Brunei Darussalam’s economic recovery is underway with the non-oil and gas sector continuing to show positive performance driven by the services sector, reflecting robust activities in the finance and transport subsectors, as post-pandemic recovery gains traction.
In contrast, rejuvenation effort in the oil and gas (O&G) sector has proven to be more challenging thus far but is expected to contribute to an improved production in the near future. In the downstream industry, prospects remain positive, with planned diversification into other new products, lending support to growth in the near term. In the longer term, the government remains committed to diversifying the economy towards a sustainable and low-carbon economy.
This preliminary assessment was made by the ASEAN+3 Macroeconomic Research Office (AMRO) after its annual consultation visit to Brunei Darussalam from November 21 to 28.
The mission was led by AMRO’s Deputy Group Head and Senior Economist Anthony Tan, AMRO director Kouqing Li and chief economist Hoe Ee Khor also participated in the policy meetings. The discussions mainly focused on recent developments and outlook in the post-pandemic new normal, spillover risks from higher-for-longer global interest rate environment, longer-term development challenges, as well as policy priorities.
On economic developments and outlook, “growth is expected to come in at 0.2 per cent in 2023, before strengthening to 2.4 per cent in 2024, led by the non-O&G sector. The robust activities in the agri-food, finance, transportation, and tourism subsectors are expected to offset the slow activities in the upstream O&G production”, said Tan.
“The expansion of activities in the downstream oil refining sector will also support growth.”
AMRO added that headline inflation has decelerated to 0.6 per cent in the first seven months of 2023, reflecting lower commodity prices and post-pandemic supply chain normalisation. Inflation is estimated at around one per cent, on average, in 2023 and 2024, declining from 3.7 per cent in 2022. The balance of risk is tilted to the upside, considering the effects of El Niño, which could lead to higher food prices in the region.
The external position remains strong, with sustained balance of payment (BOP) surplus in 2022. The positive BOP reflects the widening of the current account surplus to 19.6 per cent of gross domestic product (GDP), driven mainly by the surge in energy prices which offset the lower volume of exports. In 2023, the current account surplus is expected to be sustained, albeit narrowing to 15.3 per cent of GDP, given the softer export outlook in both upstream and downstream O&G sectors.
AMRO also said higher oil revenue has helped restore buffers, with a better-than-expected fiscal surplus of 1.3 per cent of GDP in fiscal year 2022. Looking ahead, the overall fiscal position in fiscal year 2023 is estimated to weaken to a deficit of around 9.3 per cent of GDP, mainly from lower oil prices compared to last year.
Touching on risks, vulnerabilities and challenges, AMRO said the risks and challenges confronting Brunei are largely unchanged.
A sharp decline in global energy prices and a recession in Brunei’s major trading partners are deemed as tail risks that would derail its growth prospects, strain the external balance and worsen the fiscal position. In the longer term, challenges stem from a potential setback to economic diversification as some domestic growth engines, including the tourism sector, could take longer to recover from the pandemic, as well as risks from climate change transition. – Azlan Othman
