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International Monetary Fund. Asia and Pacific Dept
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Publication Date:
20 Sep 2021
eISBN:
9781513597102
ISBN:
9781513597102
Language:
English
Keywords:
monetary policy response; headline inflation; oil and gas sector GDP; price pressure; oil and gas GDP; Fiscal stance; Financial sector stability
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IMF Country Report No. 21/214

Abstract

IMF Country Report No. 21/214

Copyright Page

IMF Country Report No. 21/214

BRUNEI DARUSSALAM

2021 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR BRUNEI DARUSSALAM

September 2021

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2021 Article IV consultation with Brunei Darussalam, the following documents have been released and are included in this package:

  • A Press Release summarizing the views of the Executive Board as expressed during its September 1, 2021 consideration of the staff report that concluded the Article IV consultation with Brunei Darussalam.

  • The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on September 1, 2021, following discussions that ended on June 21, 2021, with the officials of Brunei Darussalam on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on July 27, 2021.

  • An Informational Annex prepared by the IMF staff.

  • A Staff Statement updating information on recent developments.

  • A Statement by the Executive Director for Brunei Darussalam.

The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.

Copies of this report are available to the public from

International Monetary Fund • Publication Services

PO Box 92780 • Washington, D.C. 20090

Telephone: (202) 623–7430 • Fax: (202) 623–7201

E-mail: publications@imf.org Web: http://www.imf.org

Price: $18.00 per printed copy

International Monetary Fund

Washington, D.C.

© 2021 International Monetary Fund

Press Release

PR21/271

IMF Executive Board Concludes 2021 Article IV Consultation with Brunei Darussalam

FOR IMMEDIATE RELEASE

Washington, DC – September 20, 2021: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Brunei Darussalam.

Brunei’s economic performance—which was strong before the COVID-19 pandemic—has been buffeted by the health crisis and a pandemic-induced oil and gas (O&G) price shock. The authorities responded fast and decisively. The number of new infections was quickly suppressed, thanks to a swift public health response, effective health measures and non-pharmaceutical interventions. The O&G sector saw a significant output contraction in 2020— the largest since the oil price shock in m id-2014. In the non-O&G sector, growth performance was more heterogenous. Stringent containment measures implemented in the early stages of the pandemic negatively affected contact-intensive sectors (such as hotels, restaurants and air transport) which contracted by 1.6 percent in 2020. In contrast, growth in the downstream non-O&G sector, led by manufacture of petroleum and chemical products, was exceptionally strong, contributing 4.6 percentage points to real GDP growth in 2020. Strong fiscal and monetary policy responses helped sustain production and household income and consumption. As a result, the economy performed strongly in 2020, with real GDP posting positive growth of 1.1 percent—a rare outcome amidst negative growth in the region.

Economic activity is projected to strengthen in 2021–22, albeit at varying speeds across sectors, and to continue improving over the medium term on the back of further diversification. The outlook remains, however, subject to unusual uncertainty, with significant risks skewed to the downside. In particular, the recent resurgence of the pandemic and associated containment measures would slow the recovery, especially in the contact-intensive sectors. However, the strong fiscal and regulatory policy responses would help sustain production and household income and consumption. Stronger vaccine rollouts and energy prices could surprise to the upside.

Real GDP growth is projected at around 2 percent over the medium term and, reflecting important diversification efforts, the share of non-O&G is projected to rise further to around 52 percent of GDP by 2026. Employment is expected to increase as the recovery strengthens. Headline inflation is projected to remain relatively high, averaging 2.5 percent in 2021. Over the medium term, price pressure is expected to subside. The fiscal position is also expected to recover over the medium term. The current account surplus is expected to increase in the medium term, reflecting stronger exports of O&G and downstream products.

