ECONOMY REPORT - BRUNEI DARUSSALAM

Transcription

1 ECONOMY REPORT - BRUNEI DARUSSALAM (Extracted from 2001 Economic Outlook) REAL GROSS DOMESTIC PRODUCT In 2000, Brunei Darussalam s economy improved and grew at 3 percent, compared to 2.5 percent in the previous year. Gross domestic product (GDP) growth, especially from the second half of 2000 onwards, was mainly attributable to the oil price hike. The crude oil price reached the highest levels seen in a decade; this increase was fostered by the fact that production levels rose in response to the high oil prices. The mining, manufacturing, and quarrying sector, which consists mainly of oil and gas, contributes about 50 percent of total output. The number and production of non-oil-manufacturing activities increased somewhat during The service sector consists primarily of government activities, while contributions from other private sector activities such as the retail and wholesale trade, ownership of dwellings, and finance were adversely affected as a result of government spending cuts. The construction sector was adversely affected by a sharp decrease in the number of government infrastructure projects and building projects in commercial and residential properties, which occurred as a result of the already excessive supply and very low demand, coupled with difficulty in obtaining finance. Despite some improvements, as in the previous years, the contribution of the primary sector, comprising agriculture, forestry, and fisheries, is still insignificant at less than 4 percent of the GDP. INFLATION Inflation in Brunei Darussalam is measured by changes in the Consumer Price Index (CPI), caused by supply disruptions, changes in administered prices, price developments in the non-traded sector, and the composition of imports. In 2000, average annual CPI inflation in Brunei Darussalam was 1.2 percent, an increase from -0.1 percent in For the most part, price developments reflected the combination of declines in the U.S. dollar import prices of food, manufactured products, and machinery and transport equipment, and fluctuations in the bilateral exchange rates of import source economies. In particular, the appreciation of Brunei dollars against the currencies of neighbouring countries helped moderate imported inflationary pressures. This was offset by depreciation of the currency against the U.S. dollar, pound sterling, yen, and the major European currencies. The United States, Japan, and Europe together account for 39 percent of its total imports, while the Association of Southeast Asian Nations (ASEAN) economies account for 45 percent of Brunei s total imports. EXTERNAL TRADE ACCOUNTS

2 Hydrocarbon exports and the steady accumulation of long-term foreign assets over many years have provided Brunei Darussalam with a comfortable external position, facilitating the maintenance of a liberal exchange and trade system. Oil prices decreased significantly in 1998, causing revenue from hydrocarbon to decrease to BND 1,344.8 million from BND 2,128.7 million the year before. However, with the recovery of the price of oil from mid-1999 onwards, peaking in mid-2000, revenue from hydrocarbon increased to BND 2,029.3 million and BND 4,221.1 million, respectively. In recent years, the trade balance (in terms of GDP) has improved, as exports have risen sharply while imports have remained stagnant. Japan and Korea are the major export markets, while imports largely come from the ASEAN economies. The current account remained in substantial surplus throughout the period. The surplus showed an increasing trend, from 47.3 percent of GDP in 1995 to 65.9 percent in 2000 following increased earnings from petroleum. In 2000, the trade surplus improved by twice the previous year s level, mainly owing to the effects of increases in production and in the prices of oil and gas. Portfolio and direct investment inflows have risen in recent years. Recorded inflows, however, are dwarfed by long-term capital outflows, which are derived as a residual in the balance of payments compilation, combining direct placements and reinvested earnings. Short-term capital provided net financing for many years. In placing their structural excess liquidity abroad, commercial banks in Brunei contributed significantly to both outward portfolio investment and short-term lending in most years. Direct and portfolio investments are estimated to have decreased 10.7 percent in EMPLOYMENT The total population of Brunei Darussalam in 2000 stood at 338,400, 2.4 percent higher than in The labour force stood at about 146,500, growing by 2.5 percent compared to A significant proportion of the labour force were migrant workers, but that number has notably decreased as a consequence of the fiscal consolidation measures adopted by the government in recent years and also as a result of industrial restructuring. However, the labour force participation rate for women has increased significantly, from 45 percent in 1995 to 55 percent in Of growing concern is the fact that over 7,000 individuals, many of them youths, are actively seeking jobs. To address this concern, the government continues to set up technical and vocational training institutions, cottage industries for local handicrafts, and resource centres for budding entrepreneurs, and also continues to enjoy support from the private sector. FISCAL POLICY The government has continued to tighten its fiscal outlay following the fall in revenue from hydrocarbon exports since 1997 as well as the slowdown in the non-oil private sector performance. Overall public expenditure in 2000 fell about 10 percent from the previous year s level. The increase in revenue from hydrocarbon exports and prudent public expenditures had resulted in a government budget surplus of BND 953 million in 2000, up from a deficit of BND 1,585 million in the previous year. In spite of the improvement in its

3 fiscal position, the government will continue to be fiscally prudent with a view toward attaining a balanced budget. MONETARY POLICY The movement of the Brunei dollar was quite stable on average at around US$1=BND 1.7. Aggregate bank lending as of September 2000 increased by about 11 percent from the previous year s level, reflecting some degree of recovery in domestic non-oil and gas activities. The prime lending rate throughout the period was quite low, at 5.5 percent (a reduction from 6.25 percent in the previous year). Currency in circulation (M1 and quasi-money) as of September 2000 was around US$5,304 million, up 17.2 percent from the previous year s level. Brunei Darussalam has no central bank. Thus, the trend of interest rates follows that of Singapore because the two countries currencies are at par. MEDIUM-TERM OUTLOOK The performance of Brunei Darussalam s economy during the next couple of years, particularly in 2001, depends very much on the development of the hydrocarbon sector and on the government s implementation of various projects and programmes of the 8 th National Development Plan covering the period Recent trends in production, prices, and exports for both oil and gas have shown improvements, and additional revenues are expected as a result. Nevertheless, the tight fiscal situation is expected to remain because the government seeks to balance the budget. In 2001, GDP growth is forecast to be around percent, while inflation is expected to remain at around 1 2 percent. Some important factors that would significantly influence the macroeconomic performance of Brunei Darussalam in the medium term are as follows: The implementation of the 8 th National Development Plan covering the period The impact of commercialisation, corporatisation, and privatisation of some government activities. The improvement of the business and investment climate to encourage foreign direct investment. The impact of the Brunei Visit Year The establishment of Brunei Darussalam as an international financial centre. Production, price levels, and exports of oil and gas, with emphasis on maintaining stable oil prices.

4 Annex I BRUNEI DARUSSALAM: OVERALL ECONOMIC PERFORMANCE GDP and major components (percent change from previous year) Nominal GDP (US$billion) Real GDP Total Consumption Investment Government Private Export of Goods and Services Import of Goods and Services Fiscal and External Balances (percent of GDP) Budget Balance Merchandise Trade Balance Current Account Balance Capital Account Balance Economic Indicators (percent change from previous year) GDP Deflator CPI (1990=100) M Short-Term Interest Rate (percent) Exchange Rate (BND/US$) Unemployment Rate (percent) Population (millions)

5 Annex II BRUNEI DARUSSALAM: FORECAST SUMMARY (percent change from previous year) Official Official Real GDP Exports Imports 4 5 CPI Source: