Information about Asia and the Pacific Asia y el Pacífico
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Brunei Darussalam

Author(s):
International Monetary Fund
Published Date:
April 1999
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Information about Asia and the Pacific Asia y el Pacífico
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I. Recent Economic Developments, 1997-98

A. Overview/Summary

1. The Brunei economy is heavily dependent on oil and natural gas, which account for over 50 percent of GDP, about 80 percent of government tax revenues, and 90 percent of exports. Substantial fiscal revenues from oil and gas production have fueled the growth of a large public sector which provides generous remuneration, an extensive welfare system, a high level of investment in infrastructure, and employment for a rapidly growing labor force. High earnings from the export of oil and gas and a steady increase in the country’s net foreign assets over the years have provided a comfortable external payments position and helped to cushion the financial impact of exogenous shocks. The exchange and trade system has remained liberal, and the peg to the Singapore dollar has helped maintain a stable macroeconomic environment.

2. Despite substantial proven oil and gas reserves and ongoing exploration, an important objective of development policy has been to diversify the economic base. However, while the share of non-oil/gas sector in GDP has increased during the 1990s, this reflected mostly growth in construction and services, which have been driven by government development expenditures. Diversification and expansion of private sector activity continues to be impeded by high public sector remuneration, restrictions on the type of activities which are open to foreign participation, and cumbersome foreign investment approval procedures.

3. In 1997, the economy grew by 4 percent led by strong construction and services activities, while average inflation declined to under 2 percent. Current expenditures were contained, and a recovery in capital expenditures was financed by larger transfers from the Brunei Investment Agency (BIA). A surge in private sector credit extended by commercial banks to a large domestic private company facing major economic problems was accompanied by an almost commensurate decline in their net foreign assets position.

4. In 1998, the Brunei economy was adversely affected by the large decline in world price of crude oil, the collapse of a large domestic private company, and the impact of the Asian crisis. As a result, real GDP growth is estimated to have fallen to around 1 percent, owing to the combined effects of the decline in oil/gas exports, the slowdown in non-oil/gas activity exacerbated by the collapse of a large domestic company and lower government capital expenditures, and the related fall in consumption. The immediate financial impact of these shocks on the balance of payments and government revenues was absorbed through the BIA’s investment position, while the impact on the real economy was felt through a decline in overall economic activity and the repatriation of large numbers of foreign workers.

B. Real Sector Developments, 1997-98

Output

5. Real GDP growth increased from 3½ percent in 1996 to 4 percent in 1997, buoyed by strong growth in the non-oil/gas sector, especially in the agriculture and services sectors. In 1998, real growth declined sharply, to 1 percent, owing to the combined effects of an ongoing decline in oil and gas exports because of sharply lower international prices; a fall in domestic demand, exacerbated by the collapse of a large local enterprise; and lower government capital expenditure.

Oil and gas

6. In 1997, production of crude oil and condensate fell slightly to 163,000 barrels per day (bpd) from 165,000 bpd in 1996 (Table).1 Apart from a small quantity earmarked for domestic consumption, the crude oil and condensate are exported to ASEAN countries (37 percent), Japan (28 percent), Korea (27 percent), Taiwan (6 percent), and New Zealand (2 percent) under one-year renewable contracts at prices that vary with the average monthly U.S. dollar price for light crude oil “Tapis” grade, quoted in Malaysia. A small, but increasing, amount is sold on the spot market directly. Though the average international oil price declined by just over 2 percent in U.S. dollar terms during the year, to US$21.5 per barrel, the value of crude oil output in local currency terms rose slightly, as the Brunei dollar depreciated by over 5 percent against the U.S. dollar. Output of liquified natural gas (LNG) remained stable in 1997 at just over 1 billion standard cubic feet per day (bscf/d), maintaining Brunei as the world’s fourth largest producer. About 20 percent of production is consumed domestically, and the remainder is exported exclusively to Japan (Tokyo Electric Power, Tokyo Gas, and Osaka Gas Companies) and Korea (Korea Gas Corporation) under long-term (20-year) contracts. Under the terms of the contracts, the importing countries are free to vary the volume of LNG imports in any one year by plus or minus 3 percent. The contract price for LNG, also determined in U.S. dollars, is adjusted every quarter in line with prices on the world spot market for oil. In 1997, it increased by 4½ percent in U.S. dollar terms to US$3.84 per million BTU.

7. In 1998, reflecting the combination of a 37 percent decline in the average U.S. dollar price of oil to under US$14 a barrel; the onset of recession in many oil importing Asian countries; and actual developments through end-September, annual production of crude oil and condensate is estimated to have fallen below last year’s level, to 160,000 bpd. Similarly, output of LNG is estimated to have declined by about 2 percent to 1.057 bscf/d, while the average price for LNG is estimated to decline by about 25 percent over 1997.

Non-oil/gas sectors

8. In 1997, non-oil/gas activities grew by over 7 percent, spurred by 10 percent growth of the private sector; the government sector grew by under 5 percent, in line with previous years. Consistent with the government’s policy of increasing domestic food production and fostering agro-industrial activities, agricultural output grew by over 6 percent, boosted by sharp increases in local production of ‘halal’ meats (poultry, goats, and cattle) and fruits, and a pick-up in agro-industry. Despite a 4½ percent decline in fish catch, as a result of BSP seismic survey activity and haze in the first half of the year, both of which prevented access to productive fishing areas, total output in the fisheries sector increased on account of higher aquaculture production (seabass and marine shrimp) and increased processing activities. The construction sector grew by just under 9 percent, reflecting an acceleration in public infrastructure development projects, including upgrade of facilities at Muara Port and Brunei International Airport, and development of Brunei Bay, while manufacturing output (food and beverage processing, garments, wood processing and furniture, and building materials) increased by just under 5 percent. In the tertiary sector, restaurants, hotels, real estate, and business services exhibited strong growth, as did community, social, and personal services (including government activities).

9. In 1998, growth of non-oil/gas activities slowed to 4 percent, in response to effects of the Asian crisis; the collapse of a large local company; and a lower government capital expenditure. Private sector expenditures were curtailed by the combined effects of an appreciating Brunei dollar, especially against the Malaysian ringitt (about 20 percent), which encouraged cross-border shopping (e.g., in nearby Sabah and Sarawak), and the repatriation of some 40,000 foreign workers following the collapse of the Amedeo company and a sharp reduction in related construction activities. The initial decline in public sector expenditure, following a sharp reduction in capital expenditures in the first half of the year, was partially compensated in mid-year, by a supplementary capital expenditure allocation of B$352 million and a B$100 million increase in allowances for lower- and mid-level government employees.

Employment, Wages, and Prices

Wages

10. Brunei’s population is growing at an annual rate of 3 percent, and reached an estimated 314,400 at end-1997. Out of an estimated working age population (those between the ages of 15 and 65) of 200,900 in 1997, about 123,000 were economically active, giving an overall labor force participation rate of 61 percent.2 While the labor force participation rate (including temporary residents) of women has increased, from 46 percent in 1991 to 54 percent in 1995, male labor force participation remained much higher at 79 percent. Relatively high salaries and generous benefits offered by the government (see below) continue to act as a disincentive to private sector employment, and according to the latest Labor Department Census (1995), just under half (46 percent) of the working population is employed in the public sector, including over 39,000 in the government. Other large-scale employers are BSP (4,000) and Royal Brunei Airlines (1,900). In the private sector, chronic labor shortages, in professional as well as unskilled fields, have been alleviated by the recruitment of foreign workers, who now make up about 40 percent of the total working population. Private sector employment is concentrated in the construction sector (over 40 percent), followed by wholesale and retail trading (13 percent), and non-oil and gas mining, quarrying and manufacturing (10 percent).

11. In 1998, there was an exodus of foreign workers (including about 16,000 Thais working in the construction sector), reflecting cost cutting measures in local companies facing increased competition from Asia crisis countries; completion of major government projects and the slow down of public sector construction; and the collapse of a large local enterprise.

12. Despite the need for foreign workers and the underlying excess demand for labor, registered unemployment in the local population is estimated to exceed 6,000, equivalent to an unemployment rate of about 5 percent, owing to the reluctance of Bruneians to accept manual-type employment (e.g., in the construction sector) and a mismatch between vacancies and suitably qualified candidates. In reality, actual unemployment is higher as many unemployed people fail to register, particularly among teenage Malays who have not completed secondary school. Under the Seventh NDP, the labor force requirement is expected to increase by 5,200 per year and reach 156,000 in 2000, with the proportion of foreign workers anticipated to remain over 40 percent.

13. The government remains the most attractive employer in Brunei. In particular, an average annual salary of B$ 15,800, supplemented by various allowances and benefits, (amounting to about 70 percent of salary) including rent subsidy, low interest housing and car loans, and an allowance for the haj pilgrimage make it very difficult for the private sector to compete for labor,3 especially small to medium-size private sector companies, even though wage determination in the private sector is entirely free. Average wage rates per month for private sector employees vary from B$450-500 for unskilled labor to B$1,000 for secretaries, construction supervisors, and professional staff, equivalent to an average annual wage of B$5,400-6,000 and B$12,000, respectively.

Prices

14. While inflation in Brunei, as measured by changes in the CPI,4 generally moves in line with trend price developments in Singapore because of the currency peg to the Singapore dollar, deviations in overall annual inflation performance can arise through supply disruptions, changes in administered prices, price developments in the nontraded goods sector, and the composition and pattern of imports.

15. In 1997, average annual CPI inflation in Brunei fell to 1.7 percent, down from 2 percent in 1996, whereas average annual CPI inflation in Singapore rose to 2 percent in 1997, from 1.4 percent in 1996. There were no changes to administered prices or prices of nontraded goods, nor any major supply disruptions in 1997. For the most part, price developments reflected the combination of declines in the U.S. dollar import prices of food, manufactured products, and machinery and transport equipment, and fluctuations in bilateral exchange rates of import source countries. In particular, the appreciation of the Brunei dollar against the currencies of neighboring Asian crisis countries (Malaysian ringgit, Indonesian rupiah, Philippine peso, and Thai baht), especially in the second half of the year, which helped moderate imported inflationary pressures (ASEAN countries account for 45 percent of total imports), was offset by the depreciation of the currency against the U.S. dollar, sterling, the yen, and the major European currencies (U.S., Japan, and Europe account for 39 percent of total imports). Prices of food, clothing, and footwear (accounting for a combined 45 percent weight in the reference consumer basket) increased by 3.7 percent and 4 percent, respectively, while prices of housing, transport, and communications (with a combined weight of 39 percent) declined slightly. In the year to July 1998, average CPI inflation was negative 0.6 percent, as a decline in prices of transport and communications more than offset small increases in prices of food, clothing, and footwear.

Environment

16. The quality of the environment has been an important policy consideration since the Fifth National Development Plan, 1985-90 (NDP5). Since 1993, the National Committee on Environment (NCE), assisted by the Environment Unit in the Ministry of Development which acts as Secretariat, maintains responsibility for overall policy coordination, review, and implementation of the government’s National Environment Strategy (NES) within the NDP. Under NDP7, 1996-2000, the policy objectives of the NES include sustainable use of natural resources, minimizing negative environmental impacts from population growth, and achieving an appropriate balance between socio-economic development and maintaining the quality of the environment. Principal areas of environmental policy include conserving biodiversity, protecting forests, the ocean, freshwater resources and the atmosphere, and managing solid waste.

