Brunei’s economic growth expected at 4.2%

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Azlan Othman

Brunei Darussalam’s growth is expected to rebound in 2022 and 2023 with gross domestic product (GDP) growth of 4.2% and 3.6% respectively, driven by a surge in oil and gas production. A key policy challenge is diversifying fiscal revenues away from oil and gas to improve long-term fiscal sustainability.

This was according to the Asian Development Outlook (ADO) 2022, released yesterday by the Asian Development Bank (ADB).

The Sultanate’s economy contracted in 2021 largely due to the reimposition of COVID-19-related mobility restrictions from August. Unexpected supply disruptions to the oil and gas industry and delays in foreign direct investment projects weighed on the economy. Brunei Darussalam’s economy is estimated to have contracted by 1.5% in 2021. Economic activity has been disrupted by lower oil and gas production, delays in the implementation of direct investment projects abroad and an increase in COVID-19 cases from the third quarter.

The AfDB report says that, similar to this year, rising oil and gas production, boosted by exports and rising prices for crude oil, liquefied natural gas, refined petroleum and petrochemicals, widen the current account surplus, projected at 16% of GDP. .

Increased imports of building materials, machinery and equipment for the expansion of the Hengyi plant will reduce the surplus next year, projected at 12% of GDP. Unexpected disruptions to domestic oil and gas production and a slower-than-expected easing of global supply chain pressures are the main downside risks to the outlook. Further outbreaks of COVID-19 and associated containment measures could also derail the recovery.

Increasing revenue from sources other than oil and gas is a key policy challenge for the country’s efforts to achieve long-term fiscal sustainability. The government budget is highly dependent on these revenues, which account for 70% of total revenues in pre-pandemic years.

The AfDB report also states that the economic impact of COVID-19 has highlighted the country’s fiscal vulnerabilities, as lower global energy prices and domestic oil production have reduced oil and gas revenues by 19.8% of GDP in fiscal year 2020 (fiscal year 2020, ended March 31, 2020) to 7.7% in fiscal year 2021.

This led to a widening of the fiscal deficit from 5.6% of GDP in FY2020 to 20.0% in FY2021. The increase in the non-oil and gas component of fiscal revenue is therefore a significant political challenge to maintain long-term fiscal sustainability.

Meanwhile, the economies of developing Asia are expected to grow by 5.2% this year and 5.3% in 2023, supported by a robust recovery in domestic demand and continued export expansion. However, uncertainties stemming from the Russian invasion of Ukraine, the ongoing COVID-19 pandemic and US Federal Reserve tightening pose risks to the outlook.

Several subregions, including South Asia and East Asia, are expected to return to pre-pandemic economic growth rates. Inflation in the region remains manageable but is expected to reach 3.7% this year, before moderating to 3.1% in 2023.

“The economies of developing countries in Asia are starting to find their footing as they slowly emerge from the worst of the COVID-19 pandemic,” said AfDB Chief Economist Albert Park.

“However, geopolitical uncertainty and new outbreaks of COVID-19 and virus variants could derail this momentum. Governments in the region will need to remain vigilant and ready to take action to counter these risks. This involves ensuring that as many people as possible are fully vaccinated against COVID-19. Monetary authorities should also continue to closely monitor their inflation situation and not fall behind the curve.

Most developing countries in Asia will experience steady growth this year and in 2023. The economies of the Caucasus and Central Asia are expected to grow by 3.6% on average this year and 4.0% next year. Southeast Asia’s trade-dependent economies are projected to grow collectively by 4.9% this year and 5.2% in 2023.

East Asia is expected to experience economic growth of 4.7% this year and 4.5% in 2023. China, the region’s largest economy, is expected to grow 5.0% this year and 4.8% next year, amid continued strength in exports.

South Asian economies are collectively expected to grow by 7.0% in 2022 and 7.4% in 2023, with India, the largest economy in the subregion, expected to grow by 7.5% over the this year and 8.0% next year.

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