IMF Executive Board Concludes 2017 Article IV Consultation with Brunei Darussalam
IMF News, May 19, 2017
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- Published: May 19, 2017
Macroeconomic developments and recent performance
- Real GDP in 2016: declined by 2.5 percent.
- Main drivers of the 2016 contraction: unscheduled shutdowns disrupting O&G production; decline in non‑O&G GDP mainly reflecting ongoing fiscal consolidation.
- Inflation (2016 average): -0.7 percent, driven by a downward correction in the housing rental market, lower air transport costs, and continued decline in food-related import prices.
- Current account surplus (2016): estimated to have narrowed further on lower O&G exports.
- FY2017/18 budget: B$5.3 billion, theme of balanced expenditure; announced measures include new excise taxes on sugary drinks and mono-sodium glutamate, increased tobacco excises, an income tax board of review, establishment of a new SME bank, a free trade zone, and an apprenticeship program for unemployed graduates.
Outlook, projections, and key numerical indicators
- Growth projections and timing:
- 2017: projected negative GDP growth (continued production challenges and spending restraint).
- 2018: growth expected to turn positive as investment execution for an integrated petrochemical refinery and a fertilizer plant picks up.
- 2019 onward: marked strengthening as new energy downstream facilities come on-stream; medium-term outlook improves with start of downstream production, a new gas field, and public investment under the next five-year development plan.
- Balance and external sector:
- The current account surplus is projected to narrow further until 2018 due to imports associated with construction of FDI projects, but to recover thereafter.
- The Brunei dollar peg to the Singapore dollar remains appropriate.
- Risks:
- Downside risks: lower-for-longer O&G prices; further unscheduled O&G production disruptions; delays in FDI-driven downstream projects; reduction of financial services by foreign banks; retreat from cross-border integration by major economies.
- Upside risk: successful O&G asset rejuvenation program that could recover production in the next few years.
Executive Board assessment — summarized endorsements and priorities
- Endorsed staff appraisal that:
- Brunei can continue absorbing the O&G revenue slump for many years by drawing down sizable buffers, but lower-for-longer prices and aging-field disruptions necessitate accelerated and broadened reforms to ensure long-term sustainability and intergenerational equity, raise productivity and competitiveness, and diversify growth sources.
- Fiscal balances are projected to recover slowly and remain in deficit for several years before approaching balance in 2022.
- Trend of mild deflation is projected to ease by 2018, mainly due to higher import prices.
- Policy priorities emphasized by Directors:
- Broaden and deepen growth-friendly fiscal consolidation and reforms.
- Implement fuel subsidy reform with mitigation measures for vulnerable groups.
- Intensify public financial management (PFM) reforms: incorporate subsidies and extra-budgetary funds in budget presentation, improve management and monitoring of public expenditure, and tighten controls to minimize overruns.
- Broaden non-O&G revenues: recalibrate property taxes, expand excise taxes, and lay groundwork for a GST.
- Reduce the AMR in a phased manner toward levels closer to international standards and remove remaining interest rate controls (notably regulated rates on lending to micro-enterprises and SMEs).
- Continue financial sector development guided by the authorities’ 10-year Financial Sector Blueprint and develop contingency planning and crisis management framework for the banking system.
- Continue improving the business and regulatory environment, develop local SMEs, attract FDIs, reduce cost and time of procedures (e.g., enforcing contracts and exporting), and design local labor development programs beyond the O&G sector.
- Support expansion of Darussalam Assets as a government investment holding company and reforms to increase GLC profitability.
- Encourage improved statistics and technical capacity building, including a data ROSC; welcome IMF “3-T” (integrating technology, training and TA) outreach efforts.
Selected economic and financial indicators (2014–22) — headline numbers preserved
- Nominal GDP (millions of Brunei dollars): 21,664 (2014); 17,778 (2015); 15,450 (2016); 17,760 (2017); 18,237 (2018); 19,439 (2019); 20,825 (2020); 23,102 (2021); 24,666 (2022).
- Nominal non-oil and gas GDP (millions of Brunei dollars): 7,733 (2014); 7,658 (2015); 7,324 (2016); 7,200 (2017); 7,232 (2018); 8,236 (2019); 9,537 (2020); 10,732 (2021); 10,998 (2022).
- Real GDP (percentage change) 1/: -2.5 (2014); -0.4 (2015); -3.2 (2016); -1.3 (2017); 0.7 (2018); 9.2 (2019); 9.3 (2020); 11.3 (2021); 5.3 (2022).
