1. Brunei is pursuing the development of a more diversified and sophisticated economy, with reduced reliance on its oil and gas sector, higher productivity, output, and enhanced longer-term growth potential. In 2007, authorities launched the long-term development plan ‘Brunei Vision 2035’ which includes as one of its three key objectives the creation of a more dynamic and sustainable economy, with a focus on economically diversifying beyond the oil and gas sector, raising productivity, attracting investment, creating jobs, and enhancing output, and thereby enhancing macroeconomic stability. Since then, national development policies such as the 11th National Development Plan (2018–23), or the Digital Economy Master Plan 2025, among others, promote the furthering of this objective.
1. Brunei is facing complex diversification challenges and a protracted post-pandemic recovery. While real GDP rebounded moderately, driven mainly by the non-O&G sector, challenges persisted in downstream and upstream O&G production until H1 and Q3 2023, respectively, impacting fiscal and external positions in 2023. The production from the new Salman oilfield offered some partial relief to the decline in oil production since 2006 as offshore O&G fields mature. External buffers remain strong.
Inflation in Brunei has been on the downward trend since September 2022 being the first to hit disinflationary territory post-COVID amongst its regional peers. This appendix seeks to analyze the drivers of inflation in Brunei by employing an augmented Phillips curve model of inflation with global variables. By examining demand-side and supply-side factors, we aim to understand the relative importance of different inflation causes and their implications for economic policy. Our estimation reveals that rather sudden decline in Brunei over the recent quarters is driven by supply factors, more specifically global supply chain developments in addition to moderate impacts by demands side factors. This motivates us to keep conservative near term inflation outlook at 1.3 percent for 2024 as the global supply chain disruption is prone to substantial uncertainty and always evolving.
The financial sector in Brunei is stable, dominated by banks and has strong capital buffers and abundant liquidity. Credit to households and offshore loans appear to have grown rapidly in 2023. The share of credit to the O&G sector has been increasing and a large share of offshore assets continues to characterize key risk-portfolio of Brunei’s financial sector. Against this background, the authorities have been strengthening their macroprudential policies, particularly for Domestic Systemically Important Banks (D-SIBs).