Economy to see uptick in 2019

|     Azlan Othman     |

THE Brunei economy is expected to pick up in 2019 after going through a slowdown in the past year.

However, increased efforts are needed to improve discipline in the fiscal sector, safeguard the soundness of the banking system, and diversify the economy in order to enhance potential growth, according to the preliminary assessment by the ASEAN+3 Macroeconomic Research Office (AMRO) after its Annual Consultation Visit to the country on November 13-19 last year.

The mission was led by AMRO Lead Economist Dr Siu Fung Yiu, while Director Dr Junhong Chang and Chief Economist Dr Hoe Ee Khor participated in several policy meetings. Discussions focussed on the prospects for growth, measures to improve fiscal discipline, soundness of the banking sector, and progress in economic diversification.

“After posting a positive growth of 1.3 per cent in 2017, Brunei’s economy is believed to have declined at 0.5 per cent in 2018 but expected pick up to 2.1 per cent in 2019, supported by strong foreign direct investment (FDI) inflows and the commencement of a large refinery operation,” said Dr Yiu.

“It is important for the authorities to accelerate economic diversification as well as improve spending efficiency in order to enhance the long-term growth prospects of the economy.”

Deputy Minister of Finance and Economy Dr Haji Abdul Manaf bin Haji Metussin and Permanent Secretary (Investment) at the Ministry of Finance and Economy Haji Khairuddin bin Haji Abdul Hamid in a group photo with ASEAN+3 Macroeconomic Research Office (AMRO) mission team. – MOFE

Real GDP grew at 5.2 per cent in Q4 2017, but slowed to 2.6 per cent in Q1 and -2.8 per cent in Q2 2018, as oil and gas production was disrupted due to the need to conduct unscheduled maintenance.

The meagre economic growth in the first half of 2018 was also exacerbated by the contraction of the financial sector. Consumer price inflation is believed to have increased from -0.2 per cent in 2017 to 0.2 per cent in 2018 on account of higher food prices, with a further increase expected in 2019.

In the fiscal sector, revenue has been boosted significantly by higher oil and gas prices. Additional recalibration of the tax incentives for investment is needed to broaden the tax base without reducing the attractiveness and conduciveness of the business environment. On the expenditure side, the government’s continuing efforts to improve spending efficiency is commendable. The fiscal deficit for the 2018/19 financial year is expected to improve significantly.

The banking sector remains sound and well-capitalised. Credit growth has turned positive in Q2 2018, led by corporate borrowing. The establishment of the Bureau Credit Score should help the banks assess and maintain their credit standards while improving household and business access to credit. In recent quarters, the non-performing loan ratio has been rising, warranting tighter monitoring by the Autoriti Monetari Brunei Darussalam (AMBD).

Economic reforms and investments to diversify the economy away from the oil and gas sector into manufacturing, tourism, agriculture, aquaculture and other non-traditional industries should be continued to enhance Brunei’s long-term growth prospects.

The government’s efforts in attracting FDIs into the country as well as in improving the business environment and enhancing the competitiveness of small and medium-sized enterprises (SMEs) are laudable. In addition, initiatives to strengthen the governance and improve efficiency of government-linked companies will also benefit the economy as a whole.