Brunei Darussalam’s economy has been given a clean bill of health by the International Monetary Fund (IMF), with the agency praising the prudent economic management exercised by local authorities, as well as the efforts to reform and liberalise the financial sector and reduce the dependence on oil and gas as the nation’s main revenue earners. The Fund and other analysts have also said more still needs to be done to foster private sector development and improve the overall business environment.
In its latest report on the Sultanate, released in mid-June, the IMF said that many of the key economic indicators were performing well, with GDP rebounding in 2010 after two years of decline, the country’s current account surplus also well into the black and inflation under control.
The report predicted that GDP would expand by 3.1% this year, and while this is below the 4.3% forecast for the global economy, if the IMF’s projection is correct 2011 will see the highest rate of growth for up to five years.
The IMF said that while the Sultanate’s economy is still dominated by the oil and gas sector, which contributes nearly two-thirds of the nominal income, and is responsible for some 95% of export revenues and about 90% of government revenue, moves to diversify the economy were gathering pace.
“Economic diversification, a major medium-term challenge, is picking up momentum,” the report said. “Government policies increasingly emphasise economic and commercial viability in supporting development spending.”
Combined with reforms that have done much to achieve what the IMF described as strong financial institutions and strengthened financial sector stability, as well as a progressive reduction in corporate income tax aimed at further stimulating business growth and investment, higher gas and oil prices will boost revenue, meaning that the economic outlook is bright.
Though the outlook may be strong, the IMF has pointed to a few key areas where the Sultanate could further lift improve its performance. Foremost of these is the need to reduce the economy’s dependence on the state and for a scaling back of subsidies.
“Economic and structural reforms to reduce price distortions are needed to foster private sector development and the identification of viable export products and niche markets,” the report said. “These reforms will enhance fiscal sustainability and better prepare Brunei Darussalam for the eventual depletion of its hydrocarbons resources.”
The IMF also recommended an acceleration of programmes aimed at improving the business environment, such as streamlining bureaucratic procedures; opening areas traditionally dominated by the public sector so as to provide a needed boost to private sector initiatives; and improving access to financing and business advisory services, in particular for start-ups and small companies.
Another challenge is to build up its human resources skills base, with the gaps that currently exist slowing down economic growth and private sector expansion, according to Sasha Lennon, a director for consultancy SGS Economics and Planning, which is carrying out a study on the optimisation of land for industrial and commercial development.
As Brunei Darussalam progresses towards a broader and more knowledge-focused economy, it will need to develop a wider skills base, essential to both bolstering the private sector and attracting foreign investment, Lennon told the Brunei Times on June 14.
“Brunei Darussalam doesn’t have a very diverse skills base,” Lennon said. “While people who are educated are highly skilled, there are not enough of them with enough skills. That’s one of the biggest challenges.”
This challenge will involve putting in place very specific strategies to ensure that the Sultanate produces the right sort of skills to work in the right sort of industries, he said.
In the shorter term, to offset the temporary lack of skilled workers for some sectors, the country will have to import some of those skills by opening the doors of the economy to foreign workers, while focusing on developing the local skills base, said Lennon.
However, a balance must be struck when utilising imported skills, with every effort made to ensure a shorter-term expedient does not become a longer-term drain on the economy, The Sultanate’s minister of industry and primary resources, Yahya Bakar, warned on June 13.
Citing the tourism industry as an example, Yahya said that Brunei Darussalam was not maximising the benefits that could be derived from the sector due to “leakages” resulting from having to employ foreign staff and the necessity of importing tourism products.
“To strengthen the sector’s ability to multiply revenue throughout the economy, promoting greater local involvement and spin-off businesses will become a focus in the country’s future strategic direction for tourism,” he told local media.
The economy is still very much evolving, as the government endeavours to move away from its traditional reliance on the hydrocarbons wealth that has underpinned the country’s growth for decades towards a broader-based model.