector and labor market:
  - Private sector employment grew to about 147,000 in 2019 from 101,000 in 2014; largely in low value-added services.
  - Labor market duality: local workers 97.5 percent of public employment but only 50.7 percent of private jobs in 2019.
  - Youth unemployment remains high.
- Skills, training and initiatives:
  - JobCentre Brunei, Institute of Brunei Technical Education, Politeknik Brunei, I-Ready Apprenticeship, Lifelong Learning Center, SkillsPlus Program.
  - Salary guideline for selected job positions to address low pay in private sector.
  - At end-2020, 4,304 vacancies (65 percent of total vacancies) were successfully filled by locals.
- Productivity and R&D:
  - R&D expenditure 0.3 percent of GDP in 2018.
  - Recommendations: expand public R&D investment, build incentives for private R&D, foster academic-business cooperation.
  - Tertiary enrolment is inferior to peers and biased to females (1.4 times larger than for males).
- Digitalization and FDI:
  - Digital Economy Masterplan 2025 lists 25 projects; investment of about BND74.6 million.
  - FDI of BND669 million (3.8 percent of GDP) annually during 2018-20, concentrated in manufacturing including Hengyi industries (2017-20, USD3.4 billion) and Brunei Fertilizer Industries (2017-21, USD1.3 billion).
  - Recommendations: attract quality FDI, improve business climate, upgrade FDI incentives, diversify FDI across industries to increase spillovers.

### Economic Blueprint, Climate Policy, and Structural Priorities
- Economic Blueprint:
  - Launched January 2021 to align policies to accelerate diversification, advance private sector development, and foster green and digital economy.
  - Guides Industrial Roadmaps and Key Sector Masterplans; emphasizes human capital and trade linkages (RCEP, CPTPP).
- Brunei Darussalam National Climate Change Policy (BNCCP):
  - Launched in 2020; Nationally Determined Contribution submitted on December 31st aiming to reduce greenhouse gas emission by 20 percent relative to business as usual by 2030.
  - Authorities developing a detailed medium-term plan including carbon pricing strategies.
  - BNCCP includes pilot program to promote electric vehicles with a target of 60 percent of total car sales in 2035.
  - Shift to low carbon economy expected to offer green growth and job opportunities; targeted transfers and reskilling/upskilling needed to mitigate transitional impacts.

### Data, Technical Assistance, and Staff Appraisal
- Data and statistical capacity:
  - Data provision improving and broadly adequate for surveillance (Category B) with timeliness shortcomings.
  - Quarterly GDP available with a one-period lag; new GDP estimates rebased to 2010 were released.
  - External sector STA mission Phase 1 concluded; Phase 2 expected to take place within the year.
  - Authorities committed to publishing National Summary Data Page and improving GFS and IIP compilation.
- Technical assistance and Fund relations:
  - Selected TA missions across FAD, MFD, MCM, STA covering fiscal sustainability, PFM, subsidy reform, financial system development, monetary statistics, BOP, GFS, e-GDDS, and external sector statistics.
  - Fund membership and financial positions (figures as of June 30, 2021): Quota: 301.30 (100.00 percent); Fund holdings of currency: 266.31 (88.39 percent); Reserve position: 35.20 (11.68 percent); SDR net cumulative allocation: 203.50 (100.00 percent); SDR holdings: 217.59 (106.92 percent).
- Staff appraisal (selected):
  - Brunei weathered COVID-19 challenges well; policy response strong.
  - Near-term continued fiscal support recommended until recovery is solid.
  - Longer-term fiscal reforms recommended: preserve growth-enhancing spending; reform subsidy scheme; reduce wage gap between public and private sector; broaden non-O&G tax base.
  - Establish public investment management system and pursue corporatization, PPP, and privatization to mitigate fiscal pressures and develop private sector.
  - Peg to Singapore dollar and Currency Interchangeability Arrangement assessed as appropriate.
  - Financial supervision should remain vigilant; legislative changes to strengthen AML/CFT noted; APG Mutual Evaluation next stage.
  - Next Article IV consultation expected on the standard 12-month cycle.

*Source: 1brnea2021001 - 1.  Implications of Oil and Gas Price Developments for the Outlook (IMF staff report content).*

### 1.  Implications of Oil and Gas Price Developments for the Outlook _____________________________ 19

### 1.  Implications of Oil and Gas Price Developments for the Outlook

### Context and Recent Developments
- First confirmed COVID-19 case: March 9, 2020. First COVID-19 fatality: March 28, 2020.
- COVID-19 cases rose to 100 in 15 days from first case; as of mid-July 2021, no cases of community transmission since May 5, 2020.
- Global oil and gas prices dropped by 22 percent from 2019 to 2020.
- Real GDP growth in 2020: 1.1 percent.
- Sectoral performance:
  - O&G sector Q4 2020: -8.6 percent yoy (large contraction due to unscheduled shutdown and maintenance of offshore facilities).
  - Downstream non-O&G growth in 2020: +324 percent yoy; contributed 4.6 percentage points to real GDP growth in 2020.
  - Contact-intensive sectors (hotels, restaurants, air transport) contracted by 1.6 percent.
- Employment effects:
  - Increase in local employment due to positive growth and programs (JobCentre Brunei, I-Ready Apprenticeship).
  - Non-local employment negatively impacted by entry restrictions; combined result: decline of the labor force and potential increase in unemployment.
  - Employment rose in wholesale and retail, health and social work, and construction; declined slightly in manufacturing and mining and quarrying.
- Headline inflation in 2020: 1.9 percent (driven by higher food prices and insurance prices).
- Fiscal developments (Text Table: Fiscal Development):
  - Revenue (percent of GDP): 2019/20: 26.4; 2020/21: 12.5.
  - Oil & Gas revenue (percent of GDP): 2019/20: 19.8; 2020/21: 7.7.
  - Non-Oil & Gas revenue (percent of GDP): 2019/20: 6.5; 2020/21: 4.9.
  - Expenditure (percent of GDP): 2019/20: 31.9; 2020/21: 32.2.
    - Current expenditure (percent of GDP): 2019/20: 29.5; 2020/21: 30.9.
    - Capital expenditure (percent of GDP): 2019/20: 2.4; 2020/21: 1.3.
  - Overall Balance (percent of GDP): 2019/20: -5.6; 2020/21: -19.7.
  - Non-O&G Balance (% of Non-O&G GDP): 2019/20: -54.0; 2020/21: -53.0.
  - Nominal GDP (millions of BND): 2019/20: 18,385; 2020/21: 16,213.
  - Nominal non-O&G GDP (millions of BND): 2019/20: 7,710; 2020/21: 7,815.
- Government response and fiscal measures:
  - Health allocation in FY2020/21: BND15 million.
  - Economic relief package: BND450 million (about 2.7 percent of GDP).
  - Relief measures included: deferment of payments on Employee Trust Fund and Supplemental Contributory Pensions contributions; discounts on corporate income taxes, rents and utilities; deferment on principal payments of financing to all sectors; 25 percent payroll subsidies to affected MSMEs with less than 100 employees.
- External sector:
  - Current account surplus in 2020: 4.5 percent of GDP (2019: 6.6 percent of GDP).
  - External position assessed as substantially weaker than level implied by medium-level fundamentals and desirable policies.
- Banking system indicators:
  - Bank capital ratio (2020): 20.8 percent.
  - Gross performing loan ratio (2020): 4.7 percent.
  - Private sector credit growth slowed since Q1 2020.
- Authorities’ observations:
  - Authorities agreed broadly with assessment; noted increased domestic consumption benefiting wholesale and retail sectors.
  - Emphasized success of ‘whole-of-government’ approach in containing virus and enabling swift re-opening.
  - Noted robust downstream non-O&G activity mitigating upstream O&G decline.

