BANDAR SERI BEGAWAN – A whopping 594.7 percent rise in petrochemical production has contributed to a GDP growth of 2.6 percent year-on-year in the first half of 2020, according to government data.

In its biannual policy statement for the second half of 2020, Autoriti Monetari Brunei Darussalam (AMBD) said the jump in downstream activities has offset COVID-19-induced losses in the non-oil and gas sector, which contracted 2.8 percent year-on-year.

The sharpest declines were seen in the air transport (-60.2%), land transport (-21.6%) and hotels (-21.5%) sub-sectors as the government imposed COVID-19 restrictions including a travel ban on all Brunei residents since March last year.

Last October, the think tank Centre for Strategic and Policy Studies said Hengyi Industries’ exports of petrochemical products contributed about $740 million to real GDP since it started operations last November to the second quarter of 2020.

With the de-escalation of public health measures, AMBD said some sectors are slowly returning to “some form of new normal”, but others will take a longer time to recover.

The near-term domestic economic outlook will also depend on the performance of the oil and gas sector and the extent of further economic recoveries,” it added.

Oil prices to remain volatile

The oil and gas sector fell 2.6 percent year-on-year following declines in oil and gas output and manufacture of LNG by 1.9 percent and 4.9 percent in the first half of 2020, respectively.

AMBD said the pandemic has resulted in shrinking global commodity prices, particularly oil.

Since their plunge in April 2020, oil prices have gradually rebounded after production cuts by members of the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC as well as easing of lockdowns in subsequent months.

“However, uncertainties over compliance to production cuts, high global oil inventory levels and resiliency of oil demand as well as concerns of subsequent waves of COVID-19 weigh on future price gains. As such, oil prices are not expected to return to pre-crisis levels anytime soon,” the central bank said.

It added that natural gas prices have also seen considerable declines amid a fall in consumption during the pandemic, and are likely to remain depressed in the near term.

AMBD has projected the cost of goods and services to be lower in 2021. Photo: Faiq Airudin/The Scoop

Inflation set to ease in 2021

The cost of goods and services is expected to ease in 2021, with AMBD projecting that inflation will fall within the range of 0 to 1 percent despite reaching a 12-year high of 2.6 percent in June.

The central bank said its inflation forecast for 2020 remains in the range of 1 to 2 percent even though some months reported a rate of above 2 percent due to lower prices towards the end of the year.

“While global inflation is expected to rise gradually in 2021 with the projected pickup in activities, the increase is likely to remain muted as overall demand may continue to be weak.

“Nonetheless, uncertainties surrounding the forecast remain as it also depends on the duration and intensity of the COVID-19 outbreak and thus its impact on global and domestic inflation,” AMBD said.

The consumer price index (CPI) expanded 1.9 percent year-on-year in the first nine months of 2020.

AMBD attributed the increase to price hikes in miscellaneous goods and services, air transport, household textiles as well as mineral water and soft drinks.

“The increasing price trend for a variety of items in the CPI basket may continue in the near-term,” the statement read.

It added that restaurants, hotels and businesses in the recreation and culture sector are expected to face downward pressure on the prices of their products and services due to the COVID-19 pandemic.

Domestic prices may also be lower as global inflation is expected to be softer than initially anticipated.

Photo: Jason Leung

Money-changers reel from impact of COVID-19

AMBD said travel restrictions have caused a severe effect on the money-changing sector, with the buying and selling of foreign currencies dwindling by 82 percent and 95 percent in Q3 2020, respectively.

As part of temporary relief measures, money-changers were given a one-time 80 percent reduction in annual license fees from January 1, 2020 to December 31, 2021.

Money-changers were also allowed to pay the license renewal fee in two phases to help ease their financial burden, the central bank added.

Banking sector risks lower in Q3

Based on AMBD’s analysis, the overall risk level of the banking sector for Q3 2020 was lower compared to Q2 2020 due to improvements in the corporate sector’s credit risk.

Bank liquidity and funding risks, as well as capital adequacy risk continued to be low, while the risks to banks’ profitability as well as offshore placements and investments were assessed to be at medium-low level.

The financial sector recorded a total asset value of $21.8 billion as of Q3 2020, of which $12.5 billion was held by the Islamic finance sector.

Total banking assets had grown by 6.3 percent year-on-year in Q3, with total deposits increasing 2.5 percent to $14.5 billion.

In contrast, the total loans or financing saw a slight reduction of 0.2 percent to $5.83 billion.

AMBD further said it is developing a financial stability index to assess the overall health of the financial system as part of its future plans.

This article was updated on January 11, 2021 to reflect that the jump in downstream activities has offset COVID-19-induced losses in the non-oil and gas sector, and not the services sector. The second paragraph under the ‘Money-changers reel from impact of COVID-19’ subheading was corrected to state that money-changers were given a one-time 80 percent reduction in annual license fees as part of of temporary relief measures, and not as part of the government’s $450 million economic stimulus package.