This staff statement provides an update on developments since the staff report was issued. The statement does not alter the thrust of the staff appraisal.

1. After 15 months of zero local transmission, Brunei has since early August been experiencing a new wave of COVID infections. The outbreak is centered on the highly contagious Delta variant. From August 7 to 23, the cumulative number of new cases surged to 1,508. As of August 23, the total number of cases stands at 1,873 of which 1,649 cases (or 88 percent) are local cases, while the remaining 224 (or 12 percent) are imported cases. Of the 1,873 cases, 436 patients have recovered, while there were three fatalities. The remaining are active cases, which comprise those hospitalized and under mandatory quarantine.

2. The authorities promptly introduced containment measures, effective August 7, 2021. The measures have been announced to remain in place until September 4—an extension is likely to be considered if the number of new infections remains high. The measures include the closure of several public facilities (such as mosques, childcare centers, galleries, libraries, museums, playgrounds, senior citizens’ activity centers, and sports centers) and restrictions on collective gatherings. On-site activities at educational institutions are also suspended. Food establishments can only serve takeaway and delivery orders. The authorities have also urged businesses to implement telecommuting to the extent possible. Masks are mandatory in all indoor venues and crowded outdoor spaces. Public visits to hospitals are prohibited, with the exception of Intensive Care Unit (ICU) patients who are allowed to receive only one visitor. Temporary suspension for travelling to and from five South Asian countries (India, Nepal, Sri Lanka, Pakistan and Bangladesh) have been extended through end-August. Travel from Indonesia remains suspended indefinitely, as of August 22, 2021. Testing and contact tracing have been ramped up significantly.

3. Vaccine rollout is increasing. As of August 18, a total of 237,729 doses were administered, with first doses reaching 175,545 individuals (38.7 percent of population) and second doses 62,184 (13.7 percent). The daily vaccination rate is expected to hit 10,000 following the opening of a new vaccination center at University Brunei Darussalam on August 19.

4. The authorities have extended measures to support affected households and firms. The measures include the deferment on contribution payment of Employee Trust Fund (TAP) of 5 percent and Supplemental Contributory Pensions (SCP) of 3.5 percent for local workers earning less than BND1,500 per month in the affected sectors under the category of micro, small and medium-size enterprises (MSMEs) with less than 100 employees; 25 percent salary subsidy provision for local workers in MSMEs with less than 100 employees; government funding for SCP Contributions to the self-employed, at least 30 percent discount on rental rates on government buildings for MSMEs in affected sectors; 50 percent tax discount on corporate income tax for the 2022 assessment to affected sectors; 20 percent discount on water and electricity bills for affected companies within affected sectors; and temporary exemption of customs and excise duties for personal hygiene products. These measures took effect on August 1 and will be in place until December 31. Staff estimates, based on the budget execution of these measures during the first wave, suggest that the fiscal impact likely be modest. Furthermore, the Brunei Darussalam Central Bank (BDCB) has announced that the assistance offered by the banking sector to affected businesses and individuals will be extended until December 31—such as the deferment of principal repayments on loans and financing, restructuring of personal loan/financing and hire purchase such as car financing for a period not exceeding 10 years, and waiver of fees and charges for local online interbank transfers.

5. While it is too early to assess the economic impact of the new outbreak, downside risks have increased. The recent resurgence of the pandemic and associated containment measures is expected to slow the recovery, especially in contact-intensive sectors. The impact on growth will depend on the duration of the second wave. As an indication of the potential impact, stringent containment measures implemented in the first wave negatively affected contact-intensive sectors which contracted by 1.6 percent (yoy). However, the ability of the economy to live with the pandemic has improved (including through digitalization), and the strong and timely health, fiscal and regulatory policy responses should help sustain production and household income and consumption. Stronger vaccine rollouts and energy prices could surprise to the upside.