The high uncertainty about the path of the pandemic and global economic outlook as well as vulnerabilities to global oil price shocks pose major headwinds for Brunei. The macroeconomic policy mix should continue to support the recovery in the short term, while aiming to strengthen resilience and promote economic transformation in the longer term. Continued short-term fiscal support is necessary to put the recovery on a solid footing. Brunei’s ample fiscal reserves, with virtually no public debt, should be leveraged to underpin the recovery in private demand, while incentivizing resource re-allocation. At the same time, reforms aimed at improving the fiscal position—including a strengthening of the medium-term fiscal f ramework—should continue in order to achieve sustainable long-term expenditure and improve intergenerational equity. Financial sector regulation and supervision should remain vigilant. The development of a holistic macroprudential framework should be stepped-up to safeguard financial stability, while continuing to ensure access by productive sectors to financing. Structural policies to build human capital and attract higher value-added FDI would need to be strengthened. Accelerating digital and green growth will be critical to foster resilience.

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, including a fiscal consolidation program 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 a subsidy reform—such as the launch of high-quality fuel without subsidy, a smart metering system for power and water, and the digitalized National Welfare System. The authorities have accelerated their efforts to diversify the economy with commencement of the Economic Blueprint, emphasizing human capital development and linkage to regional and global trade. Private sector employment has been enhanced with a variety of measures such as JobCentre Brunei, Politeknik Brunei, I-Ready, Lifelong Learning Center, SkillsPlus to facilitate job matching and training. Sizable FDI has been attracted mainly in the downstream industry thanks to customized supports from the authorities and improved business environment particularly in starting a business. Also, the authorities have established new policy packages on digitalization and climate change response for smart and green growth. The authorities remain committed to further fostering the development of the financial sector, while putting in place regulatory safeguards to preserve financial stability, including strengthening the AML/FCT framework to maintain overall financial system integrity.

Executive Board Assessment2

Executive Directors commended the authorities for the strong, timely, and multi-pronged policy response to the COVID-19 pandemic and associated decline in oil and gas prices. Noting the still very uncertain outlook, with risks skewed to the downside, Directors stressed the need to maintain supportive policies until the recovery is on a firm path. They also underscored the importance of continued reforms to support economic transformation, strengthen resilience, and foster green, digital, and inclusive growth.

Directors welcomed the authorities’ continuous efforts to strengthen the fiscal position. In this regard, they were encouraged by several recent initiatives, including the establishment of a credible medium-term budget framework, measures to increase efficiency of public spending, rationalization of public employment, and steps to reform subsidies. Directors saw scope for further efforts in these areas over the medium term to reduce vulnerabilities and support intergenerational equity.

Directors agreed that the peg to the Singapore dollar remains appropriate, providing a credible nominal anchor for macroeconomic and financial stability, and helping to deepen trade and investment linkages, including with Singapore.

Directors noted the resilience of the banking sector. They commended the authorities’ initiatives to enhance risk-based supervision through an early warning exercise, introduce the Basel III framework, and develop a holistic macroprudential framework. Directors also welcomed the recent legislative changes aimed at strengthening the AML/CFT regulatory and supervisory framework.

Directors encouraged the authorities to continue to build on their efforts to diversify the economy, further attract FDI, and enhance human capital and improve private employment. They welcomed the policy priorities of the recently released Economic Blueprint, and highlighted the importance of accelerating digital and green growth to foster job creation and enhance resilience.

Directors welcomed the steps taken to address data gaps and the authorities’ commitment to further improve data compilation and reporting. They noted the authorities’ plan to request further capacity development support from the IMF to improve data collection and dissemination.

Table 1.

Brunei Darussalam: Selected Economic and Financial Indicators, 2016–26

article image
Sources: Data provided by the Brunei authorities; and Fund staff estimates and projections.

Non-oil and gas GDP includes the downstream sector.

In absence of government debt and interest payments, this is also primary balance.

Comprises foreign exchange assets of Brunei Darussalam Central Bank, SDR holdings, and reserve position in the Fund.

