Brunei Darussalam’s economic growth is forecast at about 2.4 per cent this year on the back of expected increase in oil and gas (O&G) production, including from the new offshore oil fields and rebound in downstream sector, while domestic non-O&G tradeable sector growth is expected to plateau.
This was revealed on Wednesday in Washington, United States (US) by the International Monetary Fund (IMF) when their Executive Board Concluded 2024 Article IV Consultation with Brunei Darussalam.
They also said Brunei’s real gross domestic product rose by 1.4 per cent in 2023 after two years of recession, mainly driven by the non-O&G sector and the earlier-than-anticipated production from the new Salman oil field in Q4 2023.
Inflation fell, reaching 0.4 per cent in 2023 compared to 3.7 per cent in 2022, supported by the easing of post-pandemic supply chain disruptions, the softening commodity prices, as well as large subsidies and price controls. The fiscal and external position deteriorated in 2023 reflecting weaker O&G production and prices.
The current account was also impacted by higher service imports and net income outflows. The banking sector remains stable, liquid, and well capitalised with declining non-performing loans.
IMF said, inflation is expected to remain unchanged at 0.5 per cent in 2024, and fiscal and external balances would stabilise alongside O&G prices. Near-term risks tilted downward due to external factors and O&G production challenges.
The report added, new O&G field discoveries would provide significant upside, while accounting for decarbonisation pressures. Structural reform implementation, with product diversification and technological advancement, could boost productivity, but economic and social challenges would remain with adoption of artificial intelligence (AI).
In concluding the 2024 Article IV consultation with Brunei Darussalam, executive directors endorsed staff’s appraisal which include that growth rebounded moderately in 2023. The stronger-than-expected growth turnaround was supported by a new O&G field coming to stream in late 2023, a high interest rate environment and post-pandemic momentum boosting finance, transport, and hospitality.
However, persistent O&G production challenges and maintenance related disruptions in downstream activities along with lower O&G prices weakened the fiscal and external positions in 2023. Consequently, the external position for 2023 remained substantially weaker than suggested by fundamentals and desirable policies and the output gap is assessed to be negative.
IMF also said, disinflation continued mainly due to easing supply chain disruptions and the softening of commodity prices, aided by continuing large scale subsidies and price controls.
The narrowing output gap, O&G revenue uncertainty and long-term decarbonisation trends warrant a prudent fiscal stance, while protecting the vulnerable and public investment.
While the use of fiscal buffers in 2023/24 financial year was appropriate in view of the cyclical position and to support economic recovery, restoring fiscal buffers through growth-friendly fiscal consolidation should be prioritised going forward.
This will require enhanced revenue generation, and could be supported by a low-rate carbon tax, and expenditure rationalisation – including via more targeted subsidies. These efforts should be guided by a fiscal consolidation plan with clear fiscal targets. Plans to establish a Medium Term Fiscal Framework (MTFF) and fiscal anchors, strengthening fiscal risk management and transparency are welcome.
The currency board arrangement with Singapore is sound and has played a key role in supporting Brunei’s macroeconomic and financial sector stability.
Efforts to improve monetary operations, by including Singapore’s interbank transactions in its analysis to understand the influence of Singapore’s policy rates since January 2024, and continuing to narrow the corridor by raising the Sustainable Finance Disclosure Regulation (SFDR), integrating I-bills into the Asset Maintenance Ratio and launching a website for better communication on monetary policies, are welcome.
Enhancing inter-agency cooperation regarding the issuance and management of Sukuks will be helpful. Over the medium-term, the Brunei Darussalam Central Bank (BDCB) is encouraged to build internal capacity in liquidity forecasting to calibrate the issuance of the I-bills and consider establishing a single treasury account.
The financial sector remained stable with strong capital and liquidity buffers. Systemic risk is assessed to be contained. Careful tracking of credit growth in both offshore and domestic personal loans is warranted, as declining oil prices could pose risks, despite low non performing loans (NPLs).
For domestic lending, continuing to deploy prudential measures like capping the Total Debt Service Ratio, assessing unsecured personal loan exposure, and maintaining NPL standards are welcome measures. The authorities’ commitment to ambitious and sustained structural reforms will be critical to ensure growth and diversification, including by transitioning to a low-carbon economy. Reaching the authorities’ net-zero emissions goal by 2050, will require continued development of the non-O&G sector, including through adoption of green technologies.
Continued skill development, while addressing AI-related challenges and closing structural gaps in the first generation reform areas (external sector trade facilitation, improving business regulation, and governance) vis-à-vis top peers, will be key to facilitate foreign direct investment (FDI) and public private partnership (PPP). Completing the 2025 National Adaptation Plan and a Climate Vulnerability Assessment should support the prioritisation of adaptation strategies. – Azlan Othman