C. Fiscal Sector Developments, 1997-98

Overview

17. The public sector in Brunei is highly dependent on revenue from the oil and gas sector, and provides generous remuneration for public workers as well as a high level of investment in infrastructure. In response to a trend decline in oil and gas prices, the government has gradually attempted to contain current expenditure, while capital expenditure accelerated in 1993-95 to complete the Sixth NDP. In the absence of significant revenue measures, transfers from the Brunei Investment Agency (BIA) have financed budgetary shortfalls since 1992, reaching as high as 31 percent of GDP in 1994.5

18. Due to a turnaround in oil and gas prices which pushed up revenue in 1996, together with a decline in capital expenditure, due to temporary slowdown in new development projects, transfers were reduced to about 12 percent of GDP. However, as world oil price declined again, the government increased transfers to finance budgetary shortfalls in 1997 and 1998.

19. In 1997, total revenue, excluding transfers form BIA, declined by 2 percentage points of GDP, while total expenditure increased by the same amount from the previous year. Transfers from BIA increased by 2 percentage points of GDP. In 1998, total revenue is estimated to have declined by 9½ percentage points of GDP, while total expenditure is estimated to have remained at 50 percent GDP. Consequently, transfers from BIA are expected to have increased by about 10 percentage points of GDP. Meanwhile, defense expenditures (in both current and capital expenditure part) rose to some 14 percent of total expenditure in 1997, equivalent to 7 percent of GDP.

Revenue

20. Government revenues are dominated by receipts from the hydrocarbon sector in the form of corporate income tax, royalties, and dividends. Consequently, revenues fluctuate with oil and gas production and prices, and the profitability of the oil and gas industry (see Section II. A.

21. In 1997, tax revenue increased from 18⅓ percent of GDP to 19½ percent of GDP. Income tax, which accounted for 85 percent of tax revenue, increased because of higher income tax receipts from oil and gas companies.6 Import duties, which accounted for 14 percent of tax revenue, also increased despite a decline in total imports, as a result of the surge in imports of motor vehicles which were subject to higher import duties (40-200 percent).

22. Non-tax revenue, however, decreased from 19 percent of GDP to 16 percent of GDP. Government property income (mostly oil/gas-related dividends and royalties), which accounted for about 75 percent of non-tax revenue fell due to lower royalties, as the bulk of oil production shifted to farther offshore fields and exploitation of new oil and gas fields became more costly.7

23. In 1998, due to the fall in oil/gas prices, tax revenue is estimated to have declined to about 16 percent of GDP and non-tax revenue to 10 percent of GDP.

Current expenditure

24. In response to a decline in oil/gas revenues, the government has attempted to contain current expenditure. Salary increases have been controlled below the rate of inflation; as a result, current expenditure decreased to 32 percent of GDP in 1997, in line with the 1986-94 average (34 percent).

25. In 1998, current expenditure is estimated to have increased by 2 percentage points of GDP to 34 percent, partly due to the increase in allowances (B$80-140 per month, depending on basic salary) for government employees effective July 1998. The impact on current expenditure is estimated to be around B$100 million,8 of which B$50 million is expected to be paid in 1998. Expenditure on personnel emoluments increased in 1997 owing to the creation of new posts, previously frozen, and the appointment of new permanent secretaries and new deputy secretaries, and this is also expected to increase the expenditure on personnel emoluments in 1998.

Capital expenditure9

26. Until 1995, the government accelerated the implementation of the projects in the Sixth NDP in order to complete projects within the Plan period. However, in 1996, capital expenditure slowed due to delays in the launching of the new Seventh NDP.

27. In 1997, capital expenditure increased by 4 percentage points of GDP, reflecting a 42 percent increase in development expenditure incurred by the inclusion of Istana Project Section (IPS) projects which were previously not recorded in the development budget. The payments for IPS projects (B$380 million) were more than one-fourth of total capital expenditure, which was already committed by the government in 1996.

28. In 1998, as a part of public expenditure reduction measures, the government initially budgeted only B$605 million for development expenditure, compared to B$1.3 billion in the 1997 budget and B$892 million of actual spending in 1997. However, as a result of the economic downturn, the authorities announced additional development expenditure of B$352 million in late June, increasing the total budget to B$957 million. The additional injection of funds was designed to ensure that all contractors be paid and projects carried out, and to fuel the sluggish economy. Actual expenditure is estimated to have been B$730 million of which B$230 million for IPS-related projects. Nevertheless, total capital expenditure is estimated to have declined by 2 percentage points of GDP.

29. Apart from capital expenditure, large investments in some public enterprises took place in 1994 and 1995, financed by transfers from the General Reserve Fund (around 1 percent of GDP).

D. Monetary Sector Developments, 1997-First Half of 199810

Overview

30. In 1997, broad money growth declined as a sharp decline in net foreign assets of the banking system more than offset a sharp rise in credit to the private sector. In particular, a large decline in foreign assets of commercial banks (BCB net foreign assets rose) was closely matched by a corresponding increase in credit extended to a large domestic private sector company, mostly involved in construction activities. In addition, commercial banks’ foreign liabilities rose as depositors switched from local currency deposits to higher yielding foreign currency deposits. Total deposits fell as an increase in quasi-money was more than offset by a decline in demand deposits. Currency outside banks grew by slightly more than non-oil/gas nominal GDP. In the first half of 1998, most monetary aggregates declined relative to end-1997, reflecting the sharp decline in oil prices and sluggish growth in the non-oil and gas sector. In particular, currency declined by 3 percent, while claims on the private sector fell by just under 12 percent. As a reflection of the economic downturn experienced in 1998, particularly in the construction sector, commercial banks’ exposure rose during the year (to the real estate market and to personal loans), and the incidence of rolling over loans rose sharply. Notwithstanding the roll over of some loans, the share of nonperforming loans in total loans rose from 3 percent to just under 5 percent in the year to mid-1998.11

Developments in 1997

31. Broad money fell by just under 5 percent in 1997 to B$7,466 million in 1997, as a sharp decline in net foreign assets of the banking system more than offset the rise in net domestic assets. On the assets side, the decline in net foreign assets was entirely due to the fall in net foreign assets of commercial banks, as net foreign assets of the Brunei Currency Board (BCB) rose to B$849 million. As a result, the BCB’s net external assets ratio increased to 0.94 from 0.89, while its liquid external assets ratio rose to 0.40 from 0.36.

32. Net foreign assets of commercial banks declined by B$2,400 million during the year to B$2,984 million, owing to an increase in liabilities and a sharp reduction in assets. Foreign liabilities of commercial banks increased B$237 million during the year to B$368 million, reflecting exchange rate valuation effects and an increase in foreign currency deposits, as some customers switched from local currency denominated deposits to higher-yielding foreign currency deposits, including U.S. dollar deposits. Foreign assets of commercial banks declined by B$2,165 million to B$3,351 million. The decline in commercial banks’ foreign assets was almost equally matched by a 65 percent increase in private sector credit, the bulk of which was used to help finance (through one commercial bank) construction-related expenditures of a large domestic company (amounting to B$1.6 billion). As a result, the bank in question sharply increased its open foreign exchange position.12 Excluding this amount, credit to the private sector grew by about 15 percent. Loans to the construction sector (excluding the large construction-related loans mentioned above), which accounted for 16 percent of total loans, rose by 45 percent during the year, while personal loans, which account for over a third of total loans, increased by only 2½ percent.13 Government deposits declined by B$740 million during the year to B$933 million.14

33. On the liabilities side, currency outside banks increased by 7½ percent in 1997, slightly higher than the growth rate of nominal nonoil/gas GDP. Total deposits declined by 5½ percent, as a large increase in time deposits—in response to higher deposit rates following a rise in deposit rates in Singapore in the last quarter of the year (see below)—was more than offset by a steep reduction in demand deposits.

Developments in the first half of 1998

34. Monetary aggregates through end-June 1998 reflected the sharp decline in economic activity, especially in the non-oil and gas private sector. Net external assets of the BCB declined to B$826 million over end-1997, owing mostly to valuation effects of a depreciating exchange rate. As a result, though the BCB’s net external assets ratio fell to 0.92, while its liquid external assets ratio declined to 0.38.

35. Credit to the private sector declined by 11½ percent over end-1997, as just under half of the B$1.6 million lent out in 1997 (see above) was repaid in the first half of 1998. Excluding the amount lent out in 1997, loans increased by only 3 percent or so, reflecting the uncertain regional environment and a sharp and widespread downturn in domestic non-oil and gas business activity. Loans outstanding to the construction sector declined in nominal terms, while personal loans rose by just under 3½ percent.15

36. At end-June, currency in circulation was around B$625 million, down 3 percent from end-1997, while deposits by commercial banks at the BCB remained flat at B$367 million, slightly below the statutory minimum cash balance requirement of 6 percent.

Interest rates

37. Consistent with the exchange rate peg to the Singapore dollar, interest rate policy in Brunei follows that of Singapore. The Brunei Bankers’ Association (BBA) sets the prime lending rate every month, based on the Singapore prime rate for the previous month and market expectations. The Brunei prime rate moves with the prime rate in Singapore plus a margin, usually between 0.25-0.5 percent, and acts as a benchmark lending rate only; in practice, a lower rate is applied to preferred customers and on consumer loans. The BBA also sets monthly maximum interest rates for savings and time deposits up to B$50,000 and B$ 100,000, respectively, though not in a fixed relation to the prime rate. Interest on deposits above B$ 100,000 are freely determined. Demand deposits are not remunerated, except those of the government which earn 2.5 percent annually.

38. In 1997, though the lending rate in Singapore was increased on two occasions in the last quarter, from 6¼ percent to just under 7 percent, the prime lending rate in Brunei was maintained at 6½ percent throughout the year. On the deposit side, the average three-month deposit rate in Singapore was raised in the last quarter of 1997 from under 3½ percent to over 4 percent, while the average savings rate was increased from 2¾ percent to over 3 percent. In response, the maximum rate on three-month deposits of under B$ 100,000 in Brunei was raised several times during the year from 1½ percent to 2¼ percent by end-year, while the yield on savings deposits under B$50,000 was raised from 1¾ percent to 2 percent toward the end of the year.

39. In January 1998, in response to a further increase in the prime lending rate in Singapore, to 7¾ percent, the prime lending rate in Brunei was raised to 7 percent. On November 9, 1998, in line with the reduction in the Singapore prime rate to 6½ percent, the prime lending rate was reduced to 6¾ percent in an effort to help spur economic activity in the non-oil private sector. With regard to deposit rates, in response to increases in yields in Singapore on savings deposits in January (to 3½ percent) and on three-month deposits in February (to just under 5¼ percent), deposit rates in Brunei were also raised. In January, savings rates on deposits under B$50,000 were increased to between 2¼ and 2¾ percent, while yields on time deposits under B$ 100,000 were increased to between 3 and 3½ percent. In November, both rates were reduced 25 basis points in line with the decline in the prime lending rate.

E. External Sector Developments, 1997-98

Overview

40. Sizable hydrocarbon exports and the steady accumulation of long-term foreign assets over many years have provided Brunei with a comfortable external payments position, facilitating the maintenance of a liberal exchange and trade system. In recent years, however, both trade and current account balances deteriorated steadily (in terms of GDP) as imports rose sharply while exports remained stagnant. Japan is the major export market, while the increase in imports, which has been fueled by increased government expenditure, has largely come from ASEAN countries.

