| Azlan Othman |
BRUNEI’S economic growth and macroeconomic balances are expected to strengthen markedly from 2019 onwards as new energy downstream facilities come on-stream, the International Monetary Fund (IMF) said.
In 2017, pending a full pick-up in the construction of large foreign direct investment (FDI) projects, the economy is projected to register a smaller decline, with growth turning positive by 2018, its Executive Board said while concluding IMF’s 2017 Article IV consultation with Brunei Darussalam.
Fiscal balances are projected to recover over the medium term, but remain in deficit for several years.
The current account (CA) surplus is projected to narrow further until 2018 due to imports associated with the construction of FDI projects. Main risks arise from further unscheduled shutdowns and lower-for-longer oil and gas (O&G) prices that could further reduce fiscal revenues and impact the viability of the country’s longer-term energy strategy, the board noted.
Brunei’s growth outlook is challenging in the near term, but improves towards the medium term, the Executive Board said.
Continued production challenges associated with ageing O&G fields and further government spending restraint is projected to result in negative GDP growth in 2017.
Growth would turn positive in 2018 reflecting the bulk of investment execution for an integrated petrochemical refinery and a fertiliser plant. Large imports linked to the construction of these two projects would lower the CA surplus in 2017-2018.
The trend of mild deflation is projected to ease by 2018, mainly as a result of higher import prices.
Fiscal balances are projected to recover slowly and remain in deficit territory before approaching balance in 2022.
Over the medium term, the growth outlook further improves with the start of downstream production from the aforementioned projects, a new gas field, and public investment under the next five-year development plan. These are projected to result in robust GDP and export growth in 2019-2022, the board noted.![IMF]()
Building on a track record of policy reforms, Brunei Darussalam’s economy is adjusting to lower O&G prices. While the country possesses sizable buffers, the authorities have continued structural reforms aimed towards ensuring long-term sustainability and intergenerational equity, increasing productivity and competitiveness, and diversifying the sources of growth, it added.
Latest estimates showed that real GDP in 2016 further declined by 2.5 per cent, contracting by less than projected.
Unscheduled shutdowns were the main factor that disrupted O&G production.
Meanwhile, the decline in non-O&G GDP reflected mainly the ongoing fiscal consolidation.
Inflation averaged -0.7 per cent in 2016, driven by a downward correction in the housing rental market, lower air transport costs, and a continued decline in food-related import prices.
The current account surplus is estimated to have narrowed further on lower O&G exports.
Earlier, the IMF had projected Brunei’s GDP growth to be -1.3 per cent this year, which it said is likely to rise to 0.7 per cent next year (2018).
During the Legislative Council session in March this year, the country passed a B$5.3 billion budget for the 2017-2018, projecting a fiscal deficit of B$1.85 billion, way below the deficit the country experienced last year.
The expected government income for the fiscal 2017-2018 is projected to be B$3.45 billion.
The IMF board said that building on reforms prior to the late-2014 oil price slump, the government launched the latest series of reforms since 2015, aiming to reduce wastages, and implementing structural reforms to support FDI, small and medium-sized enterprises (SMEs) and economic diversification.
Brunei was among the most improved economies in the 2017 Ease of Doing Business rankings. Recent advances include substantive progress on improving the regulatory environment, the implementation of programme and performance budgeting for all ministries, and facilitation of FDI projects and SME development through agencies that were newly created in early 2016.
Meanwhile, the aggregation of government-linked companies under Darussalam Assets aims to enhance productivity, efficiency and profitability. In addition, a Financial Sector Blueprint has been released to help develop the financial sector over the next decade, it added.
The FY2017/18 budget of B$5.3 billion was passed in March 2017 with a theme of balanced expenditure to support sustainable economic growth.
Policies announced during the budget included new excise taxes on sugary drinks and products and mono-sodium glutamate and increased tobacco excises, an income tax board of review, as well as the establishment of a new SME bank, a free trade zone to support exports, and an apprenticeship programme for unemployed graduates, the Executive Board said.
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