IMF Executive Board Concludes 2018 Article IV Consultation with Brunei Darussalam
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Author: Raphael Anspach
Date: 10th October 2018
Title: Press Officer
Publisher: The International Monetary Fund (IMF)
On September 17, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Brunei Darussalam.
Brunei Darussalam’s economy has been adjusting well to lower oil prices since 2014, with the authorities undertaking wide-ranging reforms. The decline in oil and gas (O&G) prices led to large budget deficits and narrower current account surpluses. In response, the authorities in 2015 launched a reform program aimed at (i) ensuring long-term fiscal sustainability and intergenerational equity and (ii) fostering economic diversification by improving the business climate. These reforms have started to bear fruit, as growth has begun to rebound and inflation has returned to positive territory.
Real GDP in 2017 was stronger than expected, rebounding to 1.3 percent supported by both the O&G and non-O&G sectors. Higher liquified natural gas (LNG) and methanol production drove O&G sector growth, more than offsetting lower oil production, while non-O&G growth was mainly underpinned by the ongoing downstream construction projects. Recent data indicate that the recovery carried over into early 2018.
The growth momentum is expected to continue, with growth accelerating to 2.3 percent in 2018. Over the medium term, economic growth and macroeconomic balances are expected to strengthen further. The start of downstream production—including from the Hengyi refinery and Brunei Fertilizer Industries (BFI)—and stronger O&G activities, will result in robust GDP growth and exports in 2019–23. Imports linked to the FDI project execution are likely to keep the current account at a moderate surplus in 2018, but the surplus is expected to increase from 2019 onward. The fiscal position is also expected to recover over the medium term but remains vulnerable to O&G price shocks. Inflation is expected to remain low but positive. Risks to the near-term outlook are broadly balanced, although substantial uncertainty surrounds O&G prices.
The authorities have made progress in implementing fiscal consolidation, adjusting financial sector regulation, improving the business climate, attracting foreign direct investment (FDI), and supporting micro, small and medium enterprises (MSMEs). From 2016 to 2018, Brunei experienced the largest cumulative improvement in the World Bank Doing Business score, particularly with a remarkable improvement in access to credit.
Major FDI projects underway in the downstream sector—the Hengyi refinery and BFI—together with other FDI projects within other priority business clusters should contribute towards achieving the goals of more dynamic and sustainable economic growth under the Wawasan 2035 development plan. The Financial Sector Blueprint articulates the authorities’ plans for the financial sector’s developments over the medium-term. Its five pillars identify areas for action that would help foster new international financial linkages for the country and boost the financial sector’s contribution to GDP—a central component of the diversification strategy…
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