41. Brunei does not publish comprehensive balance of payments statistics, although the Ministry of Finance is compiling the statistics based on the limited information available. A major impediment to the compilation of the balance of payments is the lack of data on the government’s investment income. Only data on merchandise exports and imports based on customs returns are published on an annual basis in the Statistical Yearbook. Unpublished data are available for some of the other components of the balance of payments, based mainly on the exchange record of the commercial banks, the balance sheet of the BCB, foreign banking transactions of the Brunei Shell group of companies, Royal Brunei Airlines, and remittance companies. Hydrocarbon exports, merchandise imports, and investment income dominate the external current account.

42. Although the current account remained in substantial surplus throughout the period,16 the surplus showed a declining trend, falling from 90 percent of GDP in 1985 to about 40-50 percent recently following reduced earnings from petroleum. In 1997, an increase in exports and a decline in imports, together with increasing investment income, improved the current account balance. However, in 1998, the trade surplus is estimated to have declined by 8½ percent points of GDP to 3½ percent, mainly due to the world oil price decline and lower investment income. As a result, the current account surplus is estimated to have fallen to 43 percent of GDP.

Exports

43. Exports consist mostly of hydrocarbons, with revenues from LNG since 1986 equaling those from the export of oil. Although its share in total exports is still small at 9 percent, the export of nonhydrocarbons increased by 167 percent during 1993-97, led by reexports as well as garment exports, which have benefitted from Brunei’s quota in developed country markets under the Multifibre Agreement.

44. As a result of Brunei’s conservation policy and long-term contracts with Japan and Korea the volume of oil exports has stabilized. The changes in the value of hydrocarbon exports have reflected mainly the price fluctuations in the world oil market.

45. Total exports increased by 3 percent in 1997. Petroleum exports (crude and condensate) decreased by 8 percent, reflecting lower oil price and volume (oil price decreased by 2½ percent and petroleum export volume declined by 5½ percent), while exports of LNG increased by 11½ percent. Gas exports to Korea increased by 29 percent. Total oil and gas exports increased marginally by 1 percent, but still accounted for 91 percent of total exports. A notable increase was seen in exports of garments17 (18½ percent over the previous year) and machinery and transport equipment18 (28⅓ percent).

46. In 1998, total exports are estimated to have declined by 29 percent, mainly due to the decline in oil and gas prices. Petroleum exports are estimated to have declined by 37½ percent, reflecting the decline in oil price, while gas exports are estimated to have declined by 26½ percent.

47. Japan remains the dominant export market (53 percent of total exports in 1997) while Korea (18 percent) has increased its share as it started to import LNG in 1994. Exports to ASEAN countries (21 percent), including newly joined Laos, Vietnam and Myanmar, remained almost flat in recent years.

Imports

48. Brunei imports almost everything, including most foodstuffs and beverages. In value terms, machinery and transportation equipment account for the highest share, ranging between 35 percent and 50 percent of all imports, reflecting high number of vehicles and construction activity in Brunei. Manufactured goods, such as consumer electronics and electrical appliances, come next with a 20-30 percent share, followed by food (including live animals) and other manufactures, such as textiles.

49. After nearly a 20 percent increase in 1996, total imports in U.S. dollar terms declined by 15 percent in 1997. Excluding lumpy aircraft-related imports which surged in 1996, imports declined by 8 percent. The decrease in imports (excluding aircraft-related) was due to a decline in world commodity prices, the completion of major projects by 1996 and an “effective” decline in development expenditure (development expenditure excluding payments for IPS project: B$629 million in 1996 to 512 million in 1997).19

50. Looking at the origin of imports, in 1997, 45½ percent of total imports were from ASEAN countries. Imports from European Union, accounted for 18 percent in share. Imports from Japan, accounted for 11 percent in share, increasing significantly in 1997, partly due to the increase in the importation of cars, while imports from USA decreased in share to 10 percent in 1997 after a surge in 1996, reflecting lumpy aircraft-related imports.

51. In 1998, imports are estimated to have declined by more than 14½ percent in U.S. dollar terms, due to continued decline in world commodity prices and “effective” development expenditure (B$512 million in 1997 to B$500 million in 1998).20

Other current account transactions

52. Investment income is estimated to have risen in line with the persistent current account surpluses. Thus, the steady growth of imports was easily financed, even though investment income may have fluctuated substantially from year to year depending on financial market performance. However, net investment income is estimated to have been around 50 percent of GDP in recent years. Net outflows on account of services and current transfers occurred each year, in the form of payments for foreign travel, and, occasionally, high consulting, management, and other professional fees in the oil and gas sector. Current transfer outflows mainly consist of remittances by immigrant workers from neighboring Asian countries. Nevertheless, the current account surplus increased to 53 percent of GDP in 1997.

53. In 1998, due to a loss incurred by regional economic crisis and a collapse of large private company, investment income (net) is estimated to have declined by 1½ percent point of GDP to 49 percent. Decline in interest rates in U.S. and U.K. also had a negative effect, but this was partially offset by the depreciation of the Brunei dollar. Together with a decline in the trade balance, the current account surplus is estimated to have declined by more than 10 percentage points of GDP to 43 percent.

Capital account transactions

54. Portfolio and direct investment inflows have risen in recent years. Recorded inflows, however, are dwarfed by long-term capital outflows, which are derived as a residual in the balance of payments compilation, combining direct placements and reinvested earnings. Short-term capital (the sum of recorded transactions through the domestic banking system and by the Brunei Shell group of companies, plus estimated export trade credits and transactions through BCB) provided net financing in most years. In placing their structural excess liquidity abroad, commercial banks in Brunei contributed importantly to both outward portfolio investment and short-term lending in most years.

International reserves

55. The international reserve position of Brunei is very comfortable, although it fell in 1997, mainly due to a sharp drop in commercial banks’ net foreign assets. At the end of 1997, international reserves amounted to US$3.7 billion, or 17 months of imports of goods and services, with most reserves held by the commercial banks. Commercial banks have invested their international reserves mostly with affiliated banks in Singapore; at end-1997, those net investments amounted to US$1.8 billion. Official international reserves include the BCB’s external assets and the Consolidated Fund, which could be mobilized if necessary for balance of payments financing. The BCB’s external assets have been increasing steadily with currency in circulation. At the end-1997, total net official international reserves were US$1.9 billion, equivalent to nine months of imports of goods and services.

Exchange and trade system21

56. Exchange arrangement: The Brunei dollar is issued by the Brunei Currency Board (BCB) only against payments in Singapore dollars and at par. The BCB’s only intervention currency is the Singapore dollar and the BCB does not quote rates for other currencies. Under the terms of a 1967 Currency Interchangeability Agreement (CIA), the Singapore dollar is customary tender in Brunei and the Brunei dollar in Singapore. Banks are free to deal in all currencies, with no restrictions on amount, maturity, or type of transaction, and in practice, the Brunei exchange market functions as an extension of the Singapore market.

57. There is no forward market for foreign exchange in Brunei. However, as a result of the CIA, foreign exchange risk can be hedged in terms of Singapore dollars by resorting to facilities available in that country, including foreign currency futures and options traded on the Singapore International Monetary Exchange (SIMEX), over-the-counter forward transactions arranged by banks in Singapore, and the short-term foreign exchange swap market operated among banks in the Singapore money market. There is no official cover for forward positions.

58. The Brunei dollar is fully convertible and there are no exchange controls. There are no requirements to collect, repatriate or surrender foreign exchange proceeds from exports, and financing terms may be freely agreed between residents and nonresidents. While the provision of foreign exchange for invisible transactions and current international transfers is subject to a bone fide test, in practice, approval is granted quickly and without limit. There are no capital account restrictions, nor any regulations limiting banks’ foreign exchange exposure. Activities relating to national food security and those based on local resources require some degree of local participation, and at least one half of the directors of a company must be either Brunei citizens or residents of Brunei.

59. Trade arrangements: The trade system remains very liberal and import tariffs continued to decline over the period. There are no restrictions on the destination, origin or provenance of merchandise trade. On the export side, there are neither bans nor taxes, although licenses are required for cigarettes, petroleum products, rice, salt, and sugar; in the case of the latter four because they are subsidized. On the import side, a few imports are banned or restricted for environmental, health, safety, security, or religious concerns, but not for protection or balance of payments reasons. Between 1996 and 1998, the percentage of imports subject to a zero-rate tariff, including basic foodstuffs and construction and educational materials, rose to over 82 percent from 79 percent, while the number of goods subject to tariff rates in excess of 10 percent fell from 748 to 78. As a result, while automobiles remain subject to duties ranging from 60 percent to 300 percent depending on engine size, the average weighted import tariff has fallen to under 1 percent. In accordance with the Common Effective Preference Tariff (CEPT) scheme for the ASEAN Free Trade Association (AFTA), Brunei is scheduled to reduce all its tariffs on imports from other ASEAN members to 0-5 percent range by 2003, with the exception of 203 tariff lines that are permanently excluded from the plan for environmental, health, safety, security, or religious reasons.

II. Selected Issues

A. Fiscal Structure and Reform

Structure of the budget

60. The fiscal structure of Brunei Darussalam is characterized by a very large public sector. In addition, the government budget is built on a structure of public expenditures which is relatively inflexible (given the very high levels of government employment and salaries and perquisites) while the structure of public revenue is narrow and relatively volatile (due to the dominance of the oil and gas revenues and the lack of broad-based income or consumption taxes). As a result, the official budget tends to be in deficit in years when the world oil prices are not favorable, but this is more than offset by large investment income of government assets held abroad which is not included in the budget figures.

Budget process

61. The Ministry of Finance is in charge of the budget process, under the supervision of the State Budget Committee appointed by the Sultan. Only the central government collects revenues, and lower levels of government are dependent on transfers from central government. The fiscal year coincides with the calendar year. In addition to the yearly budget cycle there is a five-yearly NDP cycle. Although the design and implementation of NDPs is coordinated and monitored by the Economic Planning and Development Department (EPDD), the National Development Committee, chaired by the Minister for Development and including various deputy ministers and the permanent secretaries of all other ministries, makes the final allocation.

Structure of revenue

62. As mentioned in Section I, government revenues are dominated by receipts from the hydrocarbon sector in the form of corporate income tax, royalties, and dividends. The present tax system of Brunei consists of two major taxes (corporate income tax, including withholding tax on overseas interest payments, and customs duties) and three minor taxes (estate and stamp duties, and municipal buildings tax).22 Non-tax revenue consists of royalties, dividends, and some commercial receipts (fees and charges).

63. Brunei does not have personal income tax and corporate income tax accounts for the major share of tax revenue. The tax has three rates: 55 percent of oil companies; 50 percent for gas companies; and 30 percent for all other companies. Of about 4,000 registered companies, 1,500-2,000 file income tax declarations, but only 500 pay taxes. The oil and gas companies pay taxes on a quarterly basis and all other companies annually. The share of import duties in tax revenue was 14 percent in 1997, which is likely to decline in the coming years as Brunei lowers import-duty rates further, consistent with commitments under various multinational agreements.

64. New revenue measures were introduced in recent years, but their revenue impact was limited. The measures included a 30 percent increase in the price of gasoline in 1992, the introduction of a few co-payments in the medical insurance scheme, and increases in fees and charges for government services. Also, effective December 1994, import-duty rates on cigarettes and alcoholic beverages were raised substantially. In February 1995, a steep increase in the import tariffs on automobiles took place which raised a uniform rate of 20 percent to a range of 40-200 percent, depending on the size of engines. In April of that year, the government reduced import duty rates on 688 items, mainly consumer goods.

65. Nontax revenue consists of royalty, dividends, and some commercial receipts. Royalty payments differ for onshore, and offshore fields. For onshore fields, the royalty currently paid by BSP is a flat 12½ percent (in cash or kind) of production; for offshore fields, it is 10 percent of production between 3 and 10 miles, and 8 percent of production farther offshore. Similar terms apply to natural gas production. The level of dividends are decided by the executive boards of the companies, taking various factors into account such as investment plan.

