20220915-IMF-Brunei_Darussalam_2022_Article_IV_Consultation-Press_Release_and_Staff_Report_64页_5mb

Summary of IMF Country Report No. 22/302: Brunei Darussalam

Core Content

The 2022 Article IV consultation with Brunei Darussalam, conducted by the IMF, assessed the country's economic performance and policy directions following the impact of the pandemic and ongoing global uncertainties. The report highlights Brunei's economic resilience, recovery efforts, and structural reforms aimed at long-term sustainability and diversification.

Main Economic Developments

• Economic Impact of the Pandemic: Brunei successfully weathered the pandemic in 2020 but faced new waves in H2 2021, leading to significant slowdowns in the O&G mining, LNG manufacturing, and downstream activities. Real GDP contracted by 1.6 percent in 2021.
• 2022 Recovery: Growth is projected to rebound to 1.2 percent in 2022, supported by easing mobility constraints and a positive terms of trade shock from rising O&G prices.
• Inflation: Inflation rose to 2.5 percent in 2022, driven by higher food and fuel prices, supply chain disruptions, and increased consumer spending during lockdowns.
• Economic Diversification: The food/agriculture sector showed double-digit growth, and a new fertilizer sector commenced production, signaling progress in non-O&G diversification.
• Fiscal Position: The fiscal deficit declined from 19.9 percent of GDP in FY2020/21 to 4.6 percent in FY2021/22, supported by higher O&G revenues. Revenue increased significantly to BND4.7 billion, while expenditure rose to BND5.7 billion.

Key Economic Indicators (2017–2027)

Main Policy Recommendations

• Fiscal Support and Reforms: Continue targeted fiscal support to cushion vulnerable sectors using Brunei's ample fiscal reserves. Advance fiscal reforms to ensure sustainability and intergenerational equity.
• Financial Sector Reforms: Remove pandemic relief measures from the financial sector, and maintain monetary liquidity operations with attention to inflation risks. Foster financial deepening to support private sector development.
• Economic Diversification: Accelerate diversification beyond O&G by expanding the export portfolio and attracting quality FDIs. Develop human capital and MSMEs to support long-term growth.
• Digital and Green Growth: Support digital and green growth to enhance economic resilience and create new opportunities.

Key Economic Reforms and Initiatives

• Fiscal Consolidation: Implemented a fiscal consolidation program to reduce wasteful spending, control public employment, and introduce a new pension scheme.
• Private Sector Employment: Efforts to attract private sector employment and FDI, particularly in the oil refinery and strategic industries like agriculture and O&G downstream.
• Regional Integration: Participation in regional economic agreements such as RCEP and the Indo-Pacific Economic Framework.
• Workforce Development: Introduction of programs like the i-Ready apprenticeship and SkillsPlus to upskill and reskill the workforce.
• MSME Development: Policies to improve access to financial resources and entrepreneurship training.

Executive Board Assessment

• Pandemic Response: The Executive Board commended Brunei for its pandemic response, including vaccination efforts and measures to support businesses and households.
• Economic Recovery: A strong recovery is underway, supported by reduced restrictions, investment in petrochemicals, and higher O&G prices.
• Risks to Outlook: Risks are tilted to the downside due to potential new variants, global uncertainty from the Ukraine war, US monetary tightening, and a slower-than-expected Chinese growth.
• Fiscal and Monetary Policies: Continued fiscal support and reforms are needed to maintain recovery and promote intergenerational equity. Monetary policy should remain cautious to avoid inflationary pressures.
• Financial Stability: The banking system is sound, with a high capital ratio and declining NPL ratio. Financial deepening is essential for private sector growth.

Risks and Challenges

• Global Uncertainties: The Ukraine war and US monetary tightening pose risks to the external environment.
• Inflationary Pressures: Expected to persist due to supply chain disruptions and higher import prices.
• Labor Market Issues: Structural challenges like skill shortages and high employee turnover may persist in the short term.
• Export Diversification: Despite progress, the share of non-O&G in GDP remains low at around 2 percent.

Conclusion

Brunei's economy has shown resilience in overcoming the pandemic's impact and is on a path of recovery and diversification. Continued policy efforts are essential to sustain growth, manage inflation, and ensure long-term fiscal and economic stability. The IMF encourages Brunei to focus on enhancing financial deepening, supporting MSMEs, and advancing digital and green growth to build a more resilient and diversified economy.