BANDAR SERI BEGAWAN – The Brunei economy is expected to end the year on a low note as it deals with the spillover effects of the COVID-19 pandemic, the central bank said in its bi-annual policy statement for the second half of 2021.

The Brunei Darussalam Central Bank (BDCB) said the shutdown of some business sectors during the second COVID wave did not bode well for the economy in the latter half of the year.

“Such expectations, coupled with negative growth in the first half of the year, indicate that the overall 2021 growth outlook for the economy may be subdued,” it said in the statement, which was released on Wednesday.

The sultanate had plunged deeper into recession in the first half of 2021, posting a negative economic growth of 1.5 percent following its third consecutive quarter of GDP decline in Q2 2021.

However, the central bank said the easing of restrictions from November “may provide some optimism going forward”.

Brunei went into a partial lockdown on August 7 after the Delta variant sparked a surge in coronavirus infections, but restrictions were gradually lifted last month.

The sluggish economy in the first half of 2021 was mainly attributed to the 4.5 percent contraction in the oil and gas sector due to decreased output.

Analysts said the Brunei economy is more susceptible to domestic and external shocks as it is still heavily reliant on the hydrocarbon sector.

“Domestic risks include disruptions in oil and gas production in mature fields, unexpected drop in output of rejuvenated fields, and uncertain commercial viability of new field exploration in a low oil price environment,” according to the ASEAN+3 Macroeconomic Research Office.

An oil platform off the coast of Brunei. © Getty Images

The Singapore-based think tank said weaker-than-expected oil prices and global demand would also have negative implications on Brunei’s economic outlook.

BDCB said oil prices have risen to multi-year highs in recent months on the back of increased global oil demand as the world began to recover from the pandemic and amid tight OPEC supply curbs.

Brent crude – the global benchmark for oil prices – has been averaging about US$70 per barrel in 2021.

Natural gas prices have also seen significant gains this year, but the central bank said prices are expected to remain volatile in the short term.

In the first half of 2021, the non-oil and gas sector was a bright spot in the Brunei economy, expanding 3.2 percent due to growth in the agriculture, forestry and fishery sector (57.1%) and services sector (2.3%).

Higher food prices

The pandemic continued to push up the prices of meat, vegetables, cooking oil and motor vehicles in the first nine months of 2021, with the consumer price index (CPI) growing 1.7 percent in the first nine months of 2021.

The central bank expects the rising price trend of goods and services in the CPI basket to continue for the rest of the year, after taking into account the second COVID wave’s impact.

An employee at Maju Grocer Supermarket stocks shelves with inventory. Photo: The Scoop

Inflation is projected to remain in the range of one to two percent in 2021, similar to last year’s 1.9 percent – the highest in 12 years.

Moreover, Singapore’s central bank had tightened its monetary policy in October, allowing the Singapore dollar to appreciate against a basket of currencies.

“The implied exchange rate pass-through to inflation in Brunei will be more muted given the Brunei dollar’s one-to-one parity to the Singapore dollar,” BDCB added.

Bank lending grows 2.6% in Q3

The overall risk level of the banking sector has heightened slightly in Q3 2021 compared to the previous quarter, said BDCB.

The central bank said the second COVID wave is expected to have a spillover effect on the financial sector, despite posting a 7.5 percent growth in Q3 2021.

‘In light of the uncertainties associated with the COVID-19 pandemic and the low global rates environment, the banking sector’s profitability has declined with the aggregate return on assets and return on equity at 1.5% and 9.5%,respectively.”

However, BDCB said banks were still able to provide financial assistance to borrowers affected by the pandemic.

Total loans rose 2.6 percent year-on-year to $6 billion in the third quarter of this year.

Offshore investments further contributed to a 7.3 percent increase in total banking assets worth $19.2 billion in Q3 2021.