IMF Executive Board Concludes 2016 Article IV Consultation with Brunei Darussalam
IMF News, September 26, 2016
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- Published: September 26, 2016
Overview
- On September 2, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the 2016 Article IV consultation with Brunei Darussalam.
- Press Release No. 16/427; PRESS OFFICER: Keiko Utsunomiya; Phone: +1 202 623-7100; Email: MEDIA@IMF.org
Recent economic developments
- Brunei has responded to sharply lower oil prices by launching policy reforms to transform its oil and gas-dependent economy.
- The country can absorb the oil revenue slump for several years by drawing on buffers built over the past decades, while authorities have begun structural reforms and fiscal adjustment to ensure long-term sustainability and intergenerational equity.
- Real GDP in 2015 registered a smaller decline than in the preceding two years. Oil production has been recovering since the second half of 2015 after disruptions since 2012.
- Non-oil and gas sector activity slowed due to fiscal consolidation and lower services linked to oil and gas, partially offset by government infrastructure construction projects.
- Inflation averaged -0.4 percent in 2015, driven by appreciation of the Singapore dollar to which the Bruneian dollar is pegged.
- The current account surplus narrowed mainly on lower oil and gas exports, while the fiscal balance turned into a large deficit.
Projections and risks
- Real GDP is projected to turn positive in 2016 on the back of a recovery in oil production, with growth remaining moderate until 2019.
- Lower oil prices are projected to keep the fiscal position in deficit for several years.
- The current account is projected to register small deficits in 2017 and 2018 due to low oil prices and imports associated with the construction of FDI projects.
- Growth and macroeconomic balances are expected to strengthen markedly from 2019 onwards as new energy downstream facilities come on-stream.
- Main risks:
- Lower-for-longer oil prices that could severely erode the fiscal position.
- Delays in production from new downstream facilities could dampen the medium-term outlook.
- Slow progress in structural reforms could impede economic diversification.
Fiscal policy assessment and recommendations
- Directors agreed the FY2016/17 budget provides an appropriate target for fiscal adjustment but emphasized it needs:
- Tight spending controls.
- Increases in non-oil revenue.
- Improvements in public financial management.
- Fiscal policy strategy should be anchored in a multi-year program of structural fiscal reforms to improve efficiency and composition of public spending while supporting growth.
- Recommended measures:
- Tackle price and wage distortions to increase attractiveness of private sector employment and promote non-energy sector growth.
- Freeze the wage bill.
- Reduce untargeted subsidies, particularly through fuel subsidy reform, accompanied by mitigating measures to protect the vulnerable, where appropriate.
Structural reforms and diversification
- Authorities have begun reconfiguring government institutions to improve performance and delivery; a cabinet reshuffle in October 2015 reorganized ministries and agencies.
- Newly created agencies:
- Foreign Direct Investment Action and Support Center to facilitate a clear and efficient process for FDI.
- Darussalam Enterprises to provide one-stop support to small and medium enterprises.
- Ongoing reforms have led to improvements in business environment indicators.
- Continued use of participation in international trade agreements to widen market access, raise competitiveness, and make the business climate more predictable and transparent to attract investment.
- Directors emphasized developing human capital, enhancing labor productivity, and expanding international trade linkages.
- Encouraged improvements in statistics and technical capacity, and undertaking a data ROSC.
Financial sector and monetary arrangement
- Banking system: strong capitalization and liquidity, but authorities should closely monitor an uptick in non-performing loans and shifts from entry/exit of foreign banks.
- Exit of the largest foreign bank should be well phased and coordinated to minimize disruptions and preserve financial stability.
- Directors encouraged strengthening bank supervision and further developing domestic financial markets.
- The currency board arrangement with the Singapore dollar was considered appropriate and providing a credible nominal anchor.
Selected economic and financial indicators (highlights from 2013–21 table)
- Nominal GDP (millions of Brunei dollars): 2013: 22,639; 2014: 21,695; 2015: 17,777; 2016: 14,696; 2017: 16,530; 2018: 17,625; 2019: 20,195; 2020: 23,432; 2021: 26,947.
- Nominal non-oil and gas GDP (millions of Brunei dollars): 2013: 7,681; 2014: 7,764; 2015: 7,657; 2016: 7,433; 2017: 7,913; 2018: 8,078; 2019: 9,830; 2020: 11,765; 2021: 13,348.
- Real GDP (percentage change) 1/: 2013: -2.1; 2014: -2.3; 2015: -0.6; 2016: 0.4; 2017: 3.9; 2018: 1.7; 2019: 9.1; 2020: 13.0; 2021: 13.2.
- Oil production ('000 barrels/day): 2013: 135; 2014: 126; 2015: 127; 2016: 133; 2017: 137; 2018: 141; 2019: 145; 2020: 150; 2021: 152.
- Average Brunei oil price (U.S. dollars per barrel) 2/: 2013: 115.0; 2014: 104.4; 2015: 53.9; 2016: 37.4; 2017: 43.7; 2018: 47.7; 2019: 50.9; 2020: 52.9; 2021: 54.1.
- Total revenue (in percent of GDP): 2013: 46.6; 2014: 37.6; 2015: 24.1; 2016: 14.4; 2017: 24.5; 2018: 26.8; 2019: 25.8; 2020: 25.9; 2021: 27.4.
- Oil and gas revenue (percent of GDP): 2013: 39.8; 2014: 32.9; 2015: 18.4; 2016: 9.2; 2017: 19.7; 2018: 22.2; 2019: 21.3; 2020: 21.6; 2021: 23.5.
- Total expenditure (percent of GDP): 2013: 33.6; 2014: 34.0; 2015: 38.6; 2016: 40.6; 2017: 38.1; 2018: 36.1; 2019: 31.5.
- Overall primary balance 3/ (percent of GDP): 2013: 3.6; 2014: -14.5; 2015: -26.2; 2016: -13.6; 2017: -9.3; 2018: -5.7; 2019: -1.5; 2020: 3.2.
- Current account balance (in percent of GDP): 2013: 20.9; 2014: 31.9; 2015: 12.0; 2016: 4.3; 2017: -4.1; 2018: 13.3; 2019: 15.1.
- Gross official reserves (millions of U.S. dollars): 2013: 3,399; 2014: 3,471; 2015: 3,211; 2016: 3,288; 2017: 3,208; 2018: 3,213; 2019: 3,441; 2020: 3,673.
- Brunei dollars per U.S. dollar (period average): 2013: 1.25; 2014: 1.27; 2015: 1.37.
- Brunei dollar per U.S. dollar (end of period): 2013: 1.26; 2014: 1.32; 2015: 1.41.
Press Release No. 16/427, September 26, 2016.