Brunei Darussalam’s economy closed out 2011 in good health, with GDP rising, inflation under control and plans to build on existing strengths and develop new opportunities. However, concerns remain over the slowing global economic growth and how this may impact the country.
Final figures have yet to be issued, but by most accounts the Sultanate’s economy had a steady year in 2011. In October the IMF lowered its growth forecast for the country’s economy, predicting that GDP would rise by 2.8% in 2011 and 2.2% in 2012, down from the 3.1% and 2.7% expansion the agency predicted in April.
The IMF’s revised forecast for Brunei Darussalam’s GDP puts the country’s expected rate of expansion below that projected for the global economy by the UN, which predicted a worldwide growth of 2.6% in a report issued in early December 2011.
The Sultanate is looking to exceed the expectations of international agencies, stepping up targeted investments to increase growth and broaden the base of its economy. In his address to the nation to mark the new year, His Majesty Sultan Haji Hassanal Bolkiah said one of the main driving forces for the economy in 2012 would be the 10th National Development Plan, due to come into effect on April 1, 2012. Under the latest long-term development scheme, set to run through 2017, the main focus will be on reinforcing economic diversification efforts to further boost the economy and create more jobs, the Sultan said.
In particular, this will be achieved through creating a conducive business environment to boost growth in the private sector, continuing a theme stressed in 2011 when the government sought to implement reforms aimed at streamlining bureaucratic processes and facilitating trade. These reforms were highlighted by the World Bank in its latest Ease of Doing Business index, issued in late October. Brunei Darussalam jumped 29 places on the global rankings, placing 83rd out of the 183 countries assessed.
This sharp improvement, among the best in the world for 2011, was mainly a result of reforms such as fast tracking the processes for registering property, trading across borders and obtaining electricity connections. The government also established a dedicated state agency tasked with coordinating processes to improve the country’s rankings on the Ease of Doing Business survey and to monitor reforms so as to keep the process of reducing red tape on track.
While these reforms, and those to follow, will help foster growth and economic diversity, hydrocarbons remained the backbone of the Sultanate’s economy in 2011 and will continue to do so for the foreseeable future. In 2011, fresh offshore reserves were identified, with a number of new oil fields set to boost the country’s stocks and extend the productive lifetime of the industry. These finds, as well as the enhanced extraction technology used to increase yields from existing fields, will help increase output after a few years of reduced production.
The oil and gas industry is expected to be given a new direction in 2012, when the government releases its long awaited energy white paper, which is intended to serve as the blueprint for the industry’s future. An outline of the plan was made public in September, with the initial plan showing how the country is looking to increase production and national income.
Under the outline of the paper, production could be increased fourfold from the current output, while far greater emphasis will be put on downstream activities, with the Sultanate to further develop its chemicals and hydrocarbons processing industries.
Brunei Darussalam is also looking to boost employment rates and domestic economic activity through the energy sector. In November the government announced that it wanted to see at least 70% of all positions in the oil and gas industry filled by locals, as well as an increase in the number of supply and service contracts awarded to domestic businesses.
The government will be hoping inflation remains under control after consumer prices rose by 2.1% in the first 10 months of 2011 and by 2.8% year-on-year as of the end of October, according to data issued by the Department of Economic Planning and Development in December. The Sultanate is susceptible to inflationary factors that are often beyond its control, having to import much of its foodstuffs and basic commodities, though state-backed initiatives to promote higher rice yields and better fruit and vegetable harvests will help reduce this dependence on overseas produce and cut costs.
As long as international oil prices do not slump, the Sultanate should be well placed to ride out any renewed bout of global economic instability. With strong fiscal reserves and a tradition of prudent management, both the state and the financial sector are insulated against a cooling of the global economic climate.
Though 2012 may be somewhat subdued in terms of domestic growth, the external price of oil is unlikely to put pressure on government finances, leaving the Sultanate in a strong position to build on existing plans to diversify the economy.