IMF Executive Board Concludes 2009 Article IV Consultation with Brunei Darussalam

Public Information Notice (PIN) No. 09/74
June 10, 2009

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

On April 29, 2009, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Brunei Darussalam.1


Brunei is a small, high-income, open economy heavily dependent on finite oil and gas reserves. Per capita GDP is over US$36,000. Oil and gas production constitutes a substantial proportion of GDP, exports, and government revenues. Hydrocarbon receipts support a high standard of living. High oil prices in the past few years and prudent policies have contributed to significant fiscal and current account surpluses, the bulk of which are saved overseas through the Brunei Investment Agency (BIA). For 2008/09 (April-March), the fiscal surplus is estimated at close to 30 percent of GDP and the current account surplus for 2008 at about 51 percent of GDP.

Output growth fell in 2007 and 2008 due to a decline in oil and gas production. This was partially offset by an acceleration in government and private non-oil sector growth. On the demand side, growth was driven mainly by government spending. For 2008, real GDP growth is estimated to be negative (−1½ percent). Inflation has increased recently, but remains low. CPI inflation rose to 2¾ percent y/y for the period January-November 2008 reflecting high global prices of imported food items.

The domestic financial system has been resilient to the deterioration in global financial markets so far. Domestic banks remain well-capitalized, profitable, and liquid, with more than half of total deposits parked abroad. Foreign banks also showed resilience given their substantial liquidity positions, low non-performing loans (NPLs), prudent loan expansion, and contingent lines with parent banks. In addition, the government guaranteed until end-2010 all bank deposits, in line with other regional economies. However, the sharp fall in prices across all asset classes globally likely led to a decline in the market value of the Brunei Government’s investment holdings abroad.

Output growth is projected to remain weak in the near term, recovering only gradually over the medium term. Major government projects and a pick up in non-energy sector activity would be key sources of growth. Downside risks stem from possible further declines in energy prices as the global economy slides into a recession. Given much lower hydrocarbon prices in 2009, the fiscal and current account surpluses would fall significantly. In addition, the global financial turmoil could further reduce the value of external assets. Over the longer term, growth would depend on hydrocarbon reserves expansion, the recovery of the global economy and oil prices, and success in diversifying the economic base. GDP growth is expected to rise to 1¾ percent by 2013, assuming that energy production will remain conservative.

Executive Board Assessment

Executive Directors commended the authorities for their sound macroeconomic policies and prudent management of oil and gas resources. This positive performance has led to a high standard of living and has provided Brunei with sizable fiscal and current account surpluses to help weather external shocks. While growth has slowed recently due to a decline in hydrocarbon production, economic activity is expected to increase gradually as production rebounds and supportive government spending comes on stream. The main longer-term challenges are to expand oil and gas reserves, diversify the production base by boosting private sector activity, and enhance fiscal management.

Directors commended the authorities for their continued prudent fiscal management. They saw some room to use countercyclical government spending given the substantial fiscal buffer. Government investment spending can be accelerated in 2009/10 by addressing implementation and capacity constraints, building on the recent progress. Over the long term, continued restraint in budget formulation amidst volatile energy prices remains an appropriate strategy.

Directors encouraged the authorities to further strengthen fiscal management and ensure sustainability, including through fiscal reforms and overcoming capacity constraints. To improve fiscal management, Directors recommended placing annual investment spending plans in the context of a medium-term fiscal framework, adopting a long-term fiscal goal, and integrating the various government funds into the budget. Broadening the revenue base would complement these efforts. Directors also recommended a gradual phasing out of generous government subsidies along with the creation of a more targeted social safety net.

Directors agreed that the peg to the Singapore dollar and the associated Currency Interchangeability Agreement continue to be sources of macroeconomic stability. They noted the staff’s assessment that the level of the real exchange rate is broadly appropriate, while recognizing the uncertainty that this assessment involves.

Directors encouraged the authorities to maintain the reform momentum in the financial sector. They welcomed the progress toward the establishment of the Brunei Darussalam Monetary Authority, the creation of a level regulatory playing field for financial institutions, and the more effective financial sector supervision. In particular, they welcomed the issuance of Islamic Banking Order 2008 and Takaful Order 2008, which enhance the regulatory framework for financial institutions. Directors also commended efforts to foster capital market development.

