Singapore, May 16, 2019 – The Brunei Darussalam economy slowed down in 2018 but is expected to pick up in 2019, while inflation will likely continue to rise moderately, according to the 2018 Annual Consultation Report on Brunei Darussalam released today by the ASEAN+3 Macroeconomic Research Office (AMRO). The report was prepared based on AMRO’s Annual Consultation Visit to Brunei Darussalam in November 2018 and data available up to January 31, 2019.
After posting a positive growth of 1.3 percent in 2017, Brunei’s economic growth decelerated to 0.1 percent in 2018, mainly due to a decline in oil and liquefied natural gas (LNG) production in the first three quarters of the year. On the other hand, growth in 2019 is anticipated to pick up to 2.1 percent, led by stronger foreign direct investment (FDI) inflows and the commencement of a large refinery operation. Inflation rate has returned to positive territory at 0.1 percent in 2018 and is projected to increase further to 0.4 percent in 2019, which is in line with the expected strengthening of domestic demand.
The external position remains strong. The current account position improved in 2017, on account of a strong rebound in oil and LNG exports, boosted by higher production and prices. However, it is expected to decline slightly in 2018 reflecting a large increase in capital goods imports for the construction of some mega FDI projects. From 2019 onwards, the current account position will strengthen as capital goods imports will likely decline due to the commencement of the first phase of the large petroleum refinery FDI project towards the end of 2019.
The fiscal position is expected to improve significantly in FY2018/19, but it remains in substantial deficit. Revenue collection was boosted significantly by the higher oil and LNG prices in most of 2018. On the expenditure side, the government has continued its efforts to consolidate and improve spending efficiency. As a result, fiscal deficit in FY2018/19 is estimated to narrow to 7.5 percent of GDP from 12.7 percent in the last fiscal year.
The banking sector remains sound and well-capitalized. Credit growth has turned positive since the second quarter of 2018, led by corporate borrowing. The establishment of the Bureau Credit Score should help the banks assess and maintain their credit standards while improving household and business access to credit. In recent quarters, non-performing loan ratio has been rising which warrants enhanced monitoring by the authority, in addition to the introduction of counteracting measures.
The major risks facing the Brunei Darussalam’s economy are mainly from domestic factors as a result of its high reliance on the oil and gas sector. Even though the government has enhanced its effort to develop other industries, the role of the oil and gas sector in GDP growth, exports, and fiscal revenue remain high. An unexpectedly large shortfall in oil and LNG production in the first three quarters of 2018 has affected economic growth.
On the external side, the risk mainly stems from the possibility of a sharp decline in global oil and gas prices. Other risks such as escalating global trade tensions and a sharp tightening of global financial conditions are expected to have a small impact on the economy.
Policy efforts on structural reforms and to diversify the economy away from the oil and gas sector into manufacturing, tourism, agriculture, aquaculture and other non-traditional industries should be continued to enhance Brunei Darussalam’s long-term growth prospects. The government’s endeavor in attracting FDIs into the country as well as in improving the business environment and enhancing the competitiveness of small and medium-sized enterprises are laudable. In addition, further efforts to strengthen fiscal discipline and safeguard the soundness of the financial system are needed.
About AMRO and AMRO’s Annual Consultation Report:
The ASEAN+3 Macroeconomic Research Office (AMRO) is an international organization established to contribute towards securing macroeconomic and financial stability of the ASEAN+3 region, which include 10 members of the Association of Southeast Asian Nations (ASEAN) and China; Hong Kong, China; Japan; and Korea. AMRO’s mandate is to conduct macroeconomic surveillance, support the implementation of the regional financial arrangement, the Chiang Mai Initiative Multilateralisation (CMIM), and provide technical assistance to the members.
The Annual Consultation Report was prepared in fulfilment of AMRO’s mandate. AMRO is committed to monitoring, analyzing and reporting to its members on their macroeconomic status and financial soundness. It also helps identify relevant risks and vulnerabilities, and assists members, if requested, in the timely formulation of policy recommendations to mitigate such risks.