This article was first published in East Asia Forum on February 11, 2026.

2026 marks the beginning of what will be Brunei’s decisive decade towards Wawasan (Vision) 2035 — the national vision to build Brunei into a highly successful nation by 2035.

For over thirty years, Brunei’s development model, anchored in stable hydrocarbon assets, ample fiscal buffers and a gradualist approach to reform, has delivered macroeconomic stability and a high standard of living. But in recent years, that model is being tested by a confluence of forces largely beyond Brunei’s control.

In the years ahead, Brunei’s economic prospects will hinge on the pace and effectiveness of reforms to address structural vulnerabilities and build a more diversified, dynamic and resilient economy.

Many of Brunei’s traditional strengths remain in place but are increasingly being tested. Fiscal and external positions continue to benefit from sizeable sovereign wealth assets and low public debt, even as large and persistent fiscal deficits have drawn down fiscal reserves.

Living standards rank among the highest in Southeast Asia, and the financial system remains sound. At the same time, social and governance stability continues to provide a predictable and conducive operating environment. These strengths have long afforded Brunei a comfortable cushion against external volatility.

But these strengths are not insulating Brunei’s economy as effectively as before. Recent macroeconomic trends highlight the scale of the challenges ahead. The oil and gas sector remains under pressure from low global energy prices and recurring operational disruptions — pressures that are likely to persist amid accelerating global decarbonisation efforts and maturing oil and gas fields.

Declining energy revenues have had knock-on effects on domestic consumption and investment, with spillovers to domestically oriented services such as retail and finance. Heightened global trade and policy uncertainty threatens demand from key trading partners, especially China, while dampening investor and business sentiment.

Structural constraints compound these challenges. Despite efforts to rejuvenate mature fields, upstream output remains constrained by aging assets and late-life infrastructure. This has translated into a higher cost structure relative to producers in the Middle East.

Meanwhile, prospects for new exploration and discoveries remain uncertain, even as the global transition towards renewable energy continues to erode long-term demand for fossil fuels. Rising geostrategic competition and shifting trade patterns are also reshaping investment and production networks, posing heightened risks for small, open economies like Brunei.

Brunei’s economic growth is likely to remain modest in the near term as domestic and external headwinds persist. Over the medium to longer term, Brunei must recalibrate its development strategy towards one that prioritises diversification, resilience and sustainability. Such a strategy should rest on three key pillars.

First, Brunei should strengthen private sector dynamism. Policy efforts to reduce the disproportionate reliance on the state as the primary driver of growth are essential. This calls for a gradual reorientation of the government’s role from direct employer and producer, towards an enabler that crowds in private initiatives, supports commercial risk-taking and fosters broader-based private sector activity over time.

Leveraging strategic trade agreements and deepening collaboration with like-minded partners can facilitate the inflow of technology and capital, particularly into the non-hydrocarbon sector. This has the benefit of supporting the development of a more dynamic domestic entrepreneurial ecosystem.

The government’s economic diversification agenda has already begun to yield results. Increases in non-hydrocarbon exports, including food products under the Brunei Halal brand, suggest that niche manufacturing and branding initiatives can contribute to domestic value addition and export diversification.

Developments in petrochemicals and fertilisers further illustrate the potential shift towards higher value-added activities, while stimulating growth in supporting sectors such as logistics and engineering.

The second pillar is sustained investment in human capital and innovation. While Brunei benefits from a young and well-educated population, graduate unemployment and widening skills mismatches present persistent challenges. In the ‘new normal’ era, Brunei’s education-to-employment pipeline must be reimagined to better reflect evolving economic realities. A reassessment of the education system is necessary to ensure closer alignment with labour market needs.

Strengthening vocational pathways, expanding industry-linked training and apprenticeship programs as well as increasing upskilling and reskilling initiatives are needed to better prepare the workforce for private sector employment. Clearer and more structured transitions from higher education into the labour market can improve job matching and reduce graduate unemployment.

Thirdly, against a backdrop of persistent fiscal deficits and reserve drawdowns, the evolution of Brunei’s macroeconomic policy framework is critical. While large fiscal reserves provide near-term flexibility, they should only be deployed to smooth temporary shocks, rather than address structural imbalances.

Developing a stronger, rules-based fiscal framework will be essential to safeguard long-term fiscal sustainability, preserve policy credibility and ensure intergenerational equity. Reform priorities should be embedded in institutions and medium-term strategies to help ensure policy continuity over future generations of leaders.

The foundations that have supported decades of stability and prosperity in Brunei remain valuable. But they are no longer sufficient to sustain Brunei’s long-standing welfare-state model in a rapidly changing global environment. As the country enters its decisive decade, ‘business as usual’ is no longer a viable baseline for its future.

The new global economic landscape demands faster adaptation, more decisive policy choices and a renewed commitment to build a diversified and future-ready economy. With bold and proactive reforms, Brunei can secure a more prosperous path towards Wawasan 2035 and beyond.