Directors encouraged the authorities to accelerate economic diversification and private sector job creation, in line with the priorities set out in their strategic development plans. They recommended greater private sector participation in areas currently dominated by the public sector, reduction in the large gap between public and private sector compensation packages, and removal of structural impediments to create an enabling environment for private sector development.

Directors welcomed the important steps taken to improve Brunei Darussalam’s statistical framework, and encouraged the authorities to improve further the comprehensiveness and timeliness of data for effective surveillance.

Brunei Darussalam: Selected Economic and Financial Indicators, 2002–09

            Est. Proj.
  2002 2003 2004 2005 2006 2007 2008 2009

Output and prices


Nominal GDP (millions of Brunei dollars) 1/

10,463 11,424 13,306 15,864 18,226 18,513 20,562 19,484

Real GDP (percentage change) 1/

3.9 2.9 0.5 0.4 4.4 0.6 -1.5 0.2

Enegy sector GDP

3.2 4.5 -1.0 -2.6 4.3 -6.9 -5.1 -0.1

Nonenergy GDP

4.8 0.9 2.5 4.1 4.5 9.5 2.1 0.5

Consumer prices (period average, percentage change)

-2.3 0.3 0.9 1.1 0.2 0.3 2.7 1.2
  (In percent of GDP)

Public finances 2/


Total revenue

40.8 43.2 46.2 50.2 50.0 53.3 57.4 44.8

Oil and gas

35.3 37.7 41.6 45.9 46.1 47.4 53.4 40.8


5.5 5.4 4.6 4.3 3.9 5.8 4.0 4.0

Total expenditure

45.9 34.2 36.7 32.2 31.0 32.2 28.3 29.0


36.1 27.5 30.5 25.9 24.2 25.8 23.1 23.4


9.7 7.8 6.1 6.2 6.6 6.3 5.2 5.7

Of which: Development expenditure

4.2 2.3 2.4 2.9 3.4 3.4 3.4 3.7

Primary budget balance

-5.1 8.9 9.5 18.0 18.9 21.1 29.1 15.7

Primary balance excluding royalties 3/

-0.2 8.4 11.4 18.3 18.9 21.1 29.1 16.0

Nonenergy primary balance

-31.9 -25.1 -25.5 -22.6 -22.1 -21.1 -19.3 -20.9
  (Percentage change)

Money and banking


Private sector credit

4.3 3.4 6.4 3.5 -0.9 8.6

Narrow money

9.8 3.0 9.0 1.3 10.8 -2.8

Broad money

2.0 3.9 16.1 -4.5 2.1 6.7
  (In millions of U.S. dollars, unless otherwise indicated)

Balance of payments 4/


Trade balance

2,193 3,167 3,721 4,836 6,026 5,677 7,072 5,025


3,702 4,421 5,057 6,249 7,608 7,668 9,494 7,320

Of which: Oil and gas

3,259 3,876 4,624 5,886 7,327 7,373 9,225 7,053


1,509 1,254 1,336 1,413 1,582 1,991 2,423 2,295

Services (net)

-460 -594 -530 -494 -468 -503 -475 -459

Income (net) 5/

993 845 944 1,067 1,308 1,481 1,212 1,055

Current transfers

-317 -290 -309 -376 -404 -430 -443 -448

Current account balance

2,409 3,129 3,827 5,032 6,462 6,224 7,366 5,173

Current account balance (percent of GDP)

41.2 47.7 48.6 52.8 56.3 50.7 50.6 35.2

Gross official reserves 6/

449 475 489 492 514 667 700 756

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

98.1 100.4 94.2 101.8 95.3 106.2 106.2 106.2

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

1.79 1.74 1.69 1.66 1.59 1.51 1.41 ...

Sources: Data provided by the Brunei authorities; and Fund staff estimates.
1/ GDP numbers were recently revised to reflect both a new methodology and a new base in 2000.
2/ On a calendar year basis; excludes interest and investment income.
3/ Excludes collection and disbursement of royalties.
4/ Balance of payments data for 2001 onwards were revised after the 2004 Article IV consultation.
5/ Fund staff estimates.
6/ Includes SDR holdings and reserve position in the Fund.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.


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