IMF encourages Brunei to further boost economic diversification

Azlan Othman

International Monetary Fund (IMF) Executive Directors encouraged Brunei Darussalam authorities to continue to build on efforts to diversify the economy, further attract foreign direct investment (FDI) and enhance human capital and improve private employment.

They welcomed the policy priorities of the recently released Economic Blueprint, and highlighted the importance of accelerating digital and green growth to foster job creation and enhance resilience.

This was highlighted in a report when IMF Executive Board concluded 2021 Article IV Consultation with Brunei Darussalam recently.

Executive Directors also commended the authorities for the strong, timely and multi-pronged policy response to the COVID-19 pandemic and associated decline in oil and gas prices. Noting the uncertain outlook, with risks skewed to the downside, the executive directors stressed the need to maintain supportive policies until recovery is on a firm path. They also underscored the importance of continued reforms to support economic transformation, strengthen resilience, and foster green, digital, and inclusive growth.

The executive directors welcomed the authorities’ continuous efforts to strengthen the fiscal position. In this regard, they were encouraged by several recent initiatives, including the establishment of a credible medium-term budget framework, measures to increase efficiency of public spending, rationalisation of public employment, and steps to reform subsidies. They also saw scope for further efforts in these areas over the medium term to reduce vulnerabilities and support intergenerational equity.

The IMF directors agreed that the peg to the Singapore dollar remains appropriate, providing a credible nominal anchor for macroeconomic and financial stability, and helping to deepen trade and investment linkages, including with Singapore.

They noted the resilience of the banking sector. They commended the authorities’ initiatives to enhance risk-based supervision through an early warning exercise, introduce the Basel III framework, and develop a holistic macroprudential framework.

They also welcomed the recent legislative changes aimed at strengthening the AML/CFT regulatory and supervisory framework.

The executive directors welcomed the steps taken to address data gaps and the authorities’ commitment to further improve data compilation and reporting. They noted the authorities’ plan to request further capacity development support from the IMF to improve data collection and dissemination.

IMF said the Sultanate’s economic activity is projected to strengthen in 2021-22, albeit at varying speeds across sectors, and to continue improving over the medium term on the back of further diversification.

The report added that the Sultanate’s outlook remains, however, subject to unusual uncertainty, with significant risks skewed to the downside. In particular, the recent resurgence of the pandemic and associated containment measures would slow the recovery, especially in the contact-intensive sectors.

However, the strong fiscal and regulatory policy responses would help sustain production and household income and consumption. Stronger vaccine rollouts and energy prices could surprise to the upside.

Real gross domestic product (GDP) growth is projected at around two per cent over the medium term and, reflecting important diversification efforts, the share of non-oil and gas (O&G) is projected to rise further to around 52 per cent of GDP by 2026. IMF projected the country’s GDP at two per cent this year and 2.6 per cent next year.