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Brunei’s economic growth projected at 4.2 per cent

Azlan Othman

Brunei Darussalam’s growth is expected to rebound in 2022 and 2023 with gross domestic product (GDP) growth of 4.2 per cent and 3.6 per cent respectively, led by a sharp increase in oil and gas output. A key policy challenge is the diversification of fiscal revenue away from oil and gas to enhance long term fiscal sustainability.

This was according to the Asian Development Outlook (ADO) 2022, released by the Asian Development Bank (ADB) yesterday.

The Sultanate’s economy contracted in 2021 largely on the re-imposition of COVID-19 mobility restrictions starting in August. Unexpected supply disruptions to the oil and gas industry and delays to foreign direct investment projects cramped the economy. Brunei Darussalam’s economy is estimated to have contracted by 1.5 per cent in 2021. Economic activity was disrupted by weaker oil and gas production, delays in the implementation of foreign direct investment projects, and a surge in COVID-19 cases from the third quarter.

The ADB report said, as for this year, rising oil and gas output, buoyed by exports and higher prices of crude oil, liquefied natural gas, refined petroleum, and petrochemical products will widen the current account surplus, forecast at 16 per cent of GDP.

Increased imports of construction material, machinery, and equipment for Hengyi’s plant expansion will narrow the surplus next year, forecast at 12 per cent of GDP. Unanticipated disruptions to domestic oil and gas output, and a slower-than-expected easing of global supply chain pressures, are the main downside risks to the outlook. Renewed outbreaks of COVID-19 and associated containment measures could also derail the recovery.

Increasing revenue from sources other than oil and gas is a major policy challenge to the country’s efforts to achieve long-term fiscal sustainability. The government’s budget is highly dependent on this revenue, accounting for 70 per cent of total revenue in pre-pandemic years.

The ADB report also said, the economic impact of COVID-19 has put the country’s fiscal vulnerabilities in the spotlight, as lower global energy prices and domestic oil production reduced oil and gas revenue from 19.8 per cent of GDP in fiscal year 2020 (FY2020, ended on March 31, 2020) to 7.7 per cent in FY2021.

This resulted in the fiscal deficit widening from 5.6 per cent of GDP in FY2020 to 20.0 per cent in FY2021. Increasing the non-oil and gas component of fiscal revenue is therefore an important policy challenge for maintaining fiscal sustainability over the long term.

Meanwhile, developing Asia’s economies are forecast to grow 5.2 per cent this year and 5.3 per cent in 2023, thanks to a robust recovery in domestic demand and continued expansion in exports. However, uncertainties stemming from the Russian invasion of Ukraine, the continuing COVID-19 pandemic, and tightening by the United States Federal Reserve pose risks to the outlook.

Several subregions, including South Asia and East Asia, are expected to return to the economic growth rates they experienced before the pandemic. Inflation in the region remains manageable but is forecast to rise to 3.7 per cent this year, before moderating to 3.1 per cent in 2023.

“Economies in developing Asia are starting to find their footing as they slowly emerge from the worst of the COVID-19 pandemic,” said ADB Chief Economist Albert Park.

“However, geopolitical uncertainty and new COVID-19 outbreaks and virus variants could derail this momentum. Governments in the region will need to remain vigilant and prepared to take steps to counter these risks. That includes making sure as many people as possible are fully vaccinated against COVID-19. Monetary authorities should also continue to monitor their inflation situation closely and not fall behind the curve.”

Most of developing Asia will see steady growth this year and in 2023. Economies in the Caucasus and Central Asia are forecast to grow 3.6 per cent on average this year and 4.0 per cent next year. The trade-dependent economies of Southeast Asia are forecast to grow collectively by 4.9 per cent this year and 5.2 per cent in 2023.

East Asia is expected to see economic growth of 4.7 per cent this year and 4.5 per cent in 2023. China, the region’s largest economy, is forecast to grow 5.0 per cent this year and 4.8 per cent next year, amid continued export strength.

South Asian economies are expected to expand collectively by 7.0 per cent in 2022 and 7.4 per cent in 2023, with India-the subregion’s largest economy-expected to grow 7.5 per cent this fiscal year and 8.0 per cent next fiscal year.