SINGAPORE, August 31, 2020 – The Brunei economy recovered in 2019 and the recovery is expected to continue in 2020 amid a sharp slowdown in the global economy, according to the 2019 Annual Consultation Report on Brunei Darussalam published today by the ASEAN+3 Macroeconomic Research Office (AMRO).[1]

GDP grew by 3.9 percent in 2019 and is expected to continue to expand by 2.2 percent in 2020, supported by the full operation of Hengyi’s refinery production, amid a sharp slowdown in the global economy as a result of the COVID-19 pandemic. Inflation rate returned to the negative territory at -0.4 percent in 2019 and is projected to turn at 1.3 percent in 2020 partly because of the weakening of the exchange rate amid the coronavirus pandemic.*

The external sector has remained strong despite the decline in the current account surplus in recent years. Although construction and FDI related imports have been falling with the near completion of some FDI projects, the commencement of Hengyi’s refinery operation had led to a sharp increase in crude oil and chemical imports in 2019. Along with a larger service deficit since 2018, the current account surplus is estimated to have narrowed further in 2019. In 2020, the reduction of current account surplus is projected to continue, in light of a sharp decline in oil and gas prices. However, the external position should remain strong, supported by ample official reserves and foreign assets of the sovereign wealth fund.

The fiscal balance is expected to return to deficit in FY2019/20.[2] The fiscal situation improved considerably from a deficit of 12.9 percent of GDP in FY2017/18 to a surplus at 0.2 percent of GDP in FY2018/19, reflecting higher oil and gas prices and continued restraint in fiscal spending. However, oil and gas prices declined in 2019 and fell sharply in early 2020, and are expected to remain low for the rest of 2020. As a result, the fiscal balance is estimated to return to a deficit of 7.2 percent of GDP in FY2019/20 and 11.1 percent of GDP in FY2020/21.

The financial sector is sound and credit growth is recovering. Banks continue to be well-capitalized as reflected in the high capital adequacy ratio of 20.1 percent in 2019. They continue to be profitable and have increased their returns, amid a relatively low loan to deposit ratio, which has been improving in recent quarters as credit growth increased. Credit growth has recovered since 2018 and is expected to remain positive in 2020, supported by household credit. Regarding asset quality, the non-performing loans ratio has been contained in 2019.

The major risks facing the Bruneian economy in the near- to medium-term are related to the high dependence on the oil and gas sector. Risks to the sector can arise from unexpected disruptions in oil and gas production, geopolitical risks, and a slowdown in major global economies, possibly amplified by ongoing trade tensions and the coronavirus pandemic. Moreover, if the oil price war were to happen again, it will lower oil and gas prices further which will adversely affect the Bruneian economy

Other risks include weakening economic diversification efforts that can dampen in the medium- to long-term economic prospects. Recent progress in diversification efforts have enhanced employment prospects, growth potential, and exports, but a slowdown in structural reforms and economic diversifications poses risks.

AMRO fully supports the authorities’ efforts to diversify the economy away from the oil and gas sector. Brunei has made commendable progress in its efforts to diversify the economy, but the reliance on the upstream oil and gas sector remains large. It is critical for the Brunei authorities to further diversify the economy and continue improving the “doing business” environment in order to provide more employment opportunities, increase non-oil and gas fiscal revenue, boost economic resilience, and ensure long-term sustainability.

AMRO encourages the authority to continue with measures to upgrade human capital, maintain fiscal sustainability, and develop further the financial sector. Various initiatives to overcome structural issues in the labor market require more time to achieve better results, and should be continued. Fiscal consolidation measures to diversify revenue sources, enhance spending efficiency and contain current expenditure, need to be maintained. The authorities should continue to reprioritize spending to support certain sectors such as manufacturing, trade, and tourism to mitigate the adverse impact of the global economic slowdown due to the COVID-19 pandemic. In the financial sector, access to credit by SMEs should be improved and new financial products developed, including digital payment systems and fintech services to enhance the financial sector.

* AMRO’s assessment of the outlook for 2020 has since been revised taking into account recent data and information that have become available, please see Update of the ASEAN+3 Regional Economic Outlook (AREO) – August 2020 on the AMRO website for more information.

[1] The report was prepared based on AMRO’s Annual Consultation Visit to Brunei Darussalam in January 2020 and data available up to April 30, 2020.

[2] The fiscal year corresponds to the period from April 1 to March 31.

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About AMRO

The ASEAN+3 Macroeconomic Research Office (AMRO) is an international organization established to contribute towards securing the macroeconomic and financial stability of the ASEAN+3 region, which includes 10 members of the Association of Southeast Asian Nations (ASEAN) and China; Hong Kong, China; Japan; and Korea. AMRO’s mandate is to conduct macroeconomic surveillance, support the implementation of the regional financial arrangement, the Chiang Mai Initiative Multilateralisation (CMIM), and provide technical assistance to the members.

About AMRO’s Annual Consultation Report

The Annual Consultation Report was prepared in fulfillment of AMRO’s mandate. AMRO is committed to monitoring, analyzing, and reporting to its members on their macroeconomic status and financial soundness. It also helps identify relevant risks and vulnerabilities, and assists members, if requested, in the timely formulation of policy recommendations to mitigate such risks.