Oil Prices Lift Brunei Economic Outlook: IMF
By Man Othman

Bandar Seri Begawan - The International Monetary Fund (IMF) has welcomed Brunei economy's steady growth and strengthened fiscal position, and noted that the country's economic performance had benefited from high oil and gas prices and prudent fiscal management in recent years.

This was conclusion reached in the IMF Executive Board 2005 Article IV Consultation with Brunei. Inflation continues to be subdued, and the external current account surplus has remained large. Looking ahead, the Fund's Directors observed that favourable oil prices had strengthened the near-term economic outlook.

With oil production expected to increase moderately after repairs and upgrades of production facilities, output growth could increase to about three per cent in 2005. Inflation should remain low at around one per cent.

The main risk to the outlook stems from the volatility in oil prices, but would be manageable in the near term.

However, the Executive Board of IMF noted that little progress had been made in divesting government agencies and that plans to develop the non-oil private sector had yet to bear fruit.

The Directors also saw scope to enhance fiscal transparency, noting that limited availability of information continued to hamper fiscal policy analysis.

They encouraged the authorities to expand the coverage of fiscal data and to disclose more information on the budget.

The Directors noted that the large differential between public and private sector wages could inhibit the growth of private sector jobs and they encouraged the authorities to continue to address this issue.

The IMF said the economy has continued to register steady, albeit low, growth in recent years. GDP growth is estimated to have slowed to 13/4 per cent in 2004 from 3374 per cent in 2003, owing to temporarily lower oil and gas production as production facilities were repaired and upgraded.

Non-oil economic activity, however, strengthened, reflecting large oil revenue inflows and increased government spending. Inflation has remained subdued, with consumer prices rising by about one per cent in 2004. Reflecting higher oil exports and relatively stable imports, the external current account surplus widened substantially to about US$4 billion in 2004, or almost 70 per cent of GDP.

The fiscal situation has continued to strengthen. The Directors commended the authorities' prudent fiscal policies in recent years. Most of the windfall revenue from recent high oil prices has been saved, resulting in substantial improvements in the fiscal position. This year's budget also appropriately aims to maintain this stance in order to create room for expenditure smoothing when energy prices are low.

The primary budget balance is estimated at a surplus of 16 per cent of GDP in FY2004/05, compared with a deficit of seven per cent of GDP in 2002.

This year's budget also aims to maintain this stance, with prudent spending plans. Current and capital expenditure would remain largely unchanged in nominal terms, except for additional provisions for wages and salaries for new teachers and nurses.

The financial system has remained generally stable. Credit growth has been moderate, except for consumer lending, while domestic interest rates have remained low. Non-performing loans have declined gradually, but remain high compared with neighbouring countries. Other indicators of financial soundness have been broadly stable. -- Courtesy of Borneo Bulletin

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