### Outlook and Risks
- Growth projections:
  - O&G sector: projected to recover marginally in 2021: +0.5 percent yoy.
  - Non-O&G sector: downstream activities expected to remain strong; contact-intensive non-O&G expected to pick up in 2021.
  - Growth projection for 2021-22: accelerate to 2-3 percent, before slowing to around 2 percent over the medium term.
  - Share of non-O&G projected to rise to 52 percent of GDP by 2026.
- Employment:
  - Workers paying pension contributions: July 2020: 58,630; January 2021: 61,088.
  - Employment expected to increase in 2021; non-local employment will remain negatively affected by travel restrictions and border closure.
- Inflation:
  - Headline inflation projected to average 2.5 percent in 2021.
  - Medium-term price pressure expected to subside; structural factors (subsidies and currency peg to the Singapore dollar) will help mitigate upside risks.
- Fiscal outlook:
  - Fiscal deficit projected to fluctuate at 9-11 percent of GDP during FY2021/22-2026/27 absent strong consolidation measures.
  - Revenues projected at about 18.7 percent of GDP in FY2026/27.
  - Expenditures projected at about 29.8 percent of GDP in FY2026/27.
- Current account and reserves:
  - Current account surplus projected at about 5 percent of GDP in 2021-22; about 13 percent of GDP in 2026.
  - New SDR allocation of about US$650 billion in 2021 (Brunei’s allocation: US$412 million) would result in reserves (excluding gold) at around 210 percent of the Fund’s ARA composite metric in 2021 under the baseline scenario.
  - Under a non-SDR allocation alternative scenario, reserves (excluding gold) stand at around 190 percent of the Fund’s ARA metric in 2021.
- Risks (skewed to the downside):
  - Continuing weakness in O&G sector could weigh on growth.
  - Resurgence of the pandemic, delayed structural transformation, new virus strains, and regional COVID-19 spillovers.
  - Unexpected changes in energy production and delays in large-scale FDI projects.
  - Upside risk: stronger energy prices.
  - Fiscal buffers available to deploy if necessary.

### Economic Policies and Recommendations
- Policy stance: continue macroeconomic mix that supports short-term recovery while strengthening resilience and promoting economic transformation over the long term.
- Short-term fiscal support:
  - Maintain supportive fiscal policy until private sector recovery is entrenched.
  - Keep expenditure in FY2021/22 unchanged at FY2020/21 level appropriate given slack in non-downstream non-O&G sector.
  - Phase out broad lifelines gradually and withdraw support once self-sustained recovery in private domestic demand is evident; reallocate future support to resource re-allocation into green and digital sectors.
- Fiscal consolidation and intergenerational equity:
  - Resume medium-term fiscal consolidation efforts.
  - Gap between expenditure and sustainable long-term expenditure under the PIH projected at about 2.6 percent of GDP in 2026; closing the gap requires reducing inefficient spending and reliance on O&G revenue.
  - Leverage substantial fiscal buffers and virtually no public debt to adjust public finance gradually, limiting negative growth impact.
- Fiscal consolidation strategies:
  - Preserve growth-enhancing spending while reducing inefficient spending.
  - Government has requested ministries prepare five-year plans to reduce inefficient spending.
  - Government expenditure declined from 39.3 percent of GDP in FY2016/17 to 32.2 percent in FY2020/21.
  - Spending on physical infrastructure has been curtailed substantially (risking potential growth), while limited progress has been made in restraining current spending.
- Structural policies:
  - Strengthen human capital development and attract higher value-added FDI.
  - Accelerate digital and green growth to foster resilience.
- Targeted health and pandemic-related fiscal measures:
  - Contingent budget of BND20 million for communicable diseases established for FY2021/22.
  - Continued measures to increase domestic food supplies (e.g., collaboration to increase number of chicken coops to meet local demand for broilers).
- Authorities’ intended measures and expectations:
  - Authorities expect economy to grow between 0.8 and 1.6 percent in 2021.
  - Scheduled commencement of Brunei Fertilizer Industries towards end of 2021 and planned Hengyi Industries’ Phase 2 construction project in 2022 expected to provide growth impetus.
  - Acknowledge uncertainties around commissioning of major FDI projects and remain mindful of risks.
  - Vaccine rollout progress viewed as key to preventing a second wave; authorities expect more vaccine supplies in 2021.

*Source: 1brnea2021001 - 1.  Implications of Oil and Gas Price Developments for the Outlook (IMF staff report content).*

### 19. Reforming the current untargeted subsidy scheme is a priority in order to reduce

### 19. Reforming the current untargeted subsidy scheme is a priority in order to reduce

### Subsidy reform: recommendations and recent actions
- Recommendations:
  - Manage subsidies in a consolidated way and include them as formal budgetary items.
  - Initiate a strategy for subsidy reform with: (i) careful and gradual implementation; (ii) clear and continuous communication; and (iii) compensatory measures for the vulnerable.
  - Reduce subsidies gradually—away from the more distorting items (such as fuel) and away from high-income groups (such as abolition of fuel subsidy on luxury cars).
- Recent authority actions:
  - Launched high quality fuel without subsidy.
  - Installed a smart metering system for electricity and water in 2020.
  - Established the digitalized National Welfare System for efficient and targeted social expenditure in July 2020.
  - Discussed electricity tariff adjustment.
  - MoFE is consolidating subsidies data across line-ministries through the Treasury Accounting and Financial Information System 2.0 project.
- Scope and past cost estimate:
  - The scope of subsidies is widespread ranging from fuel, electricity, water, food, housing to healthcare.
  - The cost on fuel was estimated at 1-1.5 percent of GDP in the IMF technical assistance (2015).

### Public wages, labor market duality, and related fiscal implications
- Findings:
  - Reducing the wage gap between public and private sectors would help address labor market duality.
  - Public wages remain well above private-sector levels and represent more than 30 percent of government expenditure, despite a decrease in the number of public officials in FY2021/2022.
  - Public employment has been narrowed by tightening temporary job offerings and pension reform eliminating differences between public and private workers.
- Data points:
  - Salaries budget per government employee is BND32,089 in FY2019/20.
  - Average income is BND19,368 in 2019.
  - Salaries and number of government employees: (FY2020/21 budget) BND1.99 billion and 67,126 → (FY2021/22 budget) BND2.02 billion and 65,281.
- Policy recommendations:
  - Contain civil service hiring through intensified manpower auditing.
  - Control the level of public salaries.
  - Strengthen labor productivity in the public sector.

### Curtailing reliance on oil & gas (O&G) and tax policy
- Findings and recommendations:
  - Curtailing reliance on the O&G sector would reduce fiscal vulnerabilities.
  - Recent downstream developments present an opportunity to redesign the tax system associated with the non-O&G sector.
  - Tax administration should be strengthened.
  - Broaden the tax system by recalibrating property taxes, expanding excise taxes particularly on products with a negative impact on health and environment, and adopting a Goods and Services Tax (GST).
- Data point:
  - Non-O&G tax revenue represents 9.9 percent of total revenue and 2.0 percent of GDP on average during FY2018/19-FY2020/21.

### Fiscal impact and scenarios
- Expected fiscal gains from reforms:
  - More ambitious reforms of fuel subsidies and public wages (the adjustment scenario) could achieve a reduction in the deficit path by 1.4 percent of GDP annually in the medium term, relative to the baseline reflecting the authorities’ current policies.
- Text Table — Brunei Darussalam: Medium-Term Fiscal Balances under Different Scenarios (Fiscal year basis, percent of GDP)
  - Fiscal balance under: Baseline scenario
    - 2021/22: -9.3
    - 2022/23: -9.4
    - 2023/24: -10.5
    - 2024/25: -10.5
    - 2025/26: -10.9
    - 2026/27: -11.1
    - cumulative 2021/22-2026/27: -61.7
  - Fiscal balance under: Policy adjustments 1/
    - 2021/22: -9.3
    - 2022/23: -8.7
    - 2023/24: -9.5
    - 2024/25: -9.1
    - 2025/26: -9.5
    - 2026/27: -9.7
    - cumulative 2021/22-2026/27: -55.7
  - Note 1/: Policy adjustments relative to the baseline: containing wage bill (0.2 percent of GDP) and fuel subsidy reform (1.2 percent of GDP) gradually from 2022/23 to 2024/25, and sustained in the medium term.
- Remaining gap closure options:
  - Bolster subsidy reforms on housing, electricity, water, food, and healthcare.
  - Cut inefficient spending.
  - Implement corporatization and privatization.

### Public Finance Management (PFM)
- Findings:
  - Strengthening PFM would improve spending efficiency; Brunei’s quality of infrastructure falls short of that in countries with similar structures and income levels.
  - The Public Investment Management Assessment (PIMA) of the IMF would help improve public investment efficiency by evaluating the current system and identifying effective policy options.
  - The recently adopted Medium-Term Fiscal Framework (MTFF) and inclusion of medium-term projections for annual budgeting are important reforms.
- Recommendations:
  - Further develop the MTFF to include potential gains from fiscal consolidation programs and taxation changes.
  - Adopt fiscal rules—including introduction of a primary balance-to non-hydrocarbon GDP target—and a contingency plan for sharp drops in energy prices.
  - Reduce the budget-execution gap and off-budget measures through strict controls on budget execution and reduced extra-budgetary activities to improve fiscal transparency and integrity.
- Corporatization/PPP:
  - A corporatization and PPP special committee under the Ministry of Finance and Economy (MoFE) established in 2018 reviewed sectors for corporatization (electricity, water, post office, and air transportation).
  - Example corporatization: the government printing agency was corporatized to Print Plus in 2020.
  - Further corporatization, PPP, and privatization should contribute to fiscal consolidation through increased revenue and private sector development.
- Extra-budgetary funds:
  - Brunei maintains several extra-budgetary funds: consolidated fund, sustainability fund (with sub-funds for pension payment, development investment and fiscal deficit compensation), and the general reserve fund as a sovereign wealth fund.

### Authorities’ views on fiscal reforms and PFM
- The authorities agreed with continuing fiscal reforms, prioritizing budgetary investment for diversification and private sector development and cost-effective spending.
- Implemented actions:
  - Fiscal Consolidation Program since FY2020/21 with 117 initiatives and reallocating inefficient spending to future investment.
  - Development expenditure execution delayed by COVID-19 is expected to resume in FY2021/22.
  - Launched premium fuel without subsidy, smart meters, and exploratory discussions on power tariff improvements.
  - Established the National Welfare System to support the most in need and enable targeted assessments.
  - Strengthened Public Service Department/Commission and implemented manpower auditing to optimize manpower, avoid duplication, and enable redeployment and retraining.
  - Undertaken corporatization (printing service) and PPP in health and fisheries sectors.
  - Adopted timely fiscal measures during COVID-19 including deferment on contributions towards Employee Trust Fund and Supplemental Contributory Pension and salary subsidies for sector-targeted MSMEs.
  - Auditor General examined all budgetary expenditures and procurements responding to COVID-19.
- Capacity building and fiscal rules:
  - Authorities are interested in the PIMA and consider adoption of fiscal rules such as targeting a primary balance to non-O&G GDP appropriate but requiring time for review.

### Safeguarding financial stability
- Currency arrangement:
  - The Currency-Interchangeability Agreement between Brunei and Singapore obliges monetary authorities and licensed banks in both countries to accept and exchange each other's currencies at par and without charge.
  - The Brunei dollar is anchored to the Singapore dollar; Singapore's monetary policy directly influences monetary conditions in Brunei.
  - Inflation in Brunei averaged 1.1 percent over 1983–2020.
- Banking system and credit:
  - The banking system is sound, but domestic credit continues to lag compared to peers.
  - Brunei’s banking system loan-to-deposit ratio has declined due to weaker credit demand associated with the pandemic and remains much lower than peers in the GCC countries.
  - Structural factors: small domestic market and relatively shallow financial system.
  - Composition of lending has shifted towards the business sector in recent years.
- Financial sector resilience measures:
  - Steps taken to put all three pillars of Basel II in place.
  - BDCB issued a consultation paper on the Basel III Implementation Roadmap.
  - Ongoing development of a holistic macroprudential framework, including preliminary assessment of the countercyclical capital buffer.
  - Credit Bureau continues to promote lending transparency; planning to roll out Portfolio Alerts and Monitoring module by end of the year.
  - Robust implementation of AML/CFT framework is critical; two laws amended in 2020 (Criminal Asset Recovery Order and the Companies Act); amendments to Anti-Terrorism Order and Anti-Terrorism (Terrorist Financing) regulations are being prepared; Counter Proliferation Financing Order is being finalized.
  - Asia Pacific Group on Money Laundering Mutual Evaluation third-round evaluation process initiated in 2020; evaluation currently on pause until three months before onsite can be scheduled.
- Risks from offshore placements:
  - Volatility in global oil price necessitates careful monitoring of banks’ placement of excess liquidity abroad.
  - Risks include foreign currency exposure to large exchange rate fluctuations for non-Singapore dollar-denominated placements causing large financial losses.
  - Recommendation: strengthen risk management framework for monitoring and controlling liquidity risk.

### Promoting private sector development and economic transformation
- Private sector employment and duality:
  - Private sector employment grew to about 147,000 in 2019 from 101,000 in 2014, but mainly in low value-added services such as wholesale and retail, and hotel and food.
  - Labor market duality remains high: local workers accounted for 97.5 percent of public employment but only 50.7 percent of private jobs in 2019.
  - Youth unemployment remains high.
- Initiatives to support employment and skills:
  - JobCentre Brunei for job matching.
  - Institute of Brunei Technical Education, Politeknik Brunei, I-Ready Apprenticeship program, Lifelong Learning Center, and SkillsPlus Program for upskilling and reskilling.
  - Salary guideline for selected job positions to address low pay in the private sector.
  - Manpower Planning and Employment Council and Manpower Industry Steering Committee coordinate efforts, identify employment demand, develop competency frameworks, and reduce skill mismatch.
- Productivity and R&D:
  - Stagnant productivity is holding back potential growth.
  - R&D expenditure was 0.3 percent of GDP in 2018, lagging peers.
  - Recommendations: expand public R&D investment, build incentives to boost private sector R&D, and foster academic-business cooperation.
  - Tertiary education: tertiary enrolment is inferior to peers and biased to females (1.4 times larger than for males).
- Digitalization and FDI:
  - Digital Economy Masterplan 2025 lists 25 projects over five years including digital ID, digital payment, and national information hub as flagship projects.
  - Institutions for personal data protection, cyber security and e-commerce established.
  - Recommendation: further develop ICT industry and expand young tech-savvy workforce to maximize Masterplan payoff.
  - FDI performance and issues:
    - FDI of BND669 million (3.8 percent of GDP) annually during 2018-20, concentrated in manufacturing including Hengyi industries (2017-20, USD3.4 billion) and Brunei Fertilizer Industries (2017-21, USD1.3 billion).
    - Foreign workers initially play substantial roles in FDI projects and will be replaced gradually with local employees per investor agreements.
    - Further efforts needed to attract quality FDI by improving business climate, upgrading FDI incentives, and diversifying FDI across industries to increase inter-sector positive spillovers.

*Source: IMF staff report chapter text.*

### 36. The unveiling of the Economic Blueprint is welcome. The Blueprint will align policies to

### 1brnea2021001 - 36. The unveiling of the Economic Blueprint is welcome. The Blueprint will align policies to

### Economic Blueprint: purpose and priorities
- Aligns policies to further accelerate economic diversification efforts, advance private sector development, and foster a green and digital economy.
- Serves as a guide for the formulation of Industrial Roadmaps and Key Sector Masterplans in priority areas as engines of growth.
- Emphasis on human capital development and further expansion of trade linkages, including participation in the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
- Commitment to green investment and infrastructure.

### Brunei Darussalam National Climate Change Policy (BNCCP)
- Authorities ratified the Paris Agreement in 2016.
- BNCCP launched in 2020; Nationally Determined Contribution submitted on December 31st with the aim of reducing by 20 percent the amount of greenhouse gas emission relative to business as usual by 2030.
- Authorities are developing a detailed medium-term plan to achieve the emission objective, including carbon pricing strategies.
- Shift to a low carbon economy expected to offer green growth and job opportunities.
- Need for targeted transfers to compensate households, workers, and firms particularly affected by higher energy prices.
- Complementary policies required to mitigate impacts on existing employment, including opportunities for reskilling and upskilling for green jobs.

### Authorities’ views and recent initiatives
- Economic Blueprint launched in January 2021 to build on the country’s economic success and complement efforts to achieve Wawasan Brunei 2035’s Goal 3 (Dynamic and Sustainable Economy).
- Macroeconomic Development Committee formed to discuss macroeconomic outcomes and produce a holistic direction.
- Emphasis on diversifying FDI projects to maximize spin-off effects and expanding FTAs (such as RCEP signed in 2020).
- Continued corporatization, PPP and privatization to facilitate private sector growth with SOEs playing a strategic role.
- Initiatives to expand high value-added employment through education and training; examples include JobCentre Brunei, I-Ready and SkillsPlus.
- Digitalization accelerated via the Digital Economy Masterplan 2025 with sizable investment of about BND74.6 million.
- Restructuring of the communication industry to heighten efficiency and lower consumer burdens while preserving competition.
- BNCCP implementation includes a pilot program to promote electric vehicles with a target of 60 percent of total car sales in 2035.

### Addressing data issues and building capacity
- Data provision continues to improve and is broadly adequate for surveillance; commitment to international data standards and best practices.
- Staff encouragement to publish national accounts and balance of payments data in a timely manner while ensuring quality.
- Authorities requested TA to strengthen capacity on external sector data compilation.
- Phase 1 of the external sector STA mission concluded, providing insights and advice to address relatively large errors and omissions; Phase 2 expected to take place this year.
- Working level officers across ministries/government agencies could benefit from IMF-STI regional training opportunities.
- Authorities welcome further IMF TA and expressed strong interest in continuing engagement on data compilation and dissemination.