Structure of expenditure

66. The Brunei expenditure statistics distinguish between ordinary, charged and development expenditures. Ordinary expenditures consist mostly of wages and salaries and pensions and gratuities for public sector workers, but also certain capital expenditure.23 Charged expenditures cover other current operational costs. Finally, the category “development expenditures” contains all capital spending decided in the context of the five-year NDPs. A consistent functional breakdown of expenditures is not available, although “ordinary expenditures” are published by ministries and for a subset of major departments.

67. Brunei Darussalam’s budget policy is centered around the principle that all its people should share in the revenues from the exploitation of oil and gas. Based on this policy, current expenditure has provided public sector employees with generous remuneration and an elaborate welfare system. The welfare system offers essentially free medical care, with treatment abroad if required; a noncontributory old age pension of B$200 per month for citizens and permanent residents who are 60 years old or older; special allowances in case of disability and poverty; free education up to the university level, abroad where necessary; subsidized housing and staple foods; and financial support in making pilgrimages to Mecca. These benefits are generally not available to temporary residents, and for permanent residents they are partly financed privately from the 10 percent of income Muslims are expected to give to charity (zakat). Apart from welfare-related expenditures, the budget puts emphasis on defense,24 which accounted for 14 percent of total expenditure in 1997, equivalent to about 7 percent of GDP.

68. On capital expenditure, while their principal objective has been to diversify the economic base through the expansion of agriculture and industry, the NDPs have shifted their emphasis on different spending categories. Under the Seventh NDP (1996-2000), the structural reforms to promote economic diversification included (1) encouraging oil/gas downstream activities such as petrochemical and gas-based industries, refining, and bunkering; (2) promoting Brunei as a service hub for trade, tourism, and business services; and (3) developing agriculture and fisheries, mainly to provide for some part of Brunei’s domestic requirements.

Financing

69. Since 1986, government foreign investment income accruing to the General Reserve Fund is no longer recorded ex-ante in the budget, although it is used ex-post for financing budgetary shortfalls, as transfers from the General Reserve Fund have occurred regularly since 1992. Since 1994, the transfers also have included investments by the BIA in some public enterprises. However, these ex-post transfers to the budget have been well below the estimated annual investment income of the government.

70. There are two separate reserve funds: the Government Consolidated Fund, a reserve fund comprising the government’s tax and non-tax revenues including transfers from the General Reserve Fund, and from which the government’s ordinary and charged expenditures are paid; and the Development Fund, a reserve fund allocated in accordance with the NDP from which development expenditures are paid. Every year, a certain amount is transferred from the Consolidated Fund to the Development Fund as a “contribution to Development Fund.”

71. The General Reserve Fund, under the control of the BIA, is the largest extra-budgetary fund which contains revenues from oil and gas set aside for future generations. Information on this fund is not available as the BIA presents its accounts only to the Sultan. In the mid-1980s, the government ceased recording BIA’s investment income as revenues and began recording its foreign transactions separately from the exchange records. Another extra-budgetary fund is the Government Trust Fund, which finances loans on favorable terms to government employees.25

Public enterprises

72. Since 1985 the government has held a 50 percent share in Brunei Shell Petroleum Company Limited (BSP) and Brunei Shell Marketing26. In 1973, the government first bought a 25 percent share in BSP, which was established in 1957 as a fully owned subsidiary of the Royal Dutch/Shell group. Brunei Shell Marketing was established in 1974 to sell oil and gas products domestically. The government eventually also raised to 50 percent its initial 10 percent share in three other companies—Brunei LNG, Brunei Coldgas, and Brunei Shell Tankers—formed in 1969 to handle the liquefied natural gas trade with Japan. Brunei Coldgas was merged with Brunei LNG in 1996, and the government retains a two-thirds majority, while the remaining one-third is shared equally between Shell and Mitsubishi Corporation of Japan. Brunei Tankers is fully government owned but its activities are subcontracted to Shell. The government’s interests in the oil and gas companies are looked after by the Petroleum Unit, a division within the Prime Minister’s Office, which is also the principal regulator of the oil and gas industry. In addition, the Bruneian members of the BSP board and their alternates formed in 1993, a ministerial committee, called the Brunei Oil and Gas Authority, with policy responsibility for major decisions; the Director of the Petroleum Unit serves as secretary to this committee.

Fiscal reform

73. While the authorities have undertaken some measures in recent years to raise more fiscal revenues and rationalize expenditures (selected tariff increases, freezing current expenditures, and privatizing a few small public services), there is a need to broaden the tax base away from oil revenues. Also, there is considerable scope for rationalizing large public expenditures and developing an institutional framework that can capture private sector as it becomes a more significant part of the economy.

74. The present tax system of Brunei is relatively simple and its rates are moderate by international standards, but extremely narrow in scope. It has the following five weaknesses;

  • It is very narrow in coverage; it lacks a general sales tax as well as a broad-based income tax (income tax is levied only on the profits of limited companies and exempts all establishments that are unincorporated as well as all personal incomes).

  • Its revenues are essentially dependent on oil and gas, which is likely to be a declining source of revenue over the medium term.

  • The revenue yield of the tax system is low and lacks buoyancy.

  • The system contains tax laws which are out of date and which have not kept pace with the changes in the structure of the economy as well as the economic policies.

  • The present system is not efficiently administered.

75. Broadening the tax base is an important fiscal objective, given that oil/gas sector will be a declining source of revenue over the medium term. It would be necessary to expand the present corporate income tax to cover the large and growing unincorporated establishments; this sector benefits greatly from government investment in economic and social infrastructure and pays little to no taxation. Over time, it would be desirable that income tax be extended to include the incomes of individuals as well.

76. On charges, many public services, even when they involve huge investment and operations and maintenance costs and are of commercial type (e.g., electricity, water, telephone, roads) are inadequately priced. Thus, charges should be raised to recover at least the operational costs of electricity generation and distribution, water supply, and local telephone service, and over time these services should operate on a commercial basis, with prices based, as far as possible, on average costs.

77. On the expenditure side, personnel emoluments in the public sector are large (one-fourth of total expenditure) and civil service cash “perquisites” are excessive making private sector employment uncompetitive in comparison with government employment, which is the largest employer and, in fact, it is an employer of choice with the Bruneians. Although subsidies are not explicit in the budget, there are many sizable “hidden” subsidies (e.g., energy, housing, water, telephones) as well as transfers (e.g., civil service pensions). Defense expenditure also should be reduced, considering its large and increasing share in the total expenditure, in favor of human resource and infrastructure development.

78. Thus, limiting new government job creation to, or below, the annual attrition rate (thereby keeping the “net” employment level constant or even reducing it) and eliminating, or reducing, fringe benefits such as conveyance and telephone allowances, which have little rationale, would be an effective way of rationalizing large public expenditures. Also, the civil service pay scales and other pay scales (i.e., teachers, military) should be revised to incorporate all perquisites and “hidden” benefits and make government salary structures completely transparent. Over time, the subsidy given to government employees (in the form of interest-free loans) for the purchase of cars and houses, which are essentially items of private consumption, should be eliminated or reduced.

B. Strengthening and Development of the Financial Sector

79. As part of its strategy to diversify the economy, some diversification of financial services has occurred over the last few years, and the government has targeted further development in this area, including in the provision of clearing and settlements services and the development of a domestic securities market. Further development of the financial system will help spur a healthy and sustainable expansion in private sector activities in Brunei only if it is preceded by appropriate prudential regulation and supervision.

Structure

80. As detailed in the accompanying table, the financial system of Brunei comprises:

(i) The Central Bank Subsector: The operation of the BCB are limited to the issue and redemption of Brunei currency notes and coins and the investment of its external reserves. By statute, the BCB is required not to let its external assets fall below 70 percent, or its liquid assets below 30 percent, of its demand liabilities.27 The BCB does not act as a lender of last resort to banks, lend to the government, hold government securities, or maintain any government deposits.28 The BCB maintains accounts in three domestic banks, which are used for the settlement of currency transactions. At end-June 1998, total assets of the BCB stood at B$ 1.45 billion.

Brunei Darussalam: Structure of Financial Sector, 1998
TypeNameYear

established
Locally-

owned
Government

share

(Percent)
Branch of

international

bank
Joint venture with foreign partnerPaid-up

capital

(B$mns.)
Main

activity
Currency boardBrunei Currency Board1967Yes100NoNoIssue currency and maintain exchange rate stability
Investment agencyBrunei Investment Agency1983Yes100NoNoManages bulk of Brunei’s
external assets
Commercial banks (8)Islamic Bank of Brunei Berhad1982 1/Yes66.95 2/NoDai Ichi Kangyo Bank Ltd.55.0Commercial banking
Baiduri Bank Berhad1994Yes85 3/NoParibas50.0Commercial banking
Standard Chartered BankNoYesStandard Chartered BankCommercial banking
Hong Kong and Shanghai
Banking Corporation (HSBC)NoYesHSBCCommercial banking
Citibank N.A.NoYesCitibankCommercial banking
Malayan Banking BerhadNoYesMalayan BankCommercial banking
Overseas Union Bank (OUB)NoYesOUBCommercial banking
Sime Bank BerhadNoYesSime BankCommercial banking
Development bank (1)Development Bank of Brunei1995Yes100NoNoDevelopment banking
Savings bank (1)Tabung Amanah Islam Brunei1991Yes100NoNoIslamic depository corp.
Finance companies (5)
Baiduri Finance1996Yes100NoNo1.0Consumer and equipment
IBB Kredit Berhad1997Yes100NoNo1.0lending and leasing
Standard Chartered FinanceNoStandard Chartered Bank1.0
Mortgage and FinanceNo1.0
IRB FinanceNoNo1.0
Insurance companies (23)
Of which:Motor and General Insurance1972Yes2.2General insurance
Borneo Insurance1980Yes2.6General insurance
National Insurance Company1969YesBaiduri Holdings5.0General insurance
Allianz Insurance
Mitsui Marine & Fire
Insurance Company
Takaful IBB Berhad1994Yes10.2General & life insurance
Insurance Islam TAIB1993Yes5.0General & life insurance
Securities companies (2)Baiduri Securities1995YesNoBrokerage services
IBB SecuritiesYesNoBrokerage services
Remittance companies (29)1994YesRemittances of local
foreign workers
Money changers (29)1994YesForeign currency
exchange services
Source: Data provided by the Brunei authorities.

Became an Islamic bank in 1993.

Co-owned by Royal Family (66.95 percent), Dai Ichi Kangyo Bank Ltd. (14.4 percent), and over the counter stock (18.65 percent).

Co-owned by Baiduri Holdings (60 percent), Royal Brunei Airlines (10 percent), Royal Brunei Technical Services (15 percent), and Paribas (15 percent).

Source: Data provided by the Brunei authorities.

Became an Islamic bank in 1993.

Co-owned by Royal Family (66.95 percent), Dai Ichi Kangyo Bank Ltd. (14.4 percent), and over the counter stock (18.65 percent).

Co-owned by Baiduri Holdings (60 percent), Royal Brunei Airlines (10 percent), Royal Brunei Technical Services (15 percent), and Paribas (15 percent).

The BIA was established in 1983 for holding and managing the Government Reserve Fund and all the government’s external assets, including those built-up over the years from oil and gas earnings. Data on the outstanding stock of external assets of the BIA and the performance of those assets over the years remain confidential.

