GROSS DOMESTIC PRODUCT

In 1999, Brunei Darussalam¡¯s economy improved, as it grew at 2.5 percent compared to ¨C4 percent in the previous year. GDP growth was due to positive developments in both the oil and government sectors especially during the second half of 1999. The crude oil price reached its highest level in a decade and this has been accompanied by an increase in production levels.

The mining, manufacturing and quarrying sector, mainly oil and gas, continued to contribute about 50 percent of total output. The number and production of non-oil manufacturing activities have, however, shown some increase in 1999. The services sector, comprised primarily of government services, declined as contributions from private/business sector activities such as retail, and wholesale trade, ownership of dwellings and finance were adversely affected by government spending cuts.

The construction sector was worst hit. The number of government infrastructure projects and commercial and housing buildings declined sharply due to excess supply and very low demand, coupled with difficulties in getting financing.

The contribution from agriculture, forestry and fisheries, as in previous years, is still very insignificant at less than 4 percent of the GDP, despite achieving some improvement. Many of the improvements of the last few years have, however, been adversely affected by the haze problem.

INFLATION

In 1999, average annual CPI contracted to -0.1 percent, a slight increase from the -0.4 percent recorded in 1998. For the most part, price developments reflected the combined effects of declines in the US dollar import prices of food, manufactured products, and machinery and transport equipment and fluctuations in the currencies of import source economies. In particular, the appreciation of the Brunei dollar against the currencies of neighboring economies affected by the Asian Financial Crisis, such as the Malaysian ringit, Indonesian rupiah, Philippine peso and Thai baht, was offset by its depreciation against the US dollar, pound sterling, the yen, and the major European currencies, especially during the first half of the year. This helped moderate imported inflationary pressures as ASEAN members account for 45 percent of Brunei Darussalam¡¯s total imports while the US, Japan and Europe account for 39 percent.

EMPLOYMENT

Total population of Brunei Darussalam in 1999 was estimated to be 331,000 or growing at 2.4 percent. The labor force was about 135,000 or growing at 2 percent. A significant portion of the labour force consisted of migrant workers, although the number has notably declined as a consequence of the fiscal consolidation measures adopted by the government in recent years and the impact from the collapse of a large private company.

The labour force participation for women has increased significantly from 29.5 percent in 1986 to 52.3 percent in 1999. Of growing concern is the fact that over 6,000 or so persons, especially youths, are still actively seeking jobs. To address this concern, the government has continued to set up a number of technical and vocational training institutions, local handicrafts for cottage industries and a Resource Center for budding entrepreneurs with inputs also coming from the private/business sector.

TRADE ACCOUNTS

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. However, in recent years, both trade and current account balances have deteriorated (in terms of GDP) as imports rose sharply while exports remained stagnant. Japan is the major export market while imports have largely come from ASEAN countries.

Although the current account remained in substantial surplus throughout the period, the surplus showed a declining trend, falling from 47.4 percent of GDP in 1995 to 46.2 percent in 1999 following reduced earnings from petroleum. In 1999, the trade surplus improved by almost double that of the previous year¡¯s level, mainly due to the effects of the increase in production and 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. In 1999, direct and portfolio investments were estimated to have decreased by more than 10 percent.

FISCAL POLICY

The government continued to tighten its fiscal outlay, following the fall in revenues of the hydrocarbon sector since 1997 as well as of the non-oil private sectors due to the slowdown of the economy. Public expenditures fell by about 37 percent of the level of the previous year. Overall expenditures also remained below the 1998 level by about 6.4 percent and improved the budget deficit by 31.5 percent from US$1,188 million to US$814 million.

MONETARY POLICY

On the average, the movement of the Brunei dollar was quite stable at around US$1=B$1.7. Aggregate bank lending in 1999 continued to decline, reflecting the sharp and widespread downturn in the domestic non-oil and gas activities. The prime lending rate during the period was maintained at 6.25 percent. Currency in circulation in 1999 was around US$713.6 million, up by 13.8 percent from the previous level. Brunei Darussalam has no central bank. Thus, the trend of interest rates follows that of Singapore since the two economies¡¯ currencies are at par.

MEDIUM-TERM OUTLOOK

The performance of the economy in the next couple of years, particularly in 2000, depends very much on the developments in both the hydrocarbon sector and the government¡¯s contributions. The recent trend in production, prices and exports for both oil and gas has shown improvements and is expected to bring in additional revenues. The tight fiscal situation is expected to remain despite this improvement, with the view of balancing the budget. In the year 2000, GDP growth is estimated to be between 3 and 3.5 percent while inflation is expected to be around 1 percent.

Some of the important factors which could/will significantly influence the macroeconomic performance of the economy in the medium-term are:

• The implementation of recommendations of Brunei Darussalam¡¯s Economic Council (BDEC) on measures aimed at economic recovery;
• The impact of commercialization, corporatization and privatization of some government activities;
• The improvement of the business and investment climate to encourage foreign direct investments (FDI);
• The establishment of Brunei Darussalam as an International Financial Centre (BIFC); and
• The production, price levels and exchange rates of oil and gas exports with emphasis on maintaining the stability of oil prices
  

BRUNEI DARUSSALAM: OVERALL ECONOMIC PERFORMANCE