Blessed with abundant oil and gas resources, Brunei has long enjoyed economic stability and prosperity. Revenues from oil and gas resources have, over the past decades, funded key development projects while sustaining high levels of public welfare spending.

In the recent decade however, Brunei’s hydrocarbon-based economic model has come under increasing pressure, reflecting major disruptions in offshore oil and gas production amid challenges to rejuvenate maturing fields. Moreover, global decarbonization efforts are intensifying, adding to the urgency for Brunei to diversify its economy and transform its economic model from hydrocarbon to renewables.

The complexity of the economic landscape calls for strategizing policy priorities, particularly on the direction and size of public spending, as well as how the accumulated fiscal resources can be better allocated to safeguard longer-term sustainability. Balancing competing short-term and longer-term policy objectives is a delicate act, requiring careful consideration of the policy trade-offs and constraints.

For example, during the COVID-19 pandemic, there were calls for an increased focus on social welfare programs, healthcare, and emergency relief. While these measures are crucial for maintaining public well-being and social stability, they can strain fiscal resources.

As Brunei’s post-pandemic recovery remains uneven, and could fall short of expectations, public spending should stay supportive. Over the longer-term however, given the commitment to achieve the Wawasan Brunei 2035, spending priorities should align with the growing demands for economic diversification. At the same time, priorities should be given to address fiscal sustainability, such as ensuring that the future spending needs, notably in the area of public welfare and climate-related initiatives, do not undermine the prudent use of public funds or bring about fiscal risks.

Policy priorities

To anchor longer-term fiscal sustainability, it is necessary to undertake a proper sequencing of policy priorities, while ensuring that implementation capacities are in place.

First, the development of a strong public financial management system (PFM) and best practices should be prioritized, while enhancing transparency. A well-functioning PFM is a prerequisite for the adoption of strong and credible medium-term fiscal and expenditure frameworks. The adoption of such frameworks would not only enhance resource allocation, i.e., align longer-term strategic spending plans with the required financing, but also enable the authorities to better track the progress of achieving medium-to longer-term fiscal objectives in a transparent manner.

A prerequisite for the successful implementation of the medium-term fiscal and expenditure frameworks is the ability on the part of the authorities to produce robust and realistic macro-fiscal forecasts, as well as to undertake robust budget execution, accounting, and reporting. This would in turn enhance the monitoring of fiscal risks, which would help foster efficient use of public funds, while building support for prudent fiscal policies.

The Budget Division of Brunei’s Ministry of Finance and Economy has benefited from technical assistance on PFM, which has helped pave the way for the implementation of several key reforms to strengthen overall fiscal management. According to AMRO’s 2023 Annual Consultation Report on Brunei, a key policy initiative is the development of Charts of Accounts (COA). Being a fundamental tool within the broader PFM for budgeting, financial reporting, and auditing, the COA provides a systematic way to organize and manage financial data, and helps strengthen fiscal policy planning and management.

Second, once adequate PFM systems have been established, the authorities can consider adopting fiscal rules which should take into account Brunei’s unique characteristics. Fiscal rules, such as some quantitative constraints (or targets) on certain spending items, and/or budget balances will strengthen fiscal discipline through enhanced accountability and transparency.

For example, climate-related initiatives could benefit from greater clarity with respect to near-term resource allocation (or target spending), as well as their sources of funding. This would promote greater predictability and avoid such expenditures being executed in a “stop-go” manner. Alternatively, establishing a dedicated fund to address part of climate change spending needs could be a plausible option.

Unlike its ASEAN peers, Brunei is unique as the country does not rely on borrowings to finance its budget deficits. Instead, Brunei relies on its ample fiscal reserves, accumulated over the past decades, for its financing needs. While there is no immediate pressure on its fiscal position, it is crucial for the authorities to consider longer-term fiscal sustainability in order to ensure intergenerational equity, ensuring that future generations would also enjoy the current high standards of living.