### Staff appraisal: macro and policy recommendations
- Brunei Darussalam weathered COVID-19 challenges well; policy response strong and expeditious.
- Growth momentum seen in 2020 is expected to strengthen in 2021-22, reflecting important diversification efforts.
- Near-term continued fiscal support recommended until recovery from COVID-19 is on a solid footing.
- Longer-term fiscal reforms recommended to align fiscal position with sustainable long-term expenditure; possible measures include:
  - preservation of growth-enhancing spending;
  - reform of the subsidy scheme;
  - reduction in the wage gap between the public and private sector;
  - broadening of the non-O&G tax base.
- Establishment of a public investment management system recommended to improve efficiency and stability of public finances.
- Corporatization, PPP and privatization recommended to mitigate fiscal pressures and develop the private sector.
- Structural reforms to remain focused on economic diversification and private sector development: diversify FDI to boost spillovers, improve the business environment, upgrade innovative competency, enhance human capital, and strengthen labor policies to increase high-value job opportunities.
- Peg to the Singapore dollar and the Currency Interchangeability Arrangement assessed as appropriate; provides a credible nominal anchor and helps deepen trade and investment linkages.
- Financial supervision should remain vigilant amid volatility in global oil prices; positive initiatives include early warning exercise, introduction of the Basel III framework, and development of a holistic macroprudential framework.
- Legislative changes to strengthen AML/CFT regulatory and supervisory framework noted; next stage is the Asia Pacific Group on Money Laundering (APG) Mutual Evaluation.
- External position in 2020 assessed to be substantially weaker due primarily to falling exports and the pandemic-induced decline in oil prices.
- Current account surplus projected to rebound over the medium term in line with recovery in O&G production and prices; downstream non-O&G diversification efforts important to strengthen external position.
- Steps to address data gaps are welcome; authorities committed to further improving data compilation and reporting and plan to leverage IMF for future TA and training needs.
- Next Article IV consultation expected to be held on the standard 12-month cycle.

*Source: IMF staff report content from the provided chapter.*

### Box 1. Implications of Oil and Gas Price Developments for the Outlook

### Box 1. Implications of Oil and Gas Price Developments for the Outlook

### Key findings
- A one standard deviation increase in global oil prices uncertainty—as occurred, for example, in 2014-2016—would lower output by close to 2 percent over a four-year period.
- Renewed spikes of global uncertainty concerning O&G prices would likely put a break on the recovery in economic activity.
- Under the baseline scenario, O&G prices are based on the global assumptions in the World Economic Outlook April 2021 vintage, where Brunei oil price is assumed to be USD64.2/barrel and gas price at 5.84 per million metric British thermal unit (MMBTU).

### Scenario impacts (relative to the baseline, average over 2021–26)
- Downside tail risk scenario
  - Assumes oil price at USD29.34/barrel and gas price at USD2.8/MMBTU, with these low prices sustained until 2026.
  - Fiscal deficit: projected to widen by 11 percentage points of GDP on average, over 2021-26.
  - Current account: would shift to a deficit of 2 percent of GDP on average, over 2021-26.
- Upside risk scenario
  - Assumes oil price at USD70/barrel and gas price at USD9/MMBTU, sustained.
  - Improvement in fiscal deficit: around 50 percent compared to the baseline, on average over 2021-26.
  - Improvement in current account: around 70 percent compared to the baseline, on average over 2021-26.

### Quantitative projections and dynamics
- GDP response to oil price uncertainty (Brunei)
  - The VAR(3) model's cumulative orthogonalized impulse response function (IRF) indicates a cumulative change in real GDP growth in response to a 1 std. dev. shock to oil price uncertainty of close to -2 percent over four years.
  - Figure notes: 68% confidence bands shown; values obtained from a VAR(3) model's cumulative orthogonalized IRF.

### Modeling notes and data sources
- Baseline O&G price assumptions: World Economic Outlook April 2021 vintage (Brunei oil price USD64.2/barrel; gas price 5.84 per MMBTU).
- Downside reference prices: lowest level observed at the height of the global lockdown recession in Q2 2020 (oil USD29.34/barrel; gas USD2.8/MMBTU).
- Upside reference prices: oil USD70/barrel; gas USD9/MMBTU.
- Sources: IMF staff estimates; Brunei Dept. Economic Planning & Development; Ahir, H., N. Bloom, and D. Furceri. 2018. “World Uncertainty Index,” Unpublished; and IMF Staff Calculations.
- Note: Figure depicting GDP response uses a VAR(3) model's cumulative orthogonalized IRF.

*Source: IMF staff estimates and analysis in Box 1. Implications of Oil and Gas Price Developments for the Outlook.*

### 3.      The government rolled-out a sizeable economic relief package to support the hardest-

### 3.      The government rolled-out a sizeable economic relief package to support the hardest-

### Economic relief package and fiscal support
- The size of the stimulus package amounted to BND450 million (about 2.7 percent of GDP).
- Temporary fiscal measures effective April 1, 2020, targeted MSMEs and self-employed in tourism, hospitality, transport and restaurants and included:
  - Deferment of payments on Employee Trust Fund (TAP) and Supplemental Contributory Pensions (SCP) contributions.
  - Discounts on corporate income taxes, rents and utilities.
  - Deferment on principal payments of financing to all sectors and restructuring or deferment on principal repayment of personal loans and hire purchase.
- TAP and SCP specifics: deferment on payments of Employee Trust Fund (TAP) of 5 percent, and Supplemental Contributory Pensions (SCP) contributions of 3.5 percent for local employees earning less than $1,500 per month in all sectors under MSMEs with less than 100 employees. Government provides full SCP contributions to the registered self-employed.
- Measures extended to end-September 2021.

### Labor market, training and direct support to workers
- To support the labor market and limit scarring, the government provided free-of-charge online training through Coursera and encouraged life-long learning through the Manpower Planning and Employment Council.
- Supporting labor market measures include:
  - Expanding the i-Ready Apprenticeship Program to graduates with Level 5 diploma level and TVET qualifications for an apprenticeship period of 18 months.
  - Revamping the JobCentre Brunei (JCB) portal with automated job matching and notifications.
  - Increasing Darussalam Enterprise’s sponsored Industry Business Academy online training (Coursera).
  - Providing 25 percent payroll subsidy to local workers in MSMEs with 100 employees and below for a pre-determined period.
  - Providing 25 percent salary subsidies for Brunei employees in the MSME sector with less than 100 employees.

### Targeted business support measures (selected)
- Deferment on principal repayments on business and personal financing/loans across all sectors; restructuring with a period not exceeding 10 years.
- Waiver of trade and payment transaction fees for companies in tourism, restaurants, air transport, food and medicine sectors.
- Conversion of outstanding credit card balances into term loans for a period not exceeding three years for affected individuals in the private sector (including the self-employed).
- Waiver of all charges and bank payments for interbank transfers (except third party charges)—applicable to local banks.
- Temporary suspension of rental charges for markets and stores under the Ministry of Home Affairs.
- Temporary exemption of customs and excise duties for hygiene and disinfectant products.
- Providing discounts on rental rates of government buildings for MSMEs in tourism, hospitality, restaurants/café, and air/water transportation (“Targeted Sectors”).
- Providing 50 percent tax discount on corporate income tax for the year of assessment 2021 in Targeted Sectors.
- Providing Co-Matching Grants for e-commerce (e-Kadai) and logistic services.

### Public health measures, de-escalation, and travel
- Brunei started a gradual COVID-19 de-escalation plan on May 16, 2020.
- Wide adoption of the contact tracing app BruHealth encouraged; most economic activities resumed with social distancing observed.
- Travel restrictions remain largely in place except for specific essential travelers facilitated with protocols; reciprocal travel arrangements (e.g., Reciprocal Green Lane arrangements) established to facilitate short-term essential business and official travel.
- Commitment to ASEAN frameworks such as the ASEAN Comprehensive Recovery Framework (ACRF) and the ASEAN Travel Corridor Arrangement Framework.

### Vaccine procurement and rollout
- Brunei officially rolled-out COVID-19 vaccination program on April 3, 2021.
- Vaccine procurement and deliveries:
  - 52,000 doses of Sinopharm vaccine received from China in early February 2021.
  - Brunei joined COVAX in 2020 to secure 100,800 doses of AstraZeneca vaccines; 24,000 doses have been shipped in April.
  - Government expects delivery of Pfizer (300,000 doses) and Moderna (200,000 doses) vaccines later this year under bilateral arrangements.
- Vaccination target: vaccinate at least 70 percent of the population.

