Azlan Othman
Brunei Darussalam’s economy should recover moderately by 2.1 per cent in 2021, according to the 2020 Annual Consultation Report on Brunei Darussalam published by the ASEAN+3 Macroeconomic Research Office (AMRO) on Friday.
The report was produced based on AMRO’s Virtual Annual Consultation Visit to Brunei Darussalam, and data and information available up to September 10, 2021.
On recent development and outlook, AMRO said Brunei Darussalam’s economy grew at 1.1 per cent in 2020, after expanding by 3.9 per cent in 2019. The slowdown was due to the reduction in output of the oil and gas sector, which was offset somewhat by a surge in downstream manufacturing activities.
The decline in the oil and gas sector in 2020 reflected the slump in global oil prices and demand, and turnaround activities in offshore installations for maintenance.
In 2021, growth should recover moderately by 2.1 per cent, after a slower but still positive growth in 2020 amid the global economic downturn due to the COVID-19 pandemic. Supported by higher oil earnings, the country’s re-tightening of containment measures and extension of support measures should help cushion the economic impact of the current wave of COVID-19 infections.
The country also needs to accelerate economic diversification to strengthen its economic resilience.
The report added, “The overall balance of payments registered a deficit of 3.7 per cent of gross domestic product (GDP) in 2020, largely attributed to capital outflows in the financial account and a narrower current account surplus, resulting in a decline in gross international reserves.
“The country’s fiscal deficit also widened sharply to 20.1 per cent of GDP in 2020 from 5.6 per cent in 2019, mainly because of the dramatic fall in oil and gas revenue.
“Looking ahead, Brunei Darussalam’s external position and fiscal balance should improve considerably, benefitting from rising global oil prices amid better global economic prospects.“
AMRO staff projected a significant improvement in the current account balance and fiscal balance to 7.2 per cent of GDP and -7.0 per cent of GDP in 2021.
On risks and vulnerabilities, AMRO said major downside risks facing the economy continue to revolve around the oil and gas sector.
The country’s high dependence on the sector makes it highly susceptible to both domestic and external shocks in that sector. Domestic risks include disruptions in oil and gas production in mature fields, and the uncertain commercial viability of new field explorations in a low oil price environment. On the external factors, weaker prices and demand for oil globally will have negative implications on the economic outlook.
Despite progress in economic diversification, the economy remains dominated by the oil and gas industry. Continuing diversification into other sectors would help minimise economic risks and improve the resilience of the economy.
While vaccination is picking up pace, the number of local infections has continued to rise rapidly. The current wave of local infections, if prolonged, could have major economic fallout, especially through lockdowns, travel restrictions, and supply chain disruptions. In particular, containment measures will dampen domestic demand, raise the unemployment rate, and adversely affect micro, small and medium enterprises; factors that could lead to financial distress.
The country’s fiscal deficit will likely narrow sharply in 2021 due to the recovery in oil and gas revenue on the back of a strong rebound in global oil prices. The recently extended fiscal measures until the end of 2021 are highly laudable, as they would help support households and businesses during the current lockdown.
Further short-term fiscal support, if needed, should be flexible and targetted at households and businesses that are most affected by the pandemic, as well as enhancing public investments. In addition, efforts to reduce the high dependency on oil and gas revenues should be further strengthened, while enhancing spending efficiency.
Monetary conditions remain supportive of economic recovery amid low inflationary pressures. The government’s continued implementation of price administration measures has helped stabilise inflation, especially to cushion the impact of supply disruptions during the pandemic. However, in the longer term, the government should allow prices to be determined by markets to avoid distortions.
AMRO said, “The government should maintain its accommodative macroprudential policies to ensure sufficient financial resources to support the recovery of private sector activity. The temporary regulatory relief measures – recently extended to the end of 2021 – have allowed banks to support the private sector by deferring loan repayments, thereby averting a deterioration in asset quality. In the recovery period, the withdrawal of these measures should be gradual to avoid a cliff effect.
“More efforts to accelerate economic diversification through various structural reforms are essential for the country to strengthen its resilience against shocks and sustain robust long-term growth.
“The country should remain proactive in managing natural disaster risks by allocating the necessary budget to enhance climate change mitigation and adaptation measures under sustainable development policies.”
