Brunei's Economic Structure and Macroeconomic Performance

Brunei Darussalam (372,000 inhabitants) became independent from Great Britain in 1984. As a result of sizeable deposits of oil and gas, the country enjoys a high per capita income (USD 14,903) and is one of the richest in the region. Its population enjoys high subsidies and pays no taxes.

Brunei’s economy is based on the hydrocarbon industry. The country is the third largest oil producer in Southeast Asia and the fourth largest producer of liquefied natural gas (LNG) in the Asia-Pacific region. Hydrocarbon products account for 90% of exports, over 85% of government revenues and nearly 50% of GDP.

Despite all its wealth Brunei’s future is not free of troubles. Oil reserves are expected to run out in 2015 while its gas reserves will last for only 10 years longer. Brunei reduced its oil production (from 240,000 barrels per day to 200,000 b/d) to prevent a premature exhaustion of its oil fields. Therefore GDP growth (2.6% in 2005) was far less vigorous compared to other major oil exporting countries who all benefited from high oil prices.

It is projected that for 2006 and 2007, an even more restricted export policy will somewhat temper economic growth to 2% per year. Next to hydrocarbon products, Brunei’s only other export product of some importance (accounting for some 5% of exports) is timber. Despite the country’s extensive forests, the availability of this natural resource is in the end also finite. Brunei’s main export markets are Japan (38% of all exports), South Korea (14%) and Australia (11%).

The country imports nearly all of its food requirements. A government-owned cattle farm in Australia that is slightly larger than Brunei itself supplies the country’s beef. Additionally, Brunei has to import also nearly all of its machinery and transport equipment. Singapore (33%), Malaysia (21%) and Japan (7%) are Brunei’s main providers for import products.

Though wealthy, Brunei faces the immense problem to build a sustainable non-oil economy. As long as the oil reserves last (at least for another decade), the country has sufficient financial resources to support the government’s policy of heavily subsidising basic and luxury goods. However, investors still remain reluctant to invest in Brunei because of the small local market, its restricted political freedom and its inflexible public sector.

Source: Brunei Economic Report, Economic Research Department, Country Risk Research, March 2006 (RABOBANK)