(ii) Deposit money corporations: At end-June, 1998, total assets of deposit money corporations stood at B$8,877 million (110 percent of GDP), of which over half comprised loans and advances. About 70 percent of the banking system’s total assets are held by the three oldest banks: Citibank, Standard Chartered Bank (SCB), and Hongkong and Shanghai Banking Corporation (HSBC), although more recently the three local banks have been growing at a faster rate.

(iii) Other banking institutions: Finance companies are involved mainly in hire-purchase financing of cars and other consumer durables, and in mortgage lending. They are subject to the same minimum cash balance as banks (6 percent), and compete with banks in attracting nontransferable time and savings deposits (they are restricted from taking demand deposits). At end-June 1998, total assets of finance companies were B$732 million. Finally, the Tabung Amanah Islam Brunei (TAIB) is a type of depository corporation operating under Islamic banking principles, enabling persons to save and invest to undertake the Haj pilgrimage to Mecca.

(iv) Nondepository financial corporations: Nondepository financial corporations include 23 insurance companies, half of which are local, the Employees Trust Fund (ETF), 2 securities companies, 29 money changers, and an equal number of remittance companies. The EPT was set up in 1993 as a compulsory pension scheme for all new public sector employees and, since 1994, for all private sector employees, with an exemption for those working for an employer with an approved provident fund (i.e., banks and Brunei Shell Petroleum). Two securities companies operate as fully owned subsidiaries of their respective local banks. To date, the banking system’s excess liquidity has been invested in the nearby equity and bond markets of Singapore, Malaysia and Hong Kong, and investments by Bruneians in the domestic market are mainly concentrated in the property sector. There are no bonds or bills, either public or private, and the two securities companies are limited to brokerage services for the purchase of foreign securities on behalf of their clients.

Vulnerabilities

81. Licensing, regulation and supervision of the financial sector is the responsibility of the Financial Institutions Divisions (FID) of the Ministry of Finance. FID was established in 1993 and is headed by the Director who reports directly to the Permanent Secretary. Though the financial system is dominated by the operations of commercial banks, six of which have strong ties to their parent institutions (providing them with strong technical skills and management), FID has only four professional supervisory staff, with limited expertise, assigned the responsibility for supervising all financial sector activities. Notwithstanding some progress in strengthening regulation and supervision following several financial failures in the second half of the 1980s,29 the financial system of Brunei remains vulnerable to domestic and foreign disturbances, owing to inadequate prudential regulation and weak supervision.

82. Apart from the minimum paid-up capital requirements stated in the legislation, the only prudential regulations covering banks and finance companies are the annual renewal of their licenses and the imposition (in line with Singapore) of a 6 percent minimum cash balance (MCB). There are no legal or otherwise documented licensing procedures, and licenses are renewed on a case-by-case basis. The MCB was introduced in December 1995 on all banks and finance companies, and maintained at 6 percent notwithstanding the reduction to 3 percent in the MCB imposed by the Monetary Authority of Singapore in July 1998.30 In practice, because there is no lender-of-last-resort facility, in times of tight liquidity, some banks fall short of the latter requirement. Except for the MCB, FID has not issued any capital adequacy, loan classification and provisioning requirements, or any other prudential criteria. FID does not conduct on-site inspections of banks or of other deposit-taking institutions, to assess the adequacy of banks’ internal procedures and controls, nor is there any effective off-site supervision. Though minutes of the meetings of the Bankers’ Association are submitted to FID, meetings between FID and bank managers are not held on a regular basis. There are no legal requirements for FID to approve large share holdings, changes in ownership, or major investments by banks, nor are there any limits on exposure to foreign currencies other than the Singapore dollar. There are no cease and desist provisions for regulatory and prudential violations, nor is there regular consultation with parent supervisory authorities. In addition, no anti-money laundering laws are in force, nor have any guidelines in this regard been issued by FID. Finally, although banks voluntarily report their nonperforming loans and their risk-weighted capital adequacy ratios (CAR) on a quarterly basis (the latter requirement is to be extended soon to the finance companies), audited statements of banks are not required to be prepared in accordance with internationally accepted accounting standards, nor are they systematically forwarded to, and analyzed by, FID, on an on-going basis. Though supervisory staff have some knowledge of the Basle Committee’s Capital Adequacy Criteria, they are not sufficiently familiar with the Committee’s Core Principles for Effective Banking Supervision. In particular, while data reported by banks indicate that they all meet the minimum risk-weighted CAR of 8 percent, it is unclear whether banks are correctly valuing their assets and applying appropriate risk-weights. In addition, finance companies most likely fall short of the requirement, as their paid-up capital base has remained unchanged at B$l million despite sharp increases in their loan portfolios in recent years. While nonperforming loans (NPL) of banks are small, both in absolute terms and as a share of total loans, between end-1996 and end-June 1998, their share doubled to just under 5 percent. The share of NPL of finance companies is not known but is also likely to have risen in the last year in line with the sharp drop in economic activity and the weakening of the real estate market.

Prudential policy reforms

83. Against this background, it is clear that prudential regulation and supervision need to be significantly improved to ensure the soundness of the financial system. The government recognizes the need for an improved supervisory structure and has stated in its Seventh National Development Plan (1996-2000), that a proper regulatory mechanism to oversee the financial system will be given priority attention.

84. Banking regulation needs to be brought up to international best practices by requiring banks, especially local ones, to adopt appropriate standards for accounting, valuation, loan classification and provisioning; instituting transparent licensing procedures; mandating ceilings on loans to single borrowers and connected lending; limiting liquidity mismatches and excessive open foreign exchange positions; requiring that major changes in ownership or management obtain prior supervisory approval; and extending the coverage of reporting requirements. In addition, in light of the intention to launch an International Offshore Finance Center (IOFC), it will be particularly important to guard against money laundering by obtaining approval from home supervisory authorities before issuing IOFC operating licenses and extending prudential regulation to cover banks operating in the IOFC.31 Finally, prudential regulations governing finance, securities, remittance, and insurance companies, along with money changers, will need to be appropriately coordinated and harmonized.

85. Comprehensive and coordinated prudential regulation will need to be accompanied by close supervision and monitoring of financial institutions. This will require effective coordination between BCB and FID, a sharp increase in the number of staff assigned supervisory duties to enable more frequent monitoring of financial data, and the development of an early-warning system such as the CAMELS rating system.32 In exercising its functions, the supervisory agency must be granted sufficient authority and independence from political influence, established by law, to carry out its functions, including powers to control the issue and withdrawal of licenses, request relevant data, conduct regular on-site inspections, demand loan provisions, remove managers, and force the closure of unsound institutions.

Development of the financial sector

86. The authorities have stated that they are committed to maintaining the currency peg and the present currency board arrangement, which have provided a solid framework of monetary stability over the years. Over time, they also view the role of the currency board as a natural complement financial market development. In that context, the authorities are preparing to the transfer settlement services to the BCB, and they see some scope for limited money market operations while maintaining an adequate rule for foreign exchange backing of the currency.

Clearing and settlement services

87. Automatic clearing arrangements have been recently transferred to the BCB, and with some further technical assistance from Singapore, the BCB will soon be operationally ready to take on the additional responsibility of settlement services, as soon as the institutional framework is agreed upon. As the BCB accumulates sufficient experience in operating the clearing and settlements system and demonstrates the ability to closely monitor the overall liquidity of the banking system on a daily basis, including in the interbank market, the authorities plan to offer shorter-term maturities in the primary market, to divert some of the excess funds that are currently placed abroad to finance local investment while reducing reliance on transfers from the stock of external assets, and develop a secondary market in government securities, as an indirect tool of monetary management.

The securities market

88. Though the authorities have yet to decide whether to issue conventional-type securities which would be consistent with Islamic banking principles, or conventional-type securities alongside Islamic-based securities, as in Malaysia, draft legislation (including specific provisions on Islamic-based securities) has been prepared and is scheduled to be enacted shortly.33 Initially, the securities would have a maturity of not less than one year, yield a market rate of return, and be available to commercial banks (but not the BCB) and other interested parties. The latter would include religious organizations, with total assets of around B$300 million, the Employees’ Trust Fund, which has accumulated B$285 million in pension contributions since 1993, and insurance companies, with assets of around B$60 million. Yields would probably be at a small premium over the equivalent yield in the Singapore market for government securities to compensate for the (low) exchange and country risks. Over time, the development of a long-term government bond market could be used for funding infrastructure investment and act as a useful benchmark cost of capital for assessing government projects.34

C. Economic Diversification and Development of the Private Sector

89. The authorities’ medium-term economic objectives, as elaborated in the current Seventh National Development Plan, 1996-2000 (NDP7), are to diversify the country’s productive base away from oil and gas and enhance economic efficiency by expanding the role of the private sector. The strategy to achieve these goals is based on a broad corporatization/privatization effort; greater foreign investment; and a more competitive labor market.

90. In response to recent events; namely, the economic turmoil in nearby Asian countries, sharply lower oil prices, and the collapse of a large domestic company, the authorities decided to accelerate the implementation of their strategy to achieve their objectives. In particular, in mid-1998, the Brunei Darussalam Economic Council (formerly known as the Ministerial Economic Council) was established under the Sultan’s brother Prince Mohamed Bolkiah to come up with specific recommendations on how to restructure the economy over the short- to medium-term away from dependence on oil and gas activities and toward greater private sector participation, including through corporatization/privatization, encouraging foreign investment by extending the scope of activities open to foreign participation and streamlining approval procedures, and reducing the disparity between government and private sector remuneration.35

Corporatization/privatization

91. The move toward reducing the scope of government activities began under NDP6 and has continued under NDP7. In particular, partial privatization has been achieved in several areas, including power generation; telecommunications (equipment and mobile cellular telephone system); transportation (taxi and bus services); domestic waste collection outside Municipal areas; meat and poultry processing; some trading activities (Muara Export Zone); and selected government services. Looking to the future, in a bid to secure a larger private sector role in the provision of infrastructure, the government has announced that it will allow broader participation by the private sector in the traditional areas of heavy government involvement, including transportation, communication, and utilities. In preparation, guidelines for large scale privatization are currently being drawn up. In the meantime, the government intends to corporatize/commercialize several government activities and services. In the short-term, targets include telecommunication equipment and services; civil aviation; port services (container terminal); transport (passenger services); and postal services. This will encourage private sector growth and help promote Brunei as a service hub for tourism and trade (SHuTT) through transhipment and export-oriented activities within the Brunei-Indonesia-Malaysia-Philippines East Asia Growth Area (BIMP-EAGA). Over the medium-term, candidates for privatization include downstream activities in the oil and gas sectors, including an ammonia/urea plant, a methanol pant, an export-oriented refinery, and production of plastics and paint. In the non-oil/gas sector, medium-term candidates for privatization include producers of primary products (agriculture, forestry, and fish), construction, trade, and utilities. With regard to human resource development, the authorities have targeted an increase in the participation of the private sector in the areas of education (particularly curriculum development, and technical and vocational training), health services, training and technology transfer.

