IMF Executive Board Concludes 2018 Article IV Consultation with Brunei Darussalam

October 10, 2018

On September 17, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Brunei Darussalam.

Brunei Darussalam’s economy has been adjusting well to lower oil prices since 2014, with the authorities undertaking wide-ranging reforms. The decline in oil and gas (O&G) prices led to large budget deficits and narrower current account surpluses. In response, the authorities in 2015 launched a reform program aimed at: (i) ensuring long-term fiscal sustainability and intergenerational equity and (ii) fostering economic diversification by improving the business climate. These reforms have started to bear fruit, as growth has begun to rebound and inflation has returned to positive territory.

Real GDP in 2017 was stronger than expected, rebounding to 1.3 percent supported by both the O&G and non-O&G sectors. Higher liquified natural gas (LNG) and methanol production drove O&G sector growth, more than offsetting lower oil production, while non-O&G growth was mainly underpinned by the ongoing downstream construction projects. Recent data indicate that the recovery carried over into early 2018.

The growth momentum is expected to continue, with growth accelerating to 2.3 percent in 2018. Over the medium term, economic growth and macroeconomic balances are expected to strengthen further. The start of downstream production—including from the Hengyi refinery and Brunei Fertilizer Industries (BFI)—and stronger O&G activities, will result in robust GDP growth and exports in 2019–23. Imports linked to the FDI project execution are likely to keep the current account at moderate surplus in 2018, but the surplus is expected to increase from 2019 onward. The fiscal position is also expected to recover over the medium term, but remains vulnerable to O&G price shocks. Inflation is expected to remain low but positive. Risks to the near-term outlook are broadly balanced, although substantial uncertainty surrounds O&G prices.

The authorities have made progress in implementing fiscal consolidation, adjusting financial sector regulation, improving business climate, attracting foreign direct investment (FDI), and supporting micro, small and medium enterprises (MSMEs). From 2016 to 2018, Brunei experienced the largest cumulative improvement in the World Bank Doing Business score, particularly with a remarkable improvement in access to credit. Major FDI projects under way in the downstream sector—the Hengyi refinery and BFI—together with other FDI projects within other priority business clusters should contribute towards achieving the goals of more dynamic and sustainable economic growth under the Wawasan 2035 development plan. The Financial Sector Blueprint articulates the authorities’ plans for the financial sector’s developments over the medium-term. Its five pillars identify areas for action that would help foster new international financial linkages for the country and boost the financial sector’s contribution to GDP—a central component of the diversification strategy.

Executive Board Assessment [2]

Executive Directors noted that Brunei Darussalam has been adjusting well to lower oil and gas (O&G) prices since 2014. Directors welcomed the rebound in economic growth and the prospects for continued recovery over the medium term. They commended the authorities for their wide-ranging reforms. Directors noted, however, that important risks are clouding the outlook, including uncertainty surrounding O&G prices and production, rising protectionism and tighter global financial conditions. Against this background, they underscored the need to continue reform implementation to ensure long-term sustainability and intergenerational equity, increase productivity and competitiveness, diversify the sources of growth, and build resilience to shocks.

Directors emphasized that continued fiscal consolidation is needed to bring the fiscal position closer to that required by intergenerational equity considerations. They stressed that fiscal policy reforms should focus on rationalizing current expenditure, including gradually reforming fuel subsidies and containing the wage bill by streamlining the civil service, as well as diversifying revenues. Directors encouraged the authorities to formalize a medium term fiscal framework and intensify public financial management reforms. This would require incorporating subsidies and extra-budgetary funds in the budget presentation, improving management, and better monitoring of public expenditure.

Directors noted that the Brunei dollar’s peg to the Singapore dollar remains appropriate, providing a credible monetary anchor and stability to the financial system.

Directors encouraged further efforts towards financial sector development, while also underscoring the need for improvements in banking regulation and supervision to preserve financial stability. They underscored the benefits of broadening the investor base, establishing a secondary bond market, and creating a stock exchange. Directors welcomed plans to operationalize the macroprudential surveillance framework and supported the ongoing development of a contingency planning and crisis management framework for the banking system.

Directors commended the authorities’ efforts towards economic diversification. They considered that sustained efforts in enhancing the business environment, supporting the growth of micro, small and medium enterprises (MSME) and raising human capital would help develop the non-O&G and private sectors, and attract FDI. However, further measures are needed to generate stronger positive spillovers from FDI to the rest of the economy. Support for MSMEs should also be assessed regularly.

Directors welcomed the steps taken to improve statistical compilation and build technical capacity. They encouraged further efforts to address remaining data and dissemination gaps. In this context, they encouraged the authorities to undertake a data ROSC.


[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.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm .


Brunei Darussalam: Selected Economic and Financial Indicators, 2014–23

Area: 5,765 sq. kilometers

Population (2017): 421,300

GDP per capita (2017): US$28,787

Main export destinations (2015): Japan (36.4), Korea (15.6), Thailand (8.6)

Unemployment rate (2014): 6.9

Labor force participation rate (2014): total 65.6%; male 72.4%; female 58.3%

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

Proj.

