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Economic policy
The latest statistics concerning government finances stem for FY 2008/09, in which the budget surplus was USD 4bn, equivalent to 25% of GDP. For FY 2010/11, the fiscal position is expected to remain strong due to substantial oil and gas export revenues. While the strength of the fiscal position is certain, detailed analysis of government finances is not possible as the figures are untimely and spending categories are vague and too broadly defined. Even so, as long as hydrocarbon reserves hold up, similarly large budget surpluses are expected to continue.
General economic policy is directed towards diversification away from the hydrocarbon sector and reduction of the size of the public sector. Key areas are IT and Islamic banking, but progress is expected to be gradual. Other plans include upgrading the labor force, strengthening the banking and tourist sectors and increasing agricultural production. Increasing agricultural production was defined by the government as a key policy point to reduce imported food-dependency. The country intends to reach 60% self-sufficiency by 2015.
While this might also reduce imported inflationary pressures, inflation has historically not been a problem in Brunei. Inflation averaged 1.8% yoy in 2009 and is estimated at 0.4% in 2010, which are very low levels. The government’s policy of price controls means no alarming inflationary pressures are expected this year.
Brunei installed a central bank just last year, known as the Brunei Darussalam Monetary Authority. It is handed the tasks of monetary policy and supervision of the financial sector. It has already taken measures to curb a credit bubble in the household sector.
The Brunei dollar is fixed via a currency board with the Singapore dollar at parity. The currency peg has served Brunei well, as the Singapore economy is well-managed. It has prevented erratic exchange rate fluctuations and has successfully contained imported price pressures.
Foreign policy
Brunei's foreign policy aims to promote national policies through bilateral and multilateral fora, by encouraging cooperation in all fields. The goal is to contribute towards promoting peace, security, stability and prosperity in the region, particularly by fostering deeper understanding among countries. To this end, the Association of Southeast Asian Nations (ASEAN) remains the cornerstone of Brunei’s foreign policy. Brunei became a member of ASEAN in 1984.
The guiding principles of Brunei’s foreign policy include: mutual respect for the territorial integrity, sovereignty, independence and national identity of all nations; recognition of the equality of all nations large and small; non-interference in internal affairs; peaceful settlement of disputes and cooperation for mutual benefit.
Brunei is active in a range of regional and multilateral fora, including Asia Pacific Economic Cooperation (APEC), the East Asia Summit (EAS), the ASEAN Regional Forum, the Asia-Europe Meeting, the Forum for East Asia-Latin America Cooperation and the Asia Cooperation Dialogue. It is a member of the Organisation of the Islamic Conference and the World Trade Organization (WTO), and joined the United Nations (UN) when it became independent in 1984. Brunei was one of the four original members of the 2006 Trans-Pacific Strategic Economic Partnership with Chile, New Zealand and Singapore.
Brunei is also one of four participants in the Brunei, Indonesia, Malaysia, Philippines-East ASEAN Growth Area (BIMP-EAGA). The objective of BIMP-EAGA is to secure enhanced growth and development in the least developed sub-regions of ASEAN. On 25 November 2004, the Northern Territory's observer status in BIMP-EAGA was upgraded to that of Development Partner.
Balance of Payments
The surplus on the current account has always been substantial in Brunei, fully attributable to the trade balance. In 2009, the trade surplus was USD 4.6bn, lower than the USD 8.6bn recorded in 2008. This fall reflects the fall in global oil and gas prices in that year. The value of exports fell by 30% in 2009. Oil exports fell by 37% yoy and gas prices by 24%. The only other significant export product, textile and garments, fell by a whopping 53% yoy, as competition in this industry from its neighbouring countries is fierce. Imports fell only slightly, by 4.3%. The import of animal and vegetable oil fell by 26% and imports of machinery and transport equipment by 13%. Brunei’s imports stem mostly from ASEAN with 52%. Smaller import partners are the US with 13% and the EU with 10%. The country’s largest export partners are Japan and South Korea, with which Brunei has long-term supply agreements.
The large surpluses on the current account mean no external financing is required. Nevertheless, the sustainability of these surpluses relies on the availability of hydrocarbon resources.
External position
The external position of Brunei is very healthy. External debt is estimated to be very low and stems almost entirely from the private sector. FX-reserves are managed by the Brunei Investment Agency. Its assets are estimated at USD 30bn and it holds a portfolio mainly consisting of corporations, real estate and currencies. The value of most of these assets has surely been affected by the global crisis. However, these are long-term investments and the value of these investments should have rebounded at least partially along with the global economic recovery.
QUICK FACTS ABOUT BRUNEI
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Highest human development index in the Islamic world (Human Development Report 2009)
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Highest macroeconomic stability in the world (Global Competitiveness Report 2009-2010)
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2nd highest per capita income in ASEAN (Global Competitiveness Report 2009-2010)
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2nd highest quality of life in ASEAN (Human Development Report 2009)
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3rd most favourable tax regime in Asia (Global Competitiveness Report 2009-2010)
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4th largest oil producer in ASEAN (World Trade Organization, 2008)
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9th largest LNG exporter in the world (World Trade Organization, 2008)
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One of the lowest inflation rates in the world – 2.7% (Global Competitiveness Report 2009-2010)
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One of the highest literacy rates in the world – 94.9% (Human Development Report 2009)
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One of the best healthcare systems in Asia (World Health Organization)
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