- Oil production ('000 barrels/day): 126 (2014); 127 (2015); 121 (2016); 115 (2017); 120 (2018); 125 (2019); 130 (2020); 135 (2021); 140 (2022).
- Natural gas output (millions cu. ft./day): 1,170 (2014); 1,228 (2015); 1,203 (2016); 1,207 (2017); 1,210 (2018); 1,343 (2019); 1,476 (2020).
- Average Brunei oil price (U.S. dollars per barrel) 2/: 104.4 (2014); 53.9 (2015); 44.6 (2016); 57.8 (2017); 58.3 (2018); 58.4 (2019); 58.6 (2020); 59.1 (2021); 59.7 (2022).
- Consumer prices (period average, percentage change): -0.7 (2016); -0.1 (2017); 0.0 (2018); 0.1 (2019); 0.2 (2020).
- Public finances (budgetary central government) — Total revenue (percent of GDP): 37.7 (2014); 24.2 (2015); 17.9 (2016); 20.7 (2017); 20.5 (2018); 20.4 (2019); 19.7 (2020); 20.1 (2021).
- Public finances — Oil and gas revenue (percent of GDP): 32.9 (2014); 18.4 (2015); 12.5 (2016); 15.8 (2017); 15.6 (2018); 14.7 (2019); 15.3 (2020); 15.3 (2021).
- Public finances — Total expenditure (percent of GDP): 34.1 (2014); 38.7 (2015); 39.8 (2016); 31.6 (2017); 29.7 (2018); 27.0 (2019); 24.7 (2020); 21.8 (2021).
- Overall primary balance 3/: -14.5 (2014); -21.9 (2015); -10.9 (2016); -9.2 (2017); -6.6 (2018); -4.9 (2019); -2.1 (2020).
- Non-oil and gas overall primary deficit: -25.5 (2014); -29.8 (2015); -32.5 (2016); -25.0 (2017); -23.4 (2018); -20.7 (2019); -18.2 (2020); -15.5 (2021); -14.4 (2022).
- Balance of payments — Exports: 11,118 (2014); 6,127 (2015); 4,875 (2016); 5,709 (2017); 6,017 (2018); 6,860 (2019); 7,728 (2020); 8,753 (2021); 9,294 (2022).
- Balance of payments — Of which: oil and gas exports: 9,826 (2014); 5,908 (2015); 4,226 (2016); 5,036 (2017); 5,316 (2018); 4,957 (2019); 4,412 (2020); 4,395 (2021); 4,876 (2022).
- Balance of payments — Imports: 3,669 (2014); 3,216 (2015); 2,670 (2016); 4,026 (2017); 5,123 (2018); 4,931 (2019); 5,102 (2020); 5,983 (2021); 6,179 (2022).
- Current account balance (in percent of GDP): 30.7 (2014); 9.5 (2015); 8.3 (2016); 4.3 (2017); 14.0 (2019); 18.3 (2020); 17.6 (2021).
- Gross official reserves (millions): 3,471 (2014); 3,211 (2015); 3,322 (2016); 3,472 (2017); 3,605 (2018); 3,778 (2019); 3,958 (2020); 4,113 (2021); 4,281 (2022).
- Brunei dollars per U.S. dollar (period average): 1.27 (2014); 1.37 (2015); 1.38 (2016).
- Brunei dollar per U.S. dollar (end of period): 1.32 (2014); 1.41 (2015); 1.44 (2016).
Implementation and structural reform progress
- Recent reforms since 2015 aimed at reducing wastage, supporting FDI, SMEs, and economic diversification.
- Brunei shown substantive progress in regulatory improvements and was among the most improved economies in the 2017 Doing Business rankings.
- Reforms and initiatives highlighted:
- Implementation of program and performance budgeting for all line ministries.
- Facilitation of FDI projects and SME development through agencies created in early 2016.
- Aggregation of government-linked companies under Darussalam Assets to enhance productivity, efficiency and profitability.
- Release of a Financial Sector Blueprint to guide development over the next decade.
- Winding down of a large foreign bank has proceeded smoothly; new bank entrants expected to increase linkages and financial system development.
IMF Executive Board press release: IMF Executive Board Concludes 2017 Article IV Consultation with Brunei Darussalam (Press Release No. 17/185), May 19, 2017.