AMRO Report: Brunei Economy to Recover in 2017
Brunei economy to recover in 2017 on back of reforms
on: May 12, 2017
| James Kon |
DESPITE recording a contraction of 2.5 per cent last year, Brunei Darussalam’s economy is projected to recover gradually in 2017 on back of progress in the maintenance and refurbishment works at oil and gas production facilities and establishment of a slew of large foreign direct investment (FDI) projects.
Brunei’s growth prospects in the next few years would depend mainly on the progresses of oil and gas production and some FDI projects as well as on the success of the Sultanate’s ongoing diversification efforts, according to the Asean+3 Regional Economic Outlook (AREO) 2017 report, released recently in Yokohama, Japan by the Asean+3 Microeconomic Research Office (AMRO).
As AMRO’s annual regional surveillance publication, AREO 2017 assesses the regional economic outlook and financial stability in 10 Asean member countries as well as China (including Hong Kong), Japan and Korea.
The inaugural edition of the report also includes a thematic study of the region 20 years after the Asian financial crisis (AFC).
AREO 2017 revealed that inflation will increase marginally in 2017 as commodity prices have been trending upward combined with gradual improvement in domestic demand.
While on the external side, trade balance has remained in surplus but narrowed over the past three years with falling oil prices.
As the export decline outpaced imports with falling oil and gas prices, the trade surplus continued to shrink.
As services and secondary income accounts remained in deficit, current account surplus continued to shrink.
However, the external position remains well-buffered with international reserves able to cover around 15 months of imports, according to the report.
Bank intermediation generally remained limited with a slight decreasing trend in 2016.
In Brunei, it was relatively limited as reflected in its relatively low loan-to-deposit ratio (LDR). As of Q3 2016, the LDR was 38.2 per cent, lower than at end-2015 owing to decelerating bank loan growth with weaker domestic economic activity.Although non-performing loan ratio has been trending up slightly, banks in general continued to remain well capitalised.
Despite some recent pick-ups in oil and gas prices, the fiscal position is still under substantial pressures, the report noted.
After four years of surplus, fiscal balance turned into deficit of around one per cent of the gross domestic product (GDP) in FY2014-2015.
In FY2015-2016, the deficit widened to 15.4 per cent of GDP, and is projected to improve slightly to around 13.1 per cent of GDP in FY2016-2017 as oil prices have been picking up since H2 2016.
The rising fiscal deficit was mainly due to a sharp decline in oil-related revenue on account of low oil prices which overwhelmed the small spending cuts.
However, the sizeable fiscal buffer accumulated from fiscal surpluses in past decades enabled Brunei to finance its deficits in recent years, according to AREO 2017.
Recent economic developments in Brunei have re-emphasised the need for structural reform policies towards a more diversified and competitive economy, the report pointed out, adding that the Government of Brunei has recently intensified its reform efforts to spur the private sector’s role in the economy and attract more FDIs.
For instance, under PENGGERAK (a coordinating unit under Prime Minister’s Office), the government has recently formed two statutory bodies, namely FAST (FDI Action and Supporting Centre) and DARE (Darussalam Enterprise) to facilitate FDI and to develop domestic business – in particular SMEs.
On the fiscal side, the government has started to adopt performance programme budgeting in the effort to improve public financial management.
Overall the Asean+3 region is expected to grow at 5.2 per cent in 2017 with inflation under control, despite the global uncertainty.
According to the report, growth of the two largest economies in the region, China and Japan, remains stable and robust and will anchor the continuing growth in the region. Regional emerging markets of Korea, Asean-5 (Malaysia, Indonesia, the Philippines, Singapore and Thailand) and Vietnam remain resilient even as volatility in global financial markets persists, while developing Asean economies of Cambodia, Lao PDR and Myanmar continue to grow and reap benefits from regional integration.
In 2017, the Asean+3 regions are once again tested with a new global environment of rising trade protectionism and tightening global financial conditions. A responsive policy framework should be developed to deal with potential external shocks and spillovers, AREO 2017 said, while noting that urgent structural reforms are also needed to tackle bottlenecks to growth.
Courtesy of Borneo Bulletin