### External sector assessment — key statistics and projections
- Exports of goods declined -9.3 percent yoy in 2020.
- O&G production: 110 thousand barrels per day in 2020 (2019: 121 thousand barrels per day).
- Imports held up due to downstream non-O&G activities which account for 30 percent share of total goods imports.
- Current account:
  - Current account surplus narrowed to 4.5 percent of GDP in 2020 (2019: 6.6 percent of GDP).
  - EBA-Lite adjusted current account (after cyclical contributions and COVID-19 adjustor) is an estimated surplus of 11.5 percent of GDP in 2020.
  - CA norm (from model) is a surplus of 18.9 percent of GDP.
  - CA gap is -7.3 percent of GDP for 2020; after taking into account the policy gap (+3.2 percent of GDP), the current account gap is -4.1 percent of GDP.
  - Model components: cyclical contributions (from model) (-) -1.7; COVID-19 adjustor (+) 5.3; Adjusted CA 11.5; CA Norm 18.9; CA Gap -7.3.
- Capital flows:
  - Inward FDI flows reached about BND800 million in 2020.
  - Portfolio capital flows remain modest.
- Exchange rates and competitiveness:
  - Nominal effective exchange rate (NEER) remained largely stable; real effective exchange rate (REER) declining since 2014.
  - REER Gap estimates: 19.6 (CA model) and 36.9 (REER model) in percent.
  - Elasticity reported as -0.37.
- Reserves and adequacy:
  - International reserves (excluding gold) in 2020 amounted to USD 3.7 billion (equivalent to 6 months of imports, or 30 percent of broad money).
  - Reserves cover around 170 percent of the monetary base in 2020.
  - Reserve adequacy comparable with GCC peers per Fund’s ARA assessment.

### Risk Assessment Matrix — principal risks and policy responses
- Global resurgence of the Covid-19 pandemic
  - Likelihood: Medium; Expected Impact: High.
  - Expected economic effect: Slow recovery, exacerbated inequalities, scarring via MSME distress and extended joblessness.
  - Policy response:
    - Leverage ample fiscal reserves to address the health crisis, protect the vulnerable and prevent scarring.
    - Provide relief to viable businesses and extend support to MSMEs, the self-employed and unemployed workers.
- Disorderly transformations (structural reallocation impeded)
  - Likelihood: Medium; Expected Impact: High.
  - Expected economic effect: Sluggish structural reforms, delayed recovery of potential growth.
  - Policy response:
    - Accelerate structural reforms using large fiscal space.
    - Implement active labor market policies including job matching and training.
    - Restructure unviable firms and improve integration into adjusted global value chains.
- De-anchoring of inflation expectations in the U.S./global financial tightening
  - Likelihood: Medium; Expected Impact: Medium.
  - Expected economic effect: Financial market destabilization, deleveraging, lower investment and growth, financing difficulties for leveraged firms/households.
  - Policy response:
    - Strengthen monitoring and supervision with appropriate macroprudential policies.
    - Provide financial support for viable businesses and indebted households.
    - Manage sovereign assets prudently.
- Rising commodity prices amid volatility
  - Likelihood: Medium; Expected Impact: High.
  - Expected economic effect: Higher energy prices improve fiscal/external balances; rising commodity/crop prices increase inflation and hurt vulnerable groups.
  - Policy response:
    - Build fiscal buffers from higher O&G revenue in line with continuous fiscal consolidation.
    - Monitor and stabilize prices of necessities and maintain support to people in need.
- Domestic risks: unexpected fluctuation in energy production; delays in large-scale FDI projects
  - Likelihood: Medium; Expected Impact: Medium to High.
  - Policy responses:
    - Enhance efforts to rejuvenate current fields and explore new sites.
    - Reduce fiscal procyclicality in good times.
    - Upgrade business climate and expand public investment to support timely execution of projects.

*Source: International Monetary Fund staff.*

### Appendix IV. Improving Public Investment Efficiency

### Appendix IV. Improving Public Investment Efficiency

### Need for additional public investment and fiscal constraints
- Fixed capital formation including public investment accounted for 37 percent of the GDP in 2015-19.
- Public investment is needed to foster infrastructure development and urbanization and to boost growth and long-term development particularly in the non-oil sector.
- Persistent fiscal deficits have reduced sovereign wealth resources and public capital expenditure declined from 4.7 percent of GDP in 2017 to 1.7 percent in 2020, eroding the potential for future growth.

### Assessment of public investment efficiency
- New staff analysis finds Brunei has a relatively low level of public investment efficiency.
- Improving efficiency is prioritized because it can raise the quality of physical infrastructure and the return on public capital without deteriorating the fiscal position.

### Institutional arrangements and current evaluation process
- The Ministry of Finance and Economy (MoFE) is responsible for planning and evaluating ministries’ applications for projects under the National Development Plan (NDP) at the working level.
- Applied projects are reviewed by the NDP Working Committee (JKK) and approved subsequently by the NDP Executive Committee (JKTR).
- The MoFE, as secretariat to the JKK and JKTR, monitors progress and outcome of NDP projects in collaboration with responsible ministries and agencies.
- Respective ministries are responsible for procurement (including detailed specifications, evaluation and recommendation), implementation, and outcomes (including Key Performance Indicators) of their projects in terms of quality and timescale.
- The State Tender Board, the MoFE, or the Mini Tender Board at respective ministries review and approve procurement according to their thresholds.
- There is an assessment that the evaluation process is used on an ad hoc basis (OECD/ADB, 2019).

### Recommendations to strengthen public investment management
- Further improve evaluation process:
  - Introduce more systematic, consistent appraisal and evaluation across projects rather than ad hoc assessments.
- Strengthen oversight on public investment projects:
  - Conduct an in-depth and independent diagnosis of the current public investment management system.
  - Implement the IMF’s Public Investment Management Assessment (PIMA) to analyze current institutions, evaluate effectiveness, and distinguish reform priorities.
- Public Investment Management Assessment Framework (PIMA) features:
  - Comprehensive framework to assess public investment efficiency by evaluating procedures, tools, decision making, and monitoring in infrastructure project governance.
  - Reviews institutional design and effectiveness of 15 key practices according to the three stages of the public investment cycle and three cross-cutting enabling factors to support infrastructure governance.
- Establish an advanced framework for public investment management:
  - Adopt a clear, well-supported methodology for appraisal and well-defined project criteria and selection processes.
  - Integrate medium and long-term infrastructure plans into the fiscal framework to secure stable investment implementation.
  - Consider creating an independent and centralized agency for public investment management to perform ex-ante strategic planning, precise appraisal, and ex-post evaluation of infrastructure projects (example cited: Korea’s Public and Private Infrastructure Investment Management Center (PIMAC) in the Korea Development Institute).
- Encourage private sector participation:
  - Use public-private cooperation to harness innovation and efficiency, develop private firm competence, improve project quality, and hedge project risks.
- Reduce revenue dependence on natural resources:
  - Less reliance on oil and gas revenue would diminish revenue volatility and strengthen incentives to prioritize and appraise projects cautiously.
  - Strong institutional quality in Brunei could further improve public investment efficiency.

*Source: Appendix IV. Improving Public Investment Efficiency (prepared by Sangmok Lee).*

### References

### 1brnea2021001 - References

### References cited
- Asiyah az-Zahra Ahmad Kumpoh. 2016. “Brunei Darussalam in 2016: Adjusting to Economic Challenges”, Southeast Asian Affairs, ISEAS-Yusof Ishak Institute, vol. 2017.
- Papageorgiou, Chris, Spatafora, Nikola, and Wang, Ke. 2015. “Diversification, Growth and Volatility in Asia”, Policy Research Working Paper, 7380, World Bank, Washington, DC.
- Callen, Tim, Reda Cherif, Fuad Hasanov, Amgad Hegazy, and Padamja Khandelwal. 2014. “Economic Diversification in the GCC: Past, Present, and Future.” IMF Staff Discussion Note 14/12, International Monetary Fund, Washington, DC.
- Sommer, Martin, Juan Treviño and Neil Hickey. 2016. “Oil Exporters Learn to Live with Cheaper Oil.” International Monetary Fund, Washington, DC.
- Stepanyan, Vahram, Botir Baltabaev, Anastasia Guscina, Mohammed Zaher, Ling Zhu, and Tucker Stone. 2018. “Trade and Foreign Investment—Keys to Diversification and Growth in the GCC.”, International Monetary Fund, Washington, DC.