Proj.

Proj.

Proj.

Proj.

Proj.

Output and prices

Nominal GDP (millions of Brunei dollars)

21,664

17,778

15,748

16,748

19,726

20,528

20,385

21,398

22,237

22,764

Nominal non-oil and gas GDP (millions of Brunei dollars)

7,733

7,658

7,463

7,531

7,693

8,135

8,806

9,220

9,595

9,825

Real GDP (percentage change) 1/

-2.5

-0.4

-2.5

1.3

2.3

5.1

4.3

7.5

5.9

3.9

Oil and gas sector GDP

-3.7

-0.2

-2.8

1.2

2.6

4.5

0.6

9.2

7.3

4.5

Non-oil and gas sector GDP

-0.8

-0.6

-1.9

1.5

1.9

5.9

9.5

5.3

4.0

3.0

Oil production ('000 barrels/day)

126

127

121

113

121

134

139

138

142

145

Natural gas output (millions cu. ft./day)

1,170

1,228

1,205

1,234

1,208

1,238

1,253

1,506

1,718

1,809

Average Brunei oil price (U.S. dollars per barrel)

104.4

53.9

44.6

55.9

73.9

73.4

69.2

66.1

63.8

62.3

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

16.6

10.6

7.3

8.3

10.3

9.6

8.6

8.6

8.6

8.6

Consumer prices (period average, percentage change)

-0.2

-0.4

-0.7

-0.2

0.4

0.5

0.5

0.5

0.5

0.5

Consumer prices (end of period, percent change)

1.2

-1.0

-1.6

0.0

0.5

0.5

0.5

0.5

0.5

0.5

Public finances: budgetary central government

Total revenue

37.7

24.2

17.7

26.0

23.3

23.4

21.9

22.7

23.4

23.6

Oil and gas

32.9

18.4

12.3

18.0

18.9

19.1

17.3

18.1

18.8

19.0

Other

4.7

5.8

5.4

7.9

4.4

4.3

4.7

4.6

4.6

4.6

Total expenditure

34.1

38.7

39.4

36.6

30.4

29.0

29.1

27.5

26.3

25.6

Current

25.3

29.6

30.6

30.7

25.9

24.7

24.6

23.3

22.3

21.6

Capital

8.8

9.1

8.7

5.9

4.6

4.4

4.4

4.2

4.0

4.0

Overall primary balance 2/

3.6

-14.5

-21.7

-10.6

-7.1

-5.7

-7.1

-4.8

-2.9

-2.0

Non-oil and gas overall primary deficit

-82.2

-76.4

-71.6

-63.7

-66.8

-62.4

-56.5

-53.1

-50.4

-48.7

(In percent of non-oil and gas GDP)

Money and banking

Private sector credit

1.8

2.6

-6.2

-5.3

1.1

2.9

4.1

4.7

4.1

2.4

Narrow money

-1.5

6.4

-0.1

-5.7

2.9

5.7

7.5

4.9

4.4

3.1

Broad money

3.2

-1.8

1.5

-0.4

5.1

5.3

3.9

3.4

3.9

4.0

Balance of payments

Goods

7,479

2,910

2,154

2,403

2,159

3,514

3,417

3,401

3,419

3,451

Exports

11,149

6,127

4,813

5,475

7,157

8,820

10,651

10,528

10,490

10,567

Of which: oil and gas

9,604

5,909

4,321

4,995

6,653

6,490

5,232

5,074

5,034

5,119

Imports

3,670

3,217

2,659

3,072

4,998

5,306

7,234

7,127

7,071

7,116

Services (net)

-955

-1,007

-1,114

-698

-982

-1,013

-1,047

-1,050

-1,057

-1,083

Primary income (net)

-20

650

835

758

384

563

734

667

624

788

Secondary income (net)

-1,045

-397

-404

-443

-414

-420

-426

-420

-422

-423

Current account balance

5,459

2,157

1,470

2,021

1,147

2,643

2,678

2,598

2,564

2,733

Current account balance (in percent of GDP)

31.9

16.7

12.9

16.7

7.8

17.4

17.5

16.1

15.1

15.7

Gross official reserves 3/

3,471

3,211

3,322

3,300

3,404

3,511

3,618

3,727

3,837

3,938

In months of next year's imports of goods and services

8.6

9.0

9.2

6.0

5.9

4.8

4.9

5.1

5.2

…

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

1.27

1.37

1.38

1.38

…

…

…

…

…

…

Brunei dollar per U.S. dollar (end of period)

1.32

1.41

1.44

1.35

…

…

…

…

…

…

Sources: Data provided by the Brunei authorities; and Fund staff estimates and projections.

1/ Non-oil and gas GDP includes the downstream sector.

2/ Overall primary balance excludes interest payments on government liabilities from expenditure, and in the absence of such payments in Brunei Darussalam, it also represents the overall budget balance

3/ Comprises foreign exchange assets of Autoriti Monetari Brunei Darussalam, SDR holdings, and reserve position in the Fund.

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