Brunei Darussalam’s economic growth this year is projected to rebound to 1.2 per cent, on the back of easing of mobility constraints and a positive terms of trade shock due to surges in oil and gas prices, according to the Executive Board of the International Monetary Fund (IMF).
A press statement from IMF issued on September 16, noted that IMF’s Executive Board had concluded the 2022 Article IV consultation with Brunei Darussalam on a lapse-of-time basis.
IMF said inflation, while remaining relatively low at 2.2 per cent at end 2021, has increased this year and pressures are expected to remain elevated in the short term, owing to supply disruptions and higher food and fuel prices.
The report said after successfully weathering the pandemic in 2020, Brunei was hit by new waves of COVID-19, with case numbers going up significantly and new movement restriction measures imposed in the second half of 2021.
Reduced activities in mining and LNG manufacturing, combined with the negative impact of new pandemic variants on domestic services, led to a slowdown in the economy. Gross domestic product (GDP) contracted by 1.6 per cent in 2021, led by slowdowns in oil and gas mining, LNG manufacturing, and downstream activities.
Agriculture and some non-oil and gas manufacturing sectors saw encouraging growth, though the shares of these sectors in total GDP remain small.
IMF added that the economy continues to diversify, with double-digit growth of the food/agriculture sector and a new fertiliser sector commencing production. The risks to the outlook are tilted to the downside, due to potential new COVID-19 variants, increased global uncertainty associated with an escalation of the war in Ukraine, monetary tightening from the United States (US) and a larger-than-expected growth slowdown in China.
On the upside, higher energy prices would further improve the terms of trade and restore fiscal positions in the short term, while partially contributing to build the buffers needed to ensure stronger inter-generational equity.
The report said that policies should continue to support the recovery in the short term, while promoting economic diversification in the longer term. Targetted fiscal support – leveraging Brunei’s ample fiscal reserves with virtually no public debt – remains critical to alleviate the effect of the pandemic on vulnerable businesses and households.
At the same time, reforms to improve fiscal sustainability and intergenerational equity should be advanced. Pandemic relief measures to the financial sector should be removed, while monetary policy should be mindful of inflation risks.
Measures to foster financial deepening are key to spur private sector development.
Economic diversification, beyond oil and gas, should be ramped up through expanding export portfolio and attracting quality foreign direct investments (FDIs). Policies to develop human capital and micro, small and medium enterprises (MSMEs) would help lay the foundation for higher potential growth. Supporting digital and green growth would help strengthen resilience in the long term.
IMF also said Brunei has made noticeable efforts in fiscal consolidation and economic diversification, facilitating private sector employment and FDI attraction.
Several initiatives to improve fiscal positions have been implemented, such as the fiscal consolidation programme aimed at reducing wasteful spending in the medium term, a containment in public employment, and the introduction of new pension scheme to increase employer’s contribution rate. The authorities have accelerated their efforts to diversify the economy, including through attracting large FDIs in the oil refinery sector and increasing investments in strategic industries such as agriculture and oil and gas downstream sectors.
Continued efforts in participating in regional economic integration, including the Regional Comprehensive Economic Partnership (RCEP) agreement that came into force this year and the new Indo-Pacific Economic Framework, have been made to provide new market access and investment opportunities for entrepreneurs and industries in Brunei.
The authorities are introducing various programmes, such as the i-Ready apprenticeship programme and SkillsPlus programme, to upskill and reskill the workforce and to adapt to the evolving demand of private sector employers. They are also implementing various policies to support the development of productive MSMEs, such as facilitating access to financial resources and improving entrepreneurship skill training.