### Appendix VI — Foreign Direct Investment (FDI): key findings
- Brunei views FDI as central to promoting economic growth and diversification; public agencies and incentives have been established to facilitate FDI.
- Role and impact of FDI:
  - FDI projects contributed to developing non-O&G sector and mitigating the negative impact from COVID-19.
  - Quality FDI is needed to heighten economic growth, employment, diversification, and productivity through advanced business skills and state-of-art technology.
  - Authorities prioritized five clusters: downstream O&G, business service, food, tourism, and info-communication technology.
  - Development of related domestic industries and expansion of job opportunities from FDI remain limited.
- Concentration and scale of FDI:
  - FDI has been concentrated in O&G and downstream sectors, similar to GCC countries but lagging ASEAN peers.
  - Notable projects: Hengyi industries (USD3.4 billion, 2017-20) and Brunei Fertilizer Industries (USD1.3 billion, 2017-21).
  - Manufacturing, mostly downstream O&G and mining, account for 70 percent of total FDI since 2010.
- Institutions and facilitation:
  - FAST (FDI Action and Support Centre), BEDB (Brunei Economic Development Board), and DARe (Darussalam Enterprise) under MoFE facilitate permits, approvals, and licenses.
  - Incentives include ‘pioneer status’—exemption from paying corporate income tax and import duties on raw materials, equipment and machinery for up to 5 years.
  - Investment from Strategic Development Capital Fund may be offered to FDI projects according to evaluation.
- Business environment improvements:
  - Time and procedures to start a business reduced to 5 days and 3 procedures in 2020, compared to 14 days and 7 procedures in 2016.
  - Obtaining credit improved through development of a credit bureau and a credit registry listing most of adult population.
  - First Free Trade Zone created in Terunjing Industrial Park near Brunei International Airport and Muara Port in 2017.

### Appendix VI — Policy recommendations and actions needed to enhance FDI quality and spillovers
- Improve business climate:
  - Streamline transactions of real estate and make land transfer approvals more transparent and timely.
  - Review and accelerate reforms on foreign ownership of land and related policies; consider enhancing government land lease arrangements to investors.
  - Reduce time to export and import by expanding public investment in infrastructure and developing customs and border administration.
- Secure fair competition and reform SOEs:
  - Guarantee and encourage vibrant competition given SOEs’ dominance in key sectors (oil and gas, tele-communications, transport).
  - Consider privatization of SOEs in areas operated by private firms in other countries—communication and tourism cited—to boost efficiency, attract investment resources, and obtain fiscal revenue.
  - Monitor SOE consolidation (example cited: Unified National Networks in 2019) to avoid long-term market dominance that could restrict competition.
- Upgrade incentives for FDI:
  - Customize incentives for projects facing strong international FDI competition and intensify benefits for priority clusters to aid diversification.
- Broaden and deepen FDI impact:
  - Diversify FDI beyond downstream industry to reduce vulnerability to energy-price volatility.
  - Nurture small FDI projects in other priority clusters into sizable globally competitive businesses.
  - Strengthen ripple/trickle-down effects: evaluate FDI for potential spillovers to local industries, technology transfer, and employment; encourage proactive local firm and workforce participation.
  - Leverage mega-project industrial complexes (e.g., Hengyi industries) to attract related FDI and create virtuous cycles across business services, tourism, logistics, downstream O&G, and food.

### Appendix VII — Status of Staff Advice in 2019 Article IV Consultation (selected)
- Fiscal Policy
  - Staff advice: Continue fiscal consolidation to ensure long-term expenditure sustainability and intergenerational equity by enhancing revenue and expenditure strategy, reforming subsidies, and continuing public finance management reforms.
  - Authority actions taken include:
    - Implementing the Fiscal Consolidation Program with 117 initiatives.
    - Corporatizing public services (example: transformation of government printing department to Print Plus).
    - Reducing subsidies via subsidy-free fuel, smart meter for power and water supply, and the National Welfare System.
    - Containing the number of government employees.
    - Discussing excise tax expansion in the near time.
    - Applying medium-term projection in the MTFF to annual budgeting.
- Financial Sector Policies
  - Staff advice: Further develop the financial sector while strengthening regulatory, supervision and macroprudential framework; strengthen AML/CFT framework.
  - Authority actions taken or in progress:
    - Implemented International Financial Reporting Standard 9 by financial institutions.
    - Taken steps to put all three pillars of Basel II in place.
    - Progress on a holistic macroprudential framework, including a preliminary assessment of the countercyclical capital buffer.
    - Put in place a Domestic Systemically Important Banks framework.
    - Plans to establish a secondary bond market and stock exchange remain work-in-progress.
    - AML/CFT: Two legislations amended in 2020 (the Criminal Asset Recovery Order, and the Companies Act); amendments to the Anti-Terrorism Order and Anti-Terrorism (Terrorist Financing) Regulations are being prepared; Counter Proliferation Financing Order is being finalized.
    - Plan to issue a Notice on Measures for Non-Face-to-Face Customer Onboarding and Ongoing Customer Due Diligence (CDD) scheduled in the second half of 2021.
- Structural Policies
  - Staff advice: Step up structural reforms to encourage private sector-led growth by improving business climate, enhancing human capital, attracting FDI, boosting global integration, and leveraging technological innovations.
  - Authority actions taken include:
    - Improved business environment (starting a business, access to credit), development of Darussalam Enterprise and the Credit Bureau.
    - Job matching and training through JobCentre Brunei, I-Ready, Politeknik Brunei, and Institute of Brunei Technical Education under Manpower Planning and Employment Council.
    - Sizable FDI attracted via FAST and BEDB.
    - Participation in free trade agreements including the CPTPP and the RCEP.
    - Accelerated digitalization via preparation of the Digital Economy Masterplan 2025.
- Data Issues
  - Staff advice: Make further progress in data compilation and dissemination.
  - Authority actions and commitments:
    - Committed to publishing the National Summary Data Page (NSDP) following IMF TA on eGDDS.
    - External sector statistics TA mission conducted remotely during July 26-29, 2020 to improve BOP data.
    - Work on finalizing the compilation and dissemination of international investment position (IIP) to commence in the second half of 2021.
    - Begun publishing the annual financial stability report since 2019.

### Fund relations and statistical highlights (figures as of June 30, 2021)
- Membership Status: Joined October 10, 1995; Article VIII.
- General Resources Account (SDR Millions, Percent of Quota):
  - Quota: 301.30 (100.00 percent)
  - Fund holdings of currency (exchange rate): 266.31 (88.39 percent)
  - Reserve position in Fund: 35.20 (11.68 percent)
- SDR Department (SDR Millions, Percent of Allocation):
  - Net cumulative allocation: 203.50 (100.00 percent)
  - Holdings: 217.59 (106.92 percent)
- Outstanding Purchases and Loans: None
- Latest Financial Arrangements: None
- Projected Obligations to Fund: None
- Exchange arrangements: Currency board arrangement, Brunei dollar exchanged at par with the Singapore dollar; obligations under Article VIII, Sections 2(a), 3 and 4 accepted.
- Article IV Consultation: Brunei is on the 12-month consultation cycle; Executive Board concluded the 2019 Article IV consultation on September 10, 2019.
- FSAP Participation: Not applicable

### Technical assistance and statistical capacity (selected)
- Technical Assistance (selected missions and areas):
  - FAD: A Medium-Term Strategy for Fiscal Sustainability (June 1998)
  - FAD: Public Financial Management (December 2006, June 2011, April 2014)
  - FAD: Fuel Subsidy Reform (April 2016)
  - MFD: Developing the Financial System of Brunei Darussalam (December 1997)
  - MCM/MFD: Establishment of Brunei Darussalam Monetary Authority (January 2006, December 2006, August 2008)
  - MCM: Payment and Settlement Systems/Liquid Payment and Settlement Systems (May 2012), Liquidity Monitoring (January 2015), Monetary and Financial Statistics (March 2015), Scoping mission on systemic risk monitoring and macroprudential policy frameworks (April 2018), Framework for bank resolution and crisis management (April 2018)
  - STA: Monetary and Financial Statistics (October 1998, January 2006, July-August 2008, October 2009, July 2010, November 2011)
  - STA: Balance of Payments Statistics (May 1996, June-July 2003, June 2004)
  - STA: Government Finance Statistics (October 2011, May 2017)
  - STA: Enhanced General Data Dissemination System (June 2019)
  - STA: External Sector Statistics (July 2020)
- Assessment of Data Adequacy for Surveillance:
  - Data provision continues to improve and is broadly adequate for surveillance (Category B), with some minor shortcomings due to timeliness issues.
  - Introduction of an Advance Release Calendar (ARC) in 2015 by the Department of Statistics (DOS) has shortened dissemination delays for a number of indicators.
  - DOS working to provide data via links such as www.data.gov.bn/.
  - National Statistics Committee working to strengthen data collection and compilation across agencies.
  - Recommendation: Use IMF’s Data Quality Assessment Framework for all national statistics.
  - National accounts: Quarterly GDP available with a one-period lag; new GDP estimates rebased to 2010 were released.

