BANDAR SERI BEGAWAN – Consumers are expected to pay more for goods and services for the rest of the year as the COVID-19 pandemic will drive up Brunei’s inflation, according to Autoriti Monetari Brunei Darussalam (AMBD) projections.
In its bi-annual policy statement for the first half of 2020, the central bank has revised its inflation forecast of one to two percent for 2020.
“However, there is considerable uncertainty surrounding this forecast as it also depends on the duration and intensity of the COVID-19 outbreak, and its [subsequent] impact on global and domestic inflation,” AMBD said in the policy statement that was released on Wednesday.
The upward trend in the prices of items in the consumer price index (CPI) basket is larger than expected and is likely to continue for the rest of 2020, the central bank added.
The rise in CPI was largely attributed to price hikes in miscellaneous goods and services, household equipment as well as food and non-alcoholic beverages.
Brunei recorded a deflation of -0.4 percent last year.
AMBD further said the overall financial stability risk is expected to rise in the first half of 2020 due to increased risks in the external sector, domestic economy and offshore assets.
Another contributing factor is the rising credit risk in the corporate sector arising from the pandemic.
“The risks in banks’ income from offshore investments are also expected to be elevated and will be closely monitored due to the high volatility in the international financial markets and very low short-term interest rates globally,” the statement read.
AMBD said the credit risk of borrowers in the transport and tourism sectors is expected to increase in the immediate term as both sectors will be more severely affected in Brunei.
However, the pandemic’s impact on the two sectors will only have a moderate effect on the country’s economy since the two sectors make up a small portion of Brunei’s economic growth.
In terms of bank financing, these two sectors account for 7.2% and 0.6% of total loans respectively as of 2019.
AMBD said the banking sector continued to show resilience in the first quarter of 2020 amid the pandemic.
This was attributed to the banks’ high level of capitalisation and liquidity; manageable credit risk and effective risk management as well as the provision of an economic stimulus package.
In March, the government unveiled a $450 million economic stimulus package to mitigate the impact of COVID-19, including deferment on principal payment of bank loans to all business sectors.
The central bank said banking sector’s capital position remains robust with an aggregate capital adequacy ratio of 20.3 percent in the first quarter of this year, well above the 10 percent minimum requirement stipulated in the Banking Order 2006 and Islamic Banking Order 2008.
Total loans also expanded 11 percent to $6 billion in Q1 2020 compared to $5.4 billion a year ago following an increase in financing in the commercial property and financial sectors.
AMBD said it is currently establishing a digital payment hub infrastructure that will enable customers to make cashless payments as part of initiatives under the Digital Payment Roadmap for Brunei Darussalam 2019-2025.
Other projects in the pipeline include the formation of Brunei’s stock exchange, where an undisclosed company has been appointed to spearhead the plan.
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