Brunei Darussalam: Growing expectations

An increase in oil and gas production is expected to boost Brunei Darussalam’s economy over the next few years, but international experts disagree on the magnitude and timing of this growth.

In a statement issued in late June, the IMF said the Sultanate’s GDP would increase on average by 5.6% per year over the next five years, as new petrochemical and refinery projects come on-line. The developments are expected to contribute both directly to the economy as well as generate spill-over for related sectors, including transportation, retail and services.

The economy slowed in 2012, growing by 1.3%, as hydrocarbons output declined due to scheduled maintenance activities. GDP contribution from the oil and gas sector, which accounts for about two-thirds of the economy, 98% of exports and 93% of government revenues, shrank by 3.2% last year, the IMF said. However, this was off-set by strong growth in the non-energy sector of 5.1%.

Average oil production has steadily declined over the past few years, falling from a high of 219,000 barrels per day in 2006 to 166,000 in 2011 and 155,000 over the first three quarters of 2012.

While energy sector output overall is expected to rise as new downstream projects are completed, volatility in global oil prices could be a concern, though the IMF says that Brunei has sufficient funds to weather any storm.

“The current high fiscal surplus, along with other fiscal reserves, should allow the government to maintain spending even if oil prices were to fall sharply,” the IMF noted. “This would lessen the impact on non-energy growth and employment.”

The IMF forecast is at odds with an earlier projection from the Asian Development Bank (ADB), published in mid-April. In its outlook for 2013, the bank said GDP in Brunei Darussalam is set to rise by between 1.8% and 2% for this year and 2014, respectively, up from around 1% in 2012.

However, the ADB noted it was difficult to project GDP given the uncertain timing of new hydrocarbons production and stoppages due to maintenance.

Data issued by the Department of Economic Planning and Development (DEPD) in early July suggest that the ADB’s estimates may be closer to actual performance, showing year-on-year (y-o-y) growth in the first quarter of 2013 at 0.9%, with the energy sector posting improved activity of 0.8%.

The non-energy part of the economy grew at a rate of about 0.9%, a slowdown from 2012. However, the government is expected to continue investing in infrastructure and taking steps to diversify the economy, which will likely boost activity outside the oil and gas sector.

The ADB added that inflation is set to to remain muted, at around 1% per year for 2013 and 2014, due to subdued global food prices and cushioning from government subsidies that would offset any pressures from higher domestic demand.

The bank’s forecast is in line with the latest DEPD data, which showed the April consumer price index rising by 0.05%, taking y-o-y inflation to 1.1%, a figure set to ease in the coming months as lower summer food costs will see reduced pressure from that quarter.

As a major oil and gas exporter, Brunei Darussalam’s economy is heavily dependent on earnings from the hydrocarbons sector. A renewed slump in the global economy, bringing with it a fall in prices and demand for oil and gas, could slow the Sultanate’s economic recovery, though the extensive fiscal reserves would ensure no fall in living standards.

Read Next:

In Brunei Darussalam

Brunei pursues greater sukuk liquidity

Further solidifying the importance of Islamic finance in Brunei Darussalam’s developing capital market, the country’s financial regulator said in June it is preparing to issue long-term sharia-...

In Economy

Mongolia awaits economic rebound in 2016

The current drive in Mongolia to promote growth and foreign investment appears likely to yield results, as a key breakthrough in a long-running dispute over the expansion of a mine will help act...

Latest

Le secteur des transports algérien reste sur la bonne voie

Avec la nomination d'un nouveau ministre à la tête du Ministère des Transports au mois de Mai dernier et le déploiement imminent du dernier plan de développement quinquennal du pays qui couvre la...