*Source: IMF staff report material and appendices contained in 1brnea2021001 - References.*

### 2015. The new series incorporate data from the most recent benchmark censuses and surveys, such as the 2010/11 Household

### Brunei Darussalam: 2015 series updates; data, statistics, and policy developments (excerpts)

### National accounts, price, labor, and sales statistics
- New series incorporate data from the 2010/11 Household Expenditure Survey, the 2011 Population and Housing Census, and the 2011 Economic Census.
- Coverage extended to include statutory bodies.
- GDP by Income Approach as well as Gross National Income and Savings are also released.
- Price statistics:
  - Monthly CPI is available with a one-period lag.
  - CPI weights were derived using the 2015/16 Household Expenditure Survey.
  - Compilation of producer and construction material price indices remains in the plans.
  - Feasibility of compiling import and export price indices is being assessed.
- Labor statistics:
  - DEPS conducts annual Labor Force Survey since 2014, designed and implemented with technical assistance from the International Labor Organization.
  - An inter-censal update was conducted in 2016 to update the housing and household frame for the Labor Force Survey.
  - Data on wages are limited; scope remains to enhance data quality.
- Sales statistics:
  - Quarterly retail sales index, and food and beverage index statistics are available with a one-period lag.
  - Compilation is based on the Quarterly Survey of Business conducted by the Department of Planning and Statistics, with weights obtained from the 2017 Annual Census of Enterprises.

### Government finance statistics (GFS)
- Shortcomings: classification of some flows and consolidation of major government institutional units.
- Deficiencies in budgetary central government data include:
  - recording taxes net of subsidies;
  - omission of key fiscal flows, e.g., property income on assets;
  - unrecorded subsidy schemes;
  - some capital transfers to extra-budgetary institutions.
- Treasury priority: ensure the GFS cash flow statement for the budgetary central government is updated quarterly.
- Data sources from Treasury Accounting Financial Information System are continuously monitored and enhanced.
- Coverage could be expanded to general government by consolidating financial accounts for budgetary central government, extra-budgetary units, and social security funds.
- Government finance statistics are not reported for publication in either the Government Finance Statistics Yearbook or the International Financial Statistics.
- Authorities committed to improving capacity to compile GFS, including participating in IMF training courses on GFS.

### Monetary and financial sector statistics
- Brunei Darussalam Central Bank (BDCB) compiles and reports to STA monthly monetary data for the central bank, other depository corporations (ODCs), and other financial corporations (OFCs) using the standardized report forms (SRFs).
- Data are comprehensive and reported on a regular and timely basis.
- BDCB is working to further improve data compilation and reduce dissemination lags.
- Brunei Darussalam reports some key series and indicators of the Financial Access Survey (FAS), including commercial bank branches per 100,000 adults and ATMs per 100,000 adults (indicators adopted by the United Nations to monitor Target 8.10 of the Sustainable Development Goals).
- Financial sector surveillance:
  - BDCB reports quarterly financial soundness indicators (FSIs) to the Fund, published on the IMF’s FSI website.
  - Reported FSIs comprise all the core (12) and 10 encouraged FSIs for deposit takers.

### Balance of payments and external statistics
- Quarterly balance of payments statistics reported to STA in BPM6 format since the end of 2015, with both quarterly and annual data available from 2010.
- There is a break in the data series due to changes in compilation techniques and methodology.
- Coverage of other investment improved by using data from monetary statistics.
- Net errors and omissions remain large.
- Imports of goods coverage has shortcomings; counterpart data on imports of goods showed large discrepancies.
- Work is underway to improve services data.
- Direct investment (DI) survey improved capture of DI liabilities; data on DI assets are not captured.
- Compilation of international investment position on BPM6 basis has finished but has not been released.

### Data standards and dissemination
- Participant in the Enhanced General Data Dissemination System (e-GDDS).
- Launched the National Summary Data Page in August 2019.
- Table of Common Indicators Required for Surveillance (As of July 8, 2021) — selected entries:
  - Exchange rates: Date of Latest Observation 6/2021; Date Received 7/2021; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
  - International reserve assets and reserve liabilities of the Monetary Authorities: Date of Latest Observation 03/2021; Date Received 06/2021; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
  - Reserve/base money: Date of Latest Observation 03/2021; Date Received 06/2021; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
  - Broad money: Date of Latest Observation 03/2021; Date Received 06/2021; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
  - Central bank balance sheet: Date of Latest Observation 03/2021; Date Received 06/2021; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
  - Consolidated balance sheet of the banking system: Date of Latest Observation 03/2021; Date Received 06/2021; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
  - Interest rates: Date of Latest Observation 03/2021; Date Received 06/2021; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
  - Consumer price index: Date of Latest Observation 4/21; Date Received 6/21; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
  - Revenue, expenditure, balance and composition of financing – budgetary central government: Date of Latest Observation Q4/FY2020/21; Date Received 06/2021; Frequency of Data Q; Frequency of Reporting I; Frequency of Publication A.
  - Stocks of central government and central government-guaranteed debt: Date of Latest Observation Q4/FY2020/21; Date Received 06/2021; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
  - External current account balance: Date of Latest Observation Q4/2020; Date Received 6/21; Frequency of Data Q; Frequency of Reporting Q; Frequency of Publication A.
  - Exports and imports of goods: Date of Latest Observation 4/21; Date Received 6/21; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.
  - GDP/GNP: Date of Latest Observation Q4/2020; Date Received 3/21; Frequency of Data Q; Frequency of Reporting Q; Frequency of Publication Q.
  - International investment position: Date of Latest Observation 2018; Date Received 6/19; Frequency of Data A; Frequency of Reporting I; Frequency of Publication NA.
  - Notes: "No reported external debt."

### COVID-19 resurgence, public health measures, vaccination, and economic impact (Staff statement and authorities’ statement, August–September 2021)
- Epidemiological update (Staff Representative, September 1, 2021):
  - After 15 months of zero local transmission, a new wave began in early August centered on the Delta variant.
  - From August 7 to 23, cumulative new cases surged to 1,508.
  - As of August 23, total cases 1,873: 1,649 local cases (or 88 percent) and 224 imported cases (or 12 percent).
  - Of the 1,873 cases, 436 patients have recovered; three fatalities; remaining are active cases.
- Containment measures effective August 7, 2021 and announced to remain until September 4 (extension likely):
  - Closure of several public facilities; suspension of on-site education; food establishments limited to takeaway and delivery; telecommuting urged; masks mandatory in indoor venues and crowded outdoor spaces; public hospital visits prohibited except one visitor for ICU patients.
  - Temporary suspension of travel to/from India, Nepal, Sri Lanka, Pakistan and Bangladesh extended through end-August.
  - Travel from Indonesia suspended indefinitely as of August 22, 2021.
  - Testing and contact tracing ramped up significantly.
- Vaccination (Staff Representative, August 18, 2021):
  - Total doses administered 237,729.
  - First doses reached 175,545 individuals (38.7 percent of population).
  - Second doses 62,184 (13.7 percent).
  - Daily vaccination rate expected to hit 10,000 following opening of a new center on August 19.
- Authorities’ vaccination update (as of August 15, 2021):
  - 36.3 percent (216,322 people) of the population vaccinated with at least one dose.
  - Aim to achieve 70 percent vaccination rate by the end of the year.
  - Vaccinations administered free of charge; rollout in three phases (front liners, senior citizens, students abroad; child care staff, adults with comorbidities, teachers; general public starting July 5, 2021).
  - BruHealth App used for epidemic updates and exposure tracking.
- Authorities’ containment and support measures (effective August 1 until December 31, 2021):
  - Deferment on contribution payment of Employee Trust Fund (TAP) of 5 percent and Supplemental Contributory Pensions (SCP) of 3.5 percent for local workers earning less than BND1,500 per month in affected MSMEs with less than 100 employees.
  - 25 percent salary subsidy provision for local workers in MSMEs with less than 100 employees.
  - Government funding for SCP Contributions to the self-employed.
  - At least 30 percent discount on rental rates on government buildings for MSMEs in affected sectors.
  - 50 percent tax discount on corporate income tax for the 2022 assessment to affected sectors.
  - 20 percent discount on water and electricity bills for affected companies within affected sectors.
  - Temporary exemption of customs and excise duties for personal hygiene products.
  - BDCB announced banking sector assistance extended until December 31: deferment of principal repayments on loans and financing; restructuring of personal loan/financing and hire purchase such as car financing for a period not exceeding 10 years; waiver of fees and charges for local online interbank transfers.
- Staff assessment and outlook:
  - Downside risks increased; resurgence and containment measures expected to slow recovery, especially in contact-intensive sectors.
  - Impact on growth depends on duration of second wave.
  - Indication from first wave: contact-intensive sectors contracted by 1.6 percent (yoy).
  - Improved ability to live with the pandemic (digitalization), and strong health, fiscal and regulatory responses should help sustain production and household income and consumption.
  - Stronger vaccine rollouts and energy prices could surprise to the upside.