Foreign investment and regulatory framework

92. On the one hand, Brunei offers many attractive features to potential foreign investors, including a stable political climate and macroeconomic conditions, a liberal exchange and trade system, good physical infrastructure, and a strategic location. In addition, the authorities believe that the Investment Incentive Act of 1975 contains many incentives which should encourage start-up and ongoing businesses. On the other hand, limits on foreign ownership and cumbersome and sometimes unclear approval procedures and practices continue to act as major disincentives to foreign investment. In particular, while industries for the local market not related to national food security, as well as those for the export market, can be totally foreign-owned, industries relating to national food security and those based on local resources require a minimum share of local participation. Moreover, limits on foreign ownership prevent the transfer of much-needed expertise and technology. Finally, a recent attempt by the Ministry of Industry and Primary Resources (MIPR), which is responsible for promoting and facilitating the industrial development of the country, to coordinate all industrial development activities and act as a “one stop agency” to assist investors in acquiring: physical facilities (land and buildings); local primary and natural resources; commercial advantages and incentives; technical and production services; and administrative services, has proved unsuccessful. The government will need to revisit this issue, as experience across many countries has shown that prospective foreign investors are more likely to be attracted by clear and transparent rules of operation, including bidding processes, and streamlined and efficient approval procedures, rather than by tax incentives and exemptions.

Labor market

93. Economic diversification remains seriously hampered by the relatively high level of remuneration in the government sector. Though the creation of the Employees Trust Fund in January 1993 with a mandatory contribution for private sector employees since 1994 has helped improve the relative attractiveness of seeking private sector employment, the large differential between public and private sector remuneration continues to act as the main disincentive to private sector employment. In particular, as explained above (Section I.B), the estimated average annual salary of a government employee (B$l5,800) is over 30 percent higher than the comparable average annual wage of professional staff in the private sector. Moreover, the higher average government wage is supplemented by various allowances, which amount, on average, to around 70 percent of base salary. In these circumstances, only the Brunei Shell group of companies and some of the private financial institutions, can afford to compete with remuneration levels in the government sector. Over time, a reduction in the size of the public sector and a gradual narrowing of wage differentials will be necessary to encourage private sector activity and employment.

94. In addition, though labor regulations appear relatively transparent, especially with regard to hiring and firing of expatriate labor, in practice, hiring decisions of private companies are not entirely free of government involvement. In particular, the government’s “Bruneization” policy, according to which priority of employment is to be given to locals over expatriates, except in cases where there is no local interest or suitably qualified candidate, often acts as a further disincentive to private sector employment, as employers fear that it may be harder to shed local labor.36

ANNEX I Brunei Darussalam: Impact on Monetary Survey of Reclassifying Data Reported by Banks According to IMF Methodology End-June, 1998 1/

(In millions of Brunei dollars)

Before 2/Description of principle reclassificationsAfter 2/Difference
Net foreign assets3,9573,110-846
BCB826Plus valuation effects8304
Commercial banks3,131Less foreign currency claims on domestic banks2,280-851
Net domestic assets3,5303,62898
Domestic credit4,6055,134529
Credit to government, net0Plus government deposits and BCB liability to Ministry of Finance on IMF accounts672672
Credit to private sector4,605Less loans to non-residents and finance companies4,462-143
Other items, net-1,075-1,506-431
Broad money7,4876,738-749
Currency528Plus foreign notes and coins5368
Deposits6,959Less government deposits and BCB deposits, plus required reserves of finance companies6,202-757
Sources: Data provided by the authorities; and Fund staff estimates.

For a detailed explanation of the data reported by banks and all the reclassifications, see forthcoming STA technical assistance report Brunei Darussalam: Report on Money and Banking Statistics Mission, prepared by Mr. R. Skarzynski.

Before and after reclassification of monetary data in accordance with Fund methodology.

Sources: Data provided by the authorities; and Fund staff estimates.

For a detailed explanation of the data reported by banks and all the reclassifications, see forthcoming STA technical assistance report Brunei Darussalam: Report on Money and Banking Statistics Mission, prepared by Mr. R. Skarzynski.

Before and after reclassification of monetary data in accordance with Fund methodology.

ANNEX II Brunei Darussalam: Exchange and Trade Arrangements, December 1998
Article VIIIDate of acceptance: October 10, 1995.
Exchange Arrangement
CurrencyThe currency of Brunei Darussalam is the Brunei dollar.
Other legal tenderThe Singapore dollar is also legal tender.
Exchange rate structureUnitary.
Classification
PeggedThe Brunei dollar is issued by the Brunei Currency Board (BCB) only against payments in Singapore dollars and at par. Under the terms of a 1967 Currency Interchangeability Agreement (CIA) between the BCB and the Board of Commissioners of Currency of Singapore (BCCS), the Singapore dollar is customary tender in Brunei Darussalam and the Brunei dollar in Singapore. The BCB and BCCS have accepted each other’s currency and have agreed to mutual exchange at par and without charge. They have instructed their banks to do the same with their customers. Any excess currency is repatriated regularly, with the issuing institution bearing the costs, and settlements are made in the other country’s currency. The BCB deals only in Singapore dollars and does not quote rates for other currencies. Banks, however, are free to deal in all currencies, with no restrictions on amount, maturity, or type of transaction.



The Brunei Association of Banks fixes daily buying and selling rates for electronic transfers and sight drafts in 17 other currencies on the basis of the interbank quotations for these currencies in relation to the Singapore dollar. Banks in Brunei Darussalam must apply these rates for transactions with the general public for amounts up to B$100,000. Exchange rates for amounts exceeding B$100,000 are set competitively by each bank on the basis of the current interbank quotations for the Singapore dollar on the Singapore market.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketThere is no forward market for foreign exchange in Brunei Darussalam. However, as a result of the CIA, foreign exchange risk can be hedged in terms of Singapore dollars by resorting to facilities available in that country, including foreign currency futures and options traded on the Singapore International Monetary Exchange (SIMEX), over-the-counter forward transactions arranged by banks in Singapore, and the short-term foreign exchange swap market operated among the banks in the Singapore money market.
Official cover of forward operationsNo.
Arrangements for Payments and Receipts
Prescription of currency requirementsNo.
Payment arrangements
Regional arrangementsBrunei Darussalam is a member of the ASEAN.
Administration of control
Exchange control authoritiesThere are no formal exchange controls, but the Ministry of Finance (MOF) retains responsibility for exchange control matters.
International security restrictionsNo.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)
Controls on domestic ownership and/or tradeOnly banks licensed to operate in Brunei Darussalam, and gold dealers and jewelers specifically authorized by the MOF may buy and sell gold bars. Gold bars are not subject to import duty, but a 10% duty is levied on the importation of gold jewelry.
Controls on external tradeYes.
Controls on exports and imports of banknotesNo.
Resident Accounts
Eligibility to hold accountsJuridical and natural persons are eligible.
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Held abroadYes.
Accounts in domestic currency convertible into foreign currencyYes.
Nonresident Accounts
Eligibility to hold accountsJuridical and natural persons are eligible. There is no distinction between accounts of residents and nonresidents of Brunei Darussalam.
Foreign exchange accounts permittedYes.
Domestic currency accountsYes.
Convertible into foreign currencyYes.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsNo.
Import licenses and other nontariff measures
Negative listA few imports are banned or restricted for environmental, health, safety, security, or religious reasons.
Import taxes and/or tariffsExcept for cigarettes and alcoholic beverages, most imports are subject to tariff rates of up to 300%. Some 80% of items (including basic foodstuffs, construction materials, and educational materials) are zero rated. Most other goods are subject to tariff rates of 5%, 10%, or 20%. Automobiles are subject to duties ranging between 60% and 300%, depending on engine size. In accordance with the CEPT scheme for the AFTA, Brunei Darussalam will reduce its tariffs on imports from other ASEAN members to 0-5 percent range by 2003, with the exception of about 203 tariff lines that are permanently excluded from the plan.
Taxes collected through the exchange systemNo.
State import monopolyNo.
Exports and Export Proceeds
Repatriation requirementsNo.
Documentation requirementsNo.
Export licensesExport licenses are required for cigarettes, diesel, gasoline, kerosene, rice, salt, and sugar. There are no export taxes.
Without quotasYes.
With quotasn.a.
Export taxesNo.
Payments for Invisible Transactions and Current Transfers
Controls on these paymentsThe provision of foreign exchange for these payments is subject to a bona fide test. Interest payments are subject to a 20% withholding tax. Information on transfers for amortization of loans and depreciation of direct investments was not available at the time of publication.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
Capital Transactions
Controls on capital and money market instrumentsNo.
Controls on derivatives and other instrumentsNo.
Controls on credit operationsNo.
Controls on direct investment
Inward direct investmentThere are no sectoral restrictions, but activities relating to national food security and those based on local resources require some degree of local participation. Industries producing for the local market that are not related to national food security and industries that solely export may be fully foreign owned. Joint ventures are particularly encouraged in export-import industries and activities supporting such industries. At least one-half of the directors of a company must be either Brunei citizens or residents of Brunei Darussalam.
Controls on liquidation of direct investmentNo.
Controls on real estate transactions
Purchase locally by nonresidentsOnly Brunei citizens are allowed to own land. However, foreign investors may lease land on a long-term basis, including sites destined for industry, agriculture, agro-forestry, and aquaculture.
Sale locally by nonresidentsn.a.
Provisions specific to commercial banks and other credit institutionsNo.
Provisions specific to institutional investorsNo.
Other restrictions imposed by securities lawsNo.
Changes During 1998
No significant changes occurred in the exchange and trade system.
ANNEX III Brunei Darussalam: Summary of Tax System, December 1998
TaxNature of TaxExemptions and DeductionsRates
1. Tax on income and profits
1.1 Tax on individualsNoneNoneNone
1.2 Corporate taxPayable by resident company on income accruing in, derived from, or receivable in Brunei Darussalam. A nonresident company is only taxed on its income arising in Brunei Darussalam.

Sole proprietorships and partnerships are not subject to tax



A company, whether incorporated locally or overseas, is considered as resident in Brunei Darussalam for tax purposes if the control and management of its business is exercised in Brunei Darussalam.



Oil and gas companies pay taxes on a quarterly basis while all other companies pay annually.
All expenses, wholly and exclusively, incurred in the production of taxable income, are allowable as deductions for tax purposes. Among others, these deductions include;



- Interest on borrowed money used in acquiring income;



- Rent on land and buildings used in trade or business;



- Costs of repair on premises, plant and machinery;



- Bad debts and specific doubtful debts, with any subsequent recovery being treated as income when received; and



- Employer’s contributions to approved pensions or provident funds.



-For oil and gas companies, royalties are deductible for income tax purposes.



Allowances for qualifying capital expenditures; The taxpayer is entitled to claim wear and tear allowances calculated as follows:



1. Industrial buildings



An initial allowance of 10 percent is given in the year of expenditure and an annual allowance of 2 percent of the qualifying expenditure is provided on a straight-line basis until the total expenditure is written off.



2. Machinery and plant



An initial allowance of 20 percent of the cost is given in the year of expenditure together with annual allowances calculated on the reducing value of the assets. The 13 rates range from 3 to 25 percent, depending on the nature of the asset.



3. Balancing allowances/charge



Balancing allowance is an additional allowance allowed in the year of depreciable assets to take into account any excess of tax written down value over the amount realized on disposition.



The excess of the amount realized on the disposition and sale of a capital asset over the tax written down value is treated as profit and charged to tax.



4. Carry forward of allowances



Unused capital allowances may be carried forward indefinitely.



5. Gain or loss on disposal of fixed asset



Any gain on disposal of fixed assets is allowed in the computation of income tax. However, any loss on the same is disallowed.



Losses incurred by a company can be carried forward for six years for set-off against future income, and can be carried back one year.



Dividends received from Brunei Darussalam companies assessable to income tax are exempt.



Exemptions under Investment Incentive Act



A company granted a “Pioneer” Certificate is exempt from corporate tax for a basic period of 2-5 years depending on the level of fixed capital expenditure.



