The IMF's 2021 Article IV Consultation with Brunei Darussalam is now complete

[ASEAN NOW Content Team]

 

The Executive Board of the International Monetary Fund (IMF) has ended its Article IV consultation with Brunei Darussalam in Washington, DC.

Brunei's economic performance, which had been excellent prior to the COVID-19 pandemic, has been hampered by the health crisis and a price shock caused by the pandemic.
The authorities acted quickly and forcefully.

Thanks to a prompt public health response, effective health measures, and non-pharmaceutical interventions, the incidence of new infections was quickly reduced.
In 2020, the oil and gas sector will experience its greatest output contraction since the mid-2014 oil price shock. The growth performance of non-O&G companies was more varied.

Contact-intensive industries (including as hotels, restaurants, and air travel) suffered a 1.6 percent contraction in 2020 as a result of strict containment measures undertaken early in the pandemic.

In contrast, the downstream non-O&G sector, which is headed by petroleum and chemical product manufacturing, grew at a rapid pace, adding 4.6 percentage points to real GDP growth in 2020.

Strong fiscal and monetary policy responses helped keep production, household income, and consumption levels stable.

 

As a result, the economy performed well in 2020, with real GDP growing by 1.1 percent, a remarkable positive result in a region where growth is negative.

 

Economic activity is expected to pick up in 2021-22, albeit at different rates across sectors, and to improve further in the medium term as a result of increased diversity.
However, the prognosis remains unusually unpredictable, with major risks skewed to the downside.
The current recurrence of the pandemic, as well as the associated containment efforts, would stymie recovery, particularly in contact-intensive industries.
Strong fiscal and regulatory policy measures, on the other hand, would help to maintain output, household income, and consumption.
Vaccine rollouts that are more aggressive and energy prices that are higher could both surprise to the upside.

 

Over the medium term, real GDP growth is expected to be around 2%, and the non-O&G sector's proportion of GDP is expected to climb to around 52 percent by 2026, reflecting substantial diversification initiatives.
As the economy progresses, employment is likely to rise.
Inflation is expected to continue quite high in 2021, averaging 2.5 percent.
Price pressure is projected to ease in the medium term.
In the medium term, the fiscal situation is also likely to improve.
In the medium run, greater exports of O&G and downstream products are likely to boost the current account surplus.

 

Brunei faces significant obstacles due to considerable uncertainty regarding the pandemic's course and global economic outlook, as well as vulnerability to global oil price shocks.
In the short term, the macroeconomic policy mix should help the recovery, while in the long run, it should try to enhance resilience and stimulate economic change.
Continued short-term budgetary support is required to keep the economy on track.
Brunei's large fiscal reserves, combined with the country's lack of public debt, should be used to support private demand recovery while also encouraging resource reallocation.

 

Simultaneously, changes targeted at improving the fiscal position, such as strengthening the medium-term fiscal framework, should be pursued in order to ensure long-term spending sustainability and increase intergenerational equity.
Regulation and supervision of the financial industry should stay watchful.
To protect financial stability, the construction of a holistic macroprudential framework should be accelerated while yet ensuring that productive sectors have access to credit.
It would be necessary to enhance structural measures in order to build human capital and attract higher-value-added FDI.
To create resilience, it will be important to accelerate digital and green growth.

 

Brunei has made notable progress in fiscal consolidation and economic diversification, promoting private sector employment and attracting foreign direct investment.
Several initiatives to improve fiscal positions have been implemented, including a fiscal consolidation programme aimed at reducing wasteful spending in the medium term, the establishment of a medium-term fiscal framework, a containment in public employment, and a first step of subsidy reform—such as the launch of high-quality fuel without subsidy, a smart metering system for power and water, and a subsidy reform—such as the launch of high-quality fuel without subsidy, a smart metering system.

 

With the launch of the Economic Blueprint, the authorities have escalated their efforts to diversify the economy, focusing on human capital development and links to regional and global trade.
To facilitate job matching and training, a range of initiatives have been implemented, including JobCentre Brunei, Politeknik Brunei, I-Ready, Lifelong Learning Center, and SkillsPlus.
Large amounts of FDI have been drawn mostly in the downstream industry as a result of tailored government support and an improved business environment, particularly in terms of launching a business. In addition, for smart and green growth, the government have devised new policy packages on digitization and climate change response.
The authorities are dedicated to supporting financial sector development while putting in place regulatory protections to guarantee financial stability, including enhancing the AML/FCT framework to maintain overall financial system integrity.