### Recent economic developments and outlook (authorities’ statement)
- Q1 2021:
  - Non-Oil & Gas Sector increased by 3.1 percent due to strong Manufacturing performance (petroleum and chemical products; wearing apparel and textiles; food and beverage products).
  - Oil & Gas Sector declined by 5.3 percent due to reduction in crude oil and natural gas production caused by unscheduled shutdowns in the offshore platform.
  - Result: GDP contraction of 1.4 percent year-on-year (y-o-y).
- Inflation:
  - Overall Consumer Price Index in May 2021 increased by 1.1 percent y-o-y.
  - Food and Non-Alcoholic Beverages index increased by 0.9 percent.
  - Non-Food index increased by 1.2 percent.
  - Goods index increased by 1.5 percent.
  - Services index increased by 0.6 percent.
- Trade (April 2021):
  - Total trade B$2,193.1 million: exports B$1,138.6 million; imports B$1,054.5 million.
  - Increase of 91.8 percent y-o-y from B$1,143.7 million in April 2020.
- Domestic GDP growth forecast for 2021: between 0.8 to 1.6 percent.
- Economic relief and recovery:
  - Authorities report economic activities operating near normal; domestic demand increased due to travel restrictions, boosting local businesses and employment.

### Fiscal policy, consolidation, and reforms
- Targeted fiscal policy used to address pandemic and support households and businesses.
- Authorities committed to prioritizing expenditures that promote growth and efficiency while deepening fiscal consolidation.
- Fiscal Consolidation Program (FCP) launched in 2019 aims to generate savings of B$500 million and revenue generation of B$300 million over the next 5 years.
  - To date: 117 initiatives identified: 18 complete; 77 in implementation phase; 22 in planning stage.
- Authorities welcome Staff recommendation to utilize IMF’s Public Investment Management Assessment (PIMA) framework and are open to assessing feasibility.
- National Budget theme: "Towards Resilient Socio-Economic Development" with priorities:
  - Implement activities to increase productivity (enhance public service through technology; continue Fiscal Consolidation Program initiatives).
  - Promote sustainable and resilient facilities and infrastructure (upgrade connectivity; improve utilities efficiency; strengthen health and education facilities).
  - Build competent and employable human resources (capacity and match-making programs in ICT; Digital Sciences and AI).
- Authorities note Staff assessment on potential savings of about 1.4 percent of GDP annually from a more targeted subsidy structure; plan to include assessments in comprehensive review and to consider compensatory measures for vulnerable groups.
- Steps taken on subsidy reforms:
  - Launch of premium fuel without subsidy.
  - Smart meter for water and power.
  - Exploratory discussions on power tariff improvements.
  - Establishment of National Welfare System for targeted support.
  - Consolidating subsidy data across line-ministries through Treasury Accounting and Financial Information System 2.0 project.

*Excerpts from IMF staff and authorities statements and statistical notes (content unit: 1brnea2021001).*

### 5. MONETARY POLICIES

### 5. MONETARY POLICIES

### Financial sector response to COVID-19
- Targeted financial assistance as part of broader policy actions helped alleviate financial distress of affected household and businesses.
- Banking sector remained sound and well capitalized.
- Bank Capital Ratio remains adequate and well above regulatory requirements.
- Gross performing loans ratio remains stable due to adequate policy support.

### Regulatory reforms and macroprudential framework
- Authorities issued a consultation paper to the industry on Basel III Implementation Roadmap, paving the way for the introduction of the Basel III framework.
- Development of a holistic macroprudential framework to safeguard financial stability, including a preliminary assessment of the countercyclical capital buffer, is well underway.
- Financial sector regulation and supervision should remain vigilant and develop a holistic Macroprudential framework while ensuring that access to financing remains undeterred.

### Access to finance and Credit Bureau enhancements
- Authorities continue measures to enhance access to financing, especially for MSMEs, as part of private sector development efforts.
- Authorities concur with Staff that the Credit Bureau will continue to promote greater lending transparency, prudent lending and borrowings.
- Credit Bureau will introduce other services, such as the Portfolio Alerts and Monitoring module before the end of the year, to strengthen effectiveness.
- New module functionality: allow banks and finance companies to monitor existing customers’ account portfolios to provide behavioral insights to support more informed decision making.

### AML/CFT and financial integrity
- Authorities remain committed to strengthening the AML/CFT regulatory and supervisory framework to safeguard financial integrity.
- Two laws were amended in 2020: the Criminal Asset Recovery Order and the Companies Act.
- Amendments to the Anti-Terrorism Order and Anti-Terrorism (Terrorist Financing) regulations are currently being prepared.
- The Counter Proliferation Financing Order is nearing conclusion for issuance.

### Currency arrangement
- The Currency Interchangeability Agreement with the Republic of Singapore remains an appropriate arrangement, providing a credible nominal anchor for macroeconomic and financial stability.

### Reforms for sustainable and resilient economic development
- Authorities committed to accelerate development of five-priority industry clusters: Downstream, Food, ICT, Services and Tourism.
- Authorities emphasize attracting quality FDI to positively impact employment, productivity, linkages with local MSMEs and provide spill-over effects to local industrial development.
- Commitment to streamline, deliver and enforce more efficient and innovative business processes and regulations to remain regionally & globally competitive.
- World Bank’s Doing Business 2020 results highlighted:
  - Brunei Darussalam maintains top rank in ‘Getting Credit’.
  - Substantive improvements in ‘Enforcing Contracts’ and ‘Resolving Insolvency’.
  - Ease of Doing Business score improved from 69.6 (adjusted) in 2019 to 70.1 in 2020.
  - Ranked 66 out of 190 economies.
  - Ranks 4th among ASEAN member states.
- Authorities stepped up efforts to facilitate linkages with regional and international markets, including participation in the Regional Comprehensive Economic Partnership Agreement signed in 2020, to expand market access and support internationalization of local MSMEs.

### Policy frameworks and climate/digital strategies
- Economic Blueprint: supports journey to a dynamic and sustainable economy through six (6) well-defined aspirations with more than 30 policy directions, including Productive and Vibrant Businesses; Skilled, Adaptive and Innovative People; Open and Globally Connected Economy; Sustainable Environment; High Quality and Competitive Economic Infrastructure; and Good Governance and Public Service Excellence.
- Digital Economy Masterplan 2025: outlines strategies to become a Smart Nation with a digital and future-ready society, vibrant and sustainable economy and conducive digital ecosystem.
- Brunei Darussalam National Climate Change Policy (BNCCP):
  - Launched to advance economic growth in a low-carbon manner while achieving resilience against changing climate.
  - Paves necessary pathways through the 10 key strategies with potential greenhouse gas emissions reduction.
  - Expected to open opportunities for “low-carbon” or green industry growth and unlock potentials such as local business development, local employment and competencies, competency development, digital technologies, Research and Development and FDIs.
- BNCCP intends to reduce Green House Gas emissions through reducing industrial emissions including zero-flaring, forest cover, electric vehicles, renewable energy, power management, carbon pricing and waste management.

### Labour market and manpower planning
- Ensuring quality and productive labour force is a key priority.
- Manpower Planning and Employment Council (MPEC) fosters cooperation with industries, regulators and training institutions to ensure local manpower supply are marketable and employable.
- Authorities work with companies to facilitate recruitments and identify manpower needs through engagements.
- Online platforms and virtual sessions assist jobseekers and companies in online recruitment.
- Upgraded portal features include automatic job matching, real-time notifications for job matches, and employer access to talent profiles and compatibility reports.
- At the end of 2020, 4,304 vacancies (65 percent of total vacancies) were successfully filled by locals.

### Technical assistance
- Authorities welcome potential Technical Assistance mentioned by Staff on:
  - Strengthening capacity on data quality and accuracy.
  - Medium term fiscal framework.
  - Establishment of fiscal rules.
  - Fiscal and economic forecasting.
  - PIMA, among others.
- Authorities look forward to discussions with Staff and relevant Departments of the IMF to advance these recommendations.

### Final remarks
- Authorities continue to take on board Fund advice from previous Article IV Consultations and have benefitted from the Fund’s technical assistance in critical areas.
- Cooperation, including training opportunities to address capacity gaps, is expected to continue.
- Authorities thank the mission team for valuable findings, productive discussions and recommendations, and convey appreciation for the Fund’s expertise, constructive policy advice and technical assistance.

*Source: 1brnea2021001 - 5. MONETARY POLICIES*

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_Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1brnea2021001.pdf_