A company granted an “Expansion” Certificate is exempt from corporate tax up to a period of five years subject to certain conditions.
1. Oil companies 55%

2. Gas companies 55%

3. Other companies 30%
1.3 Withholding taxTax on interest paid to nonresident companies under a charge, debenture or in the respect of a loan.Interest on a foreign loan is exempt for a company which has received an “Expansion” Certificate and if:



- It is utilized for the purpose of productive equipment;



- The credit facilities are obtained through financial agreement with the foreign lending company;



- The amount of the loan is not less than B$200,000.
20%
2. Taxes on Property
3.1 Capital gains taxNone (gains by companies are included in taxable income)NoneNone
3.2 Estate dutyA stamp duty levied on the estate of a person who died on or after December 15, 1988.First B$2 million of total value of houses, plus first B$2 million of other assets.3%
3.3 Gift taxNoneNone.None.
3.3 Building taxAnnual tax on value of buildings within the territory of the three Municipal Boards.



(a) For rented property, value is annual rental value.



(b) For owner-occupied property, value is a standard value depending on square footage and nature of use.
Exemptions:

- unoccupied buildings

- buildings owned by the Royal family

- buildings owned by the government

- public schools

- buildings used for religious or charitable purposes.
Varying rates:

Current maximum: 12%

Legal maximum: 15%
3. Taxes on Goods and Services
3.1 Sales taxNone.None.None.
3.2 Excise dutiesNone.None.None.
4. Taxes on International TradePercent of

Value
4.1 Customs dutiesLevied at ad valorem rates on the C.I.F. value of imports, also specific rates apply to a few items.Imports by the royal family, the government, diplomats, and religious bodies are exempt. In addition, the following items are exempt under certain conditions:



- Containers and pallets.



- Protective apparel, clothing, accessories, and equipment.



- Street lighting equipment.



- Ship and boat parts, accessories, and fittings.



- Goods related to aircraft operations.



- Passengers’ baggage.



In addition, goods for industrial use (machinery, vehicles, appliances, some petroleum products, etc.) are exempt.
Foodstuff0
Chemicals, raw materials0
Textile fabrics0
Nonelectrical equipment and appliances5
Clothing and footwear5
Jewelry, watches5
Cosmetic and perfumes5
Hats10
Music instruments10
Bulldozers, excavators15
Electrical machinery20
Timber products20
Photographic materials and equipment20
Hair lacquer, hair dyes30
Motor vehicles and spare parts40-200
Specific rates
CoffeeB$11-22/kg
BeerB$3/liter
WineB$5.5-9/liter
Sparkling wineB$12/liter
SpiritsB$25/liter
CigarettesB$60/kg
CigarsB$100/kg
Other manufactured tobaccoB$18-60/kg
4.2 Export dutiesNone.None.None.
5. Other Taxes
5.1 Stamp dutiesLevied on agreements, insurance policies, bills of sale and exchange, promissory notes, and various property and title transfers.Some ad valorem, most specific.

chart 1brunei darussalam Output and Prices, 1990–98

Real GDP and GNP (In 1974 prices; In billions of Brunei dollars)

Sources: Data provided by the Brunei authorities; and staff estimates.

1/ GNP based on staff extimates of net factor income.

chart 2brunei darussalam Fiscal Indicators, 1994-98

(In percent of GDP)

Sources: Data provided by the Brunei authorities; and staff estimates.

1/ Transfers from Brunei Investment Agency (BIA).

2/ Includes BIA investment in public enterprises through the budget.

chart 3brunei darussalam Monetary Indicators, 1994-98

Monetary Developments (Percent change)

Sources: Data provided by the Brunei authorities; and staff estimates.

chart 4brunei darussalam External Sector Indicators, 1990-98

Exports and imports (In billions of U.S. dollars)

Sources: Data provided by the Brunei authorities; and staff estimates.

Table 1.Brunei Darussalam: Gross Domestic Product in Current Prices by Economic Activity, 1993-98(In millions of Brunei dollars)
19931994199519961997Est.

1998
Total6,5856,6867,3947,6858,0518,111
Oil and gas sector2,7532,5412,8632,8322,8662,721
Non-oil and gas sector3,8324,1454,5324,8535,1855,391
Agriculture and hunting125128132142153162
Forestry and logging171820222526
Fishing323336374043
Mining, quarrying, and
manufacturing208213221230242254
Electricity production677074798388
Construction334364405455510539
Wholesale trade142152163186205213
Retail trade296307325372406429
Restaurants and hotels8696108119131138
Transportation, storage, and
communication265278299311335351
Banking and finance254274298335375397
Insurance778290104115123
Real estate and business services737681828789
Ownership of dwellings737680828385
Community, social, and
personal services1,9482,1532,3902,4972,6122,673
Less: Bank charges164176188202217220
Sources: Ministry of Finance, Sixth and Seventh National Development Plans, and Statistical Yearbook (various issues).
Sources: Ministry of Finance, Sixth and Seventh National Development Plans, and Statistical Yearbook (various issues).
Table 2.Brunei Darussalam: Composition of Gross Domestic Product in Current Prices, 1993-98(In percent of total GDP)
19931994199519961997Est.

1998
Total100.0100.0100.0100.0100.0100.0
Oil and gas sector41.838.038.736.935.633.5
Non-oil and gas sector58.262.061.363.164.466.5
Agriculture and hunting1.91.91.81.81.92.0
Forestry and logging0.30.30.30.30.30.3
Fishing0.50.50.50.50.50.5
Mining, quarrying, and
manufacturing3.23.23.03.03.03.1
Electricity production1.01.01.01.01.01.1
Construction5.15.55.55.96.36.6
Wholesale trade2.22.32.22.42.52.6
Retail trade4.54.64.44.85.05.3
Restaurants and hotels1.31.41.51.61.61.7
Transportation, storage, and
communication4.04.24.04.14.24.3
Banking and finance3.94.14.04.44.74.9
Insurance1.21.21.21.41.41.5
Real estate and business services1.11.11.11.11.11.1
Ownership of dwellings1.11.11.11.11.01.1
Community, social, and
personal services29.632.232.332.532.433.0
Less: Bank charges2.52.62.52.62.72.7
Sources: Ministry of Finance, Sixth and Seventh National Development Plans, and Statistical Yearbook (various issues).
Sources: Ministry of Finance, Sixth and Seventh National Development Plans, and Statistical Yearbook (various issues).
Table 3.Brunei Darussalam: Gross Domestic Product in Constant Prices by Economic Activity, 1993-98(In millions of Brunei dollars; 1974 prices)
19931994199519961997Est.

1998
Total3,7283,7953,9114,0504,2154,257
Oil and gas sector2,1512,1302,1512,1722,2052,170
Non-oil and gas sector1,5771,6661,7601,8782,0102,087
Agriculture and hunting444444475052
Forestry and logging566666
Fishing101011111212
Mining, quarrying, and
manufacturing646668717478
Electricity production323334363841
Construction109115125135147150
Wholesale trade575962657172
Retail trade119120123129138141
Restaurants and hotels364044505759
Transportation, storage, and
communication9499107116126131
Banking and finance98104111122132137
Insurance303134363941
Real estate and business services282930323536
Ownership of dwellings222425272829
Community, social, and
personal services9339971,0591,1311,2021,257
Less: Bank charges104111122134143154
Sources: Ministry of Finance, Sixth and Seventh National Development Plans, and Statistical Yearbook (various issues).
Sources: Ministry of Finance, Sixth and Seventh National Development Plans, and Statistical Yearbook (various issues).
Table 4.Brunei Darussalam: Growth in Gross Domestic Product in Constant Prices, 1993-98(Percent change)
19931994199519961997Est.

1998
Total0.51.83.03.64.11.0
Oil and gas sector-2.4-1.01.01.01.5-1.6
Non-oil and gas sector4.85.65.76.77.13.8
Agriculture and hunting0.50.70.96.66.23.6
Forestry and logging1.91.91.81.81.81.7
Fishing6.41.07.90.94.53.5
Mining, quarrying, and
manufacturing1.32.23.74.14.75.0
Electricity production0.31.63.17.16.46.8
Construction2.76.18.18.18.92.0
Wholesale trade0.93.33.95.78.42.1
Retail trade0.30.72.54.86.72.5
Restaurants and hotels8.09.910.313.613.63.3
Transportation, storage, and
communication4.06.27.28.39.43.6
Banking and finance4.06.17.09.38.53.8
Insurance2.15.77.37.78.03.6
Real estate and business services2.23.24.24.710.83.2
Ownership of dwellings3.75.85.97.24.93.2
Community, social, and
personal services6.96.96.26.76.34.6
Less: Bank charges5.87.09.49.97.17.3
Sources: Ministry of Finance, Sixth and Seventh National Development Plans, and Statistical Yearbook (various issues).
Sources: Ministry of Finance, Sixth and Seventh National Development Plans, and Statistical Yearbook (various issues).
Table 5.Brunei Darussalam: Trends in GDP and GNP, 1993-98 1/
19931994199519961997Est.

1998
(In current prices; In millions of Brunei dollars)
GDP6,5856,6867,3947,6858,0518,111
Net factor payments2,7993,7643,4983,6353,9713,929
GNP9,38410,45010,89311,32012,02212,040
(In current prices; percentage growth)
GDP0.31.510.63.94.80.7
GNP-2.511.44.23.96.20.1
(In prices of 1974; In millions of Brunei dollars)
GDP3,7283,7953,9114,0504,2154,257
GNP4,8805,3085,2695,4565,7555,778
(In prices of 1974; percentage change)
GDP0.51.83.03.64.11.0
GNP-2.38.8-0.73.65.50.4
(In current prices; In millions of U.S. dollars) 2/
GDP4,0754,3785,2175,4505,4224,857
GNP5,8086,8427,6858,0288,0977,209
(Per capita; U.S. dollars) 2/
GDP14,75015,38717,62417,86417,24615,009
GNP21,02024,04825,96326,31325,75322,278
Sources: Ministry of Finance, Sixth and Seventh National Development Plans, and Statistical Yearbook (various issues); and staff estimates.

GNP was calculated on the basis of net factor payments estimated by the staff.

Converted at current exchange rates.

Sources: Ministry of Finance, Sixth and Seventh National Development Plans, and Statistical Yearbook (various issues); and staff estimates.

GNP was calculated on the basis of net factor payments estimated by the staff.

Converted at current exchange rates.

Table 6.Brunei Darussalam: Oil and Gas Production and Sales, 1993-98
19931994199519961997Est.

1998
Oil Production(Thousands of cubic meters per day)
Crude petroleum25.025.625.023.623.422.9
Casing head petroleum spirit2.82.82.82.62.62.6
Total27.828.427.826.225.925.5
(Thousands of barrels per day) 1/
Crude petroleum157161157149147144
Casing head petroleum spirit181818161616
Total175178175165163160
Number of wells735741740723732732
(Millions of cubic feet per day)
Gas Production9469851,0801,0731,0771,057
Exports
Volumes
Oil (thousands of barrels per day)170174168161152149
Gas (trillions of BTU per year)286283323321319319
Average prices received
Crude oil (U.S. dollars/barrel)18.817.118.322.021.513.6
Gas (U.S. dollars/million BTU)3.13.03.43.73.82.9
Sources: Ministry of Finance, Sixth and Seventh National Development Plans; Statistical Yearbook (various issues); and Petroleum Unit, Office of the Prime Minister.

A cubic meter is equal to 6.293 barrels.

Sources: Ministry of Finance, Sixth and Seventh National Development Plans; Statistical Yearbook (various issues); and Petroleum Unit, Office of the Prime Minister.