Title page

BRUNEI DARUSSALAM

STAFF REPORT FOR THE 2021 ARTICLE IV CONSULTATION

July 27, 2021

KEY ISSUES

Context. Brunei’s economic performance—which was strong before the COVID-19 pandemic—has been buffeted by the health crisis and a pandemic-induced oil and gas price shock. The authorities responded fast and decisively. The number of new infections was quickly suppressed, thanks to a swift public health response, effective health measures and non-pharmaceutical interventions. Strong fiscal and regulatory policy responses helped sustain production and household income and consumption. Past diversification efforts and reforms bore fruit when it was most needed. As a result, the economy performed strongly in 2020, with real GDP posting positive growth of 1.1 percent—a rare outcome amidst negative growth in the region. Economic activity is projected to strengthen in 2021–22, albeit at varying speeds across sectors, and to continue improving over the medium term on the back of further diversification. The outlook is, however, subject to unusual uncertainty, with significant risks skewed to the downside. Sustained strong policy actions are needed to ensure continued resilience, while nurturing green, digital and inclusive growth.

Main policy recommendations. Policies should continue to support the recovery, limit scarring, and promote further economic transformation to foster resilience.

  • In the short term, continued fiscal support is necessary to put the recovery on a solid footing. Brunei’s ample fiscal reserves, with virtually no public debt, should be leveraged to underpin the recovery in private demand, while incentivizing resource re-allocation.

  • Reforms aimed at improving the fiscal position over time—including strengthening medium-term fiscal frameworks—should continue in order to achieve sustainable long-term expenditure and improve intergenerational equity.

  • Financial sector regulation and supervision should remain vigilant. The development of a holistic macroprudential framework should be stepped-up to safeguard financial stability, while continuing to ensure access by productive sectors to financing.

  • Targeted labor market policies should be ramped up. Policies to build human capital and attract higher value-added FDI need to be strengthened. Accelerating digital and green growth will be critical to foster longer-term economic transformation and resilience.

Approved By

Odd Per Brekk (APD) and Bjoern Rother (SPR)

Mission meetings were held virtually during June 8 – 21, 2021. The mission team comprised: Davide Furceri (Head), Anthony Tan, Sang Mok Lee, and Kaustubh Chahande (all APD). Zaidi Mahyuddin (OED) joined the mission. Rosemary Lim (Executive Director) and Firman Mochtar (Alternate Executive Director) joined the concluding meeting. Data used in this report for staff analyses are as of July 21, 2021, unless otherwise noted.

Contents

  • CONTEXT AND RECENT DEVELOPMENTS

  • OUTLOOK AND RISKS

  • ECONOMIC POLICIES

  • A. Supporting the Economy While Improving Intergenerational Equity

  • B. Safeguarding Financial Stability

  • C. Promoting Private Sector Developments and Fostering Economic Transformation

  • D. Addressing Data Issues and Building Capacity

  • STAFF APPRAISAL

  • BOX

  • 1. Implications of Oil and Gas Price Developments for the Outlook

  • FIGURES

  • 1. Real and Fiscal Indicators

  • 2. External and Financial Indicators

  • 3. Fiscal Indicators in Comparison with GCC Countries

  • 4. Financial Stability Indicators

  • 5. Labor Market

  • 6. Governance and Competitiveness

  • 7. COVID-19

  • TABLES

  • 1. Selected Economic and Financial Indicators, 2016–26

  • 2. Budgetary Central Government Developments, 2016/17–2026/27

  • 3. Balance of Payments, 2016–26

  • 4. Monetary Developments, 2016–26

  • 5. Indicators of Vulnerability, 2016–26

  • APPENDICES

  • I. The Pandemic: Containment Measures, Policy Responses and Re-Opening of the Economy

  • II. External Sector Assessment

  • III. Risk Assessment Matrix

  • IV. Improving Public Investment Efficiency

  • V. Economic Diversification: Progress and Priorities Ahead

  • VI. Foreign Direct Investment

  • VII. Status of Staff Advice in 2019 Article IV Consultation

1

Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

2

At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors , and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.

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Cover IMF Staff Country Reports
Brunei Darussalam: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Brunei Darussalam
Author:
International Monetary Fund. Asia and Pacific Dept
Volume/Issue:
Volume 2021: Issue 214
Publisher:
International Monetary Fund
ISBN:
9781513597102
ISSN:
1934-7685
Pages:
73
DOI:
https://doi.org/10.5089/9781513597102.002