A cubic meter is equal to 6.293 barrels.

Table 7.Brunei Darussalam: Labor Force and Employment, 1971, 1981 and 1991 1/
197119811991197119811991
(In persons)(In percent)
Population136,256192,832260,482100.0100.0100.0
Males72,772102,942137,61653.453.452.8
Females63,48489,890122,86646.646.647.2
Employed40,01268,128106,746100.0100.0100.0
Males33,56252,73772,33883.977.467.8
Females6,45015,39134,40816.122.632.2
Unemployed1,0872,5625,209100.0100.0100.0
Males6491,1222,74559.743.852.7
Females4381,4402,46440.356.247.3
Total labor force41,09970,690111,955100.0100.0100.0
Males34,21153,85975,08383.276.267.1
Females6,88816,83136,87216.823.832.9
Total employed106,746100.0
Citizens54,59516.3
Permanent residents7,3443.1
Temporary residents43,99380.7
Others814
Excluding temporary residents:
Unemployment rate (in percent)7.7
Participation rate (in percent)39.8
Employment
All sectors40,01268,128106,746100.0100.0100.0
Males33,56252,73772,33883.977.467.8
Females6,45015,39134,40816.122.632.2
Private sector24,43336,40248,99861.153.445.9
Males20,13028,49233,15350.341.831.1
Females4,3037,91015,84510.811.614.8
Public sector15,57931,72657,74838.946.654.1
Males13,43224,24539,18533.635.636.7
Females2,1477,48118,5635.411.017.4
Source: Ministry of Finance, Department of Economic Planning and Development.

Data for census years 1971, 1981, and 1991.

Source: Ministry of Finance, Department of Economic Planning and Development.

Data for census years 1971, 1981, and 1991.

Table 8.Brunei Darussalam: Private Sector Employment by Major Industry, 1991-95
1991199319941995
(In persons)
Agriculture, forestry, and fishing1,1881,3791,5021,539
Production of oil and natural gas4,2574,1934,1443,950
Sawmilling and timber processing587716691437
Other mining, quarrying, and manufacturing5,2445,1617,9816,009
Construction21,53830,56034,19938,128
Wholesale and retail trading7,4358,85010,1778,941
Coffee shops, restaurants, and hotels2,8143,8434,5852,880
Transport, storage, and communication3,8534,1364,6354,320
Financial, insurance, and business services2,9743,4535,3375,143
Community, social, and personal services4,5305,6996,8934,271
Total private sector employment 1/54,42067,99080,14475,618
(In percent of total)
Agriculture, forestry, and fishing2.22.01.92.0
Production of oil and natural gas7.86.25.25.2
Sawmilling and timber processing1.11.10.90.6
Other mining, quarrying, and manufacturing9.67.610.07.9
Construction39.644.942.750.4
Wholesale and retail trading13.713.012.711.8
Coffee shops, restaurants, and hotels5.25.75.73.8
Transport, storage, and communication7.16.15.85.7
Financial, insurance, and business services5.55.16.76.8
Community, social, and personal services8.38.48.65.6
Total100.0100.0100.0100.0
(Percent change)
Total private sector employment1.57.717.9-5.6
Source: Labor Department, Ministry of Home Affairs.

Figures on total private secor employment differ from those reported by the Ministry of Finance.

Source: Labor Department, Ministry of Home Affairs.

Figures on total private secor employment differ from those reported by the Ministry of Finance.

Table 9.Brunei Darussalam: Employment Composition, 1995 Census
TotalMalesFemalesTotalMalesFemalesBrunei

citizens
Permanent

residents
Temporary

residents
(In persons)(In percent of total employment)
Legislators, administrators and managers4,9353,5341,4016.55.610.826.520.91.9
Professionals3,3312,2061,1254.43.58.75.49.44.0
Technicians and associate professionals4,1053,0061,0995.44.88.513.711.63.5
Clerical workers4,0741,0293,0455.41.623.521.418.21.7
Service workers and shop, market, and
related sales workers6,1922,9473,2458.24.725.112.38.17.4
Agricultural and fishery workers511475360.70.80.30.20.80.8
Production craftsperson and related workers18,02216,4431,57923.826.212.25.510.228.0
Plant and machine operators and assemblers4,6104,4461646.17.11.34.17.86.4
Cleaners, laborers and related workers29,83828,5811,25739.545.69.710.813.246.2
All occupations75,61862,66712,951100.0100.0100.0100.0100.0100.0
100.082.917.116.33.180.7
Source: Labor Department, Ministry of Home Affairs.
Source: Labor Department, Ministry of Home Affairs.
Table 10.Brunei Darussalam: Population Indicators, 1971-97 1/
19711981199119931994199519961997Annual average rates or

annual averages
CensusCensusCensus1971-811981-911971-911991-97
(In persons)(In percent)
Male72,772102,942137,616145,800150,000156,600161,500166,6003.52.93.22.8
Female63,48489,890122,866130,500134,500139,400143,600147,8003.53.23.42.7
Total population136,256192,832260,482276,300284,500296,000305,100314,4003.53.13.32.7
(In persons)
Annual population growth5,9967,6127,0828,5008,20011,5009,1009,3005,6886,8426,2018,714
-natural increase4,3805,2276,2546,2966,3626,4696,6316,5764,6545,8485,2526,427
-immigration (+)1,6162,3858282,2041,8385,0312,4692,7241,0349949492,287
Live-births5,1815,8787,1067,3147,2707,3417,6337,4595,3716,6145,9987,345
Total deaths8016518521,0189088721,002883717766746917
of which infants199807982615853551326610065
(In percent of total population)
Crude birth rate38.030.527.326.525.624.825.023.733.229.431.325.7
Crude death rate5.93.43.33.73.23.03.32.84.53.44.03.2
Natural rate of increase32.127.124.022.822.421.921.720.928.726.027.422.5
(In percent of infant live births)
Infant mortality rate38.413.611.111.28.47.96.97.425.010.217.78.9
(Percentage change from previous year)
Population growth rate4.64.12.83.23.04.03.13.0
Sources: Ministry of Finance; and Statistical Yearbooks (various issues).

The years 1971, 1981, and 1991 were census years; for the other years, the figures are estimates.

Sources: Ministry of Finance; and Statistical Yearbooks (various issues).

The years 1971, 1981, and 1991 were census years; for the other years, the figures are estimates.

Table 11.Brunei Darussalam: Government Sector Employment by Grade, 1993-97
19931994199519961997
(In persons)
Division I: Heads of departments434453470494499
Division II: Senior officers3,3373,7104,0214,4514,493
Division III: Supervisory8,0368,1168,2918,6408,777
Division IV: Clerical and operators10,52810,84811,02311,31211,448
Division V: Clerical and operators14,20514,23614,26314,18814,128
Total government employment36,54037,36338,06839,08539,345
(In percent of total)
Division I: Heads of departments1.21.21.21.31.3
Division II: Senior officers9.19.910.611.411.4
Division III: Supervisory22.021.721.822.122.3
Division IV: Clerical and operators28.829.029.028.929.1
Division V: Clerical and operators38.938.137.536.335.9
(Percent change)
Total government employment3.42.31.92.70.7
Source: Public Service Department, Office of the Prime Minister.
Source: Public Service Department, Office of the Prime Minister.
Table 12.Brunei Darussalam: Consumer Price Index, 1993-98(Period average and percent change; 1990=100)
All

commodities
FoodClothing and

footwear
HousingTransportation and

communication
Miscellaneous
1993107.34.3106.02.6113.18.6106.05.3108.75.1107.74.4
1994109.92.4107.31.3116.32.8109.02.8113.84.7109.92.0
1995116.56.0110.12.6122.75.5111.22.0129.814.1118.88.2
1996118.82.0113.43.0121.3-1.1110.7-0.5134.83.8120.11.1
1997120.81.7117.63.7126.14.0110.3-0.4134.7-0.1121.10.8
1996
Q1118.24.0112.73.0119.5-1.5110.7-1.2134.715.0119.20.3
Q2118.00.7112.01.8119.2-2.8110.4-0.7134.90.9119.60.7
Q3119.11.7113.93.3123.10.2110.80.4134.80.5120.41.5
Q4119.71.6114.93.7123.3-0.5111.0-0.3134.70.2121.01.7
1997
Q1120.31.7117.13.9123.93.7110.0-0.6134.6-0.1120.71.2
Q2120.72.3117.34.7127.16.7110.40.0134.6-0.2120.91.1
Q3120.91.5117.63.3127.83.8110.6-0.2134.7-0.1120.70.2
Q4121.21.3118.43.0125.71.9110.1-0.8134.80.1121.90.7
1998
Q1120.30.0117.80.6126.82.4110.30.3132.1-1.9120.80.1
Q2120.2-0.4118.00.6127.90.6110.50.1130.7-2.9120.2-0.6
Memorandum item:
Weights (percent)100.038.76.418.619.916.3
Sources: Ministry of Finance; Economic Planning and Development Department; and Brunei Statistical Yearbook (various issues).
Sources: Ministry of Finance; Economic Planning and Development Department; and Brunei Statistical Yearbook (various issues).
Table 13.Brunei Darussalam: Summary Budget, 1993-98
BudgetActualBudget
199319941995199619971998
(In millions of Brunei dollars)
Total revenue2,2742,2462,4512,8612,3532,8432,775
Tax1,1371,0921,2231,4041,1861,5611,515
Non-tax revenue1,1371,1551,2271,4561,1671,2821,260
Transfers 1/1,1422,0721,9579291,146
Total expenditure3,3974,2864,4313,6794,9894,0164,295
Current2,2542,3012,4302,5872,7832,6002,813
Capital1,1431,0831,2269942,2061,3501,482
Investment in pub. enterprises 2/09017759867
Surplus or deficit (-)1932-24111-2,636-27-1,520
Surplus or deficit (-),
excluding transfers-1,123-2,039-1,981-8,180-2,636-1,173-1,520
(In millions of Brunei dollars; end of period balances)
Consolidated Fund1401,1092,1232,1612293
Development Fund523488225398264
Government Trust Fund2071791538971
(Percent change)
Total revenue-2.2-1.29.116.7-17.8-0.6-2.4
Total expenditure11.126.23.4-17.035.69.26.9
(In percent of GDP)
Total revenue34.533.633.137.229.235.334.2
Of which: Tax17.316.316.518.314.719.418.7
Total expenditure51.664.159.947.962.049.953.0
Current34.234.432.933.734.632.334.7
Capital17.416.216.612.927.416.818.3
Investment in pub, enterprises 2/0.013.510.51.30.8
Surplus or deficit (-)0.30.5-0.31.4-32.7-0.3-18.7
Surplus or deficit (-),
excluding transfers-17.1-30.5-26.8-10.6-32.7-14.6-18.7
(In millions of Brunei dollars)
Memorandum items:
Ordinary expenditure2,2812,2352,3692,4283,2332,5642,866
Charged expenditure426414424524456493472
Development expenditure6907358646291,300892957
Defense expenditure474555614
in percent of total expenditure12.913.814.3
in percent of GDP6.26.97.6
GDP6,5856,6867,3947,6858,0518,0518,111
Sources: Ministry of Finance, Statistical Yearbook (various issues); data provided by the Brunei authorities; and staff estimates.

Transfers from BIA to the budget and for public enterprises.

BIA investment in public enterprises.

Sources: Ministry of Finance, Statistical Yearbook (various issues); data provided by the Brunei authorities; and staff estimates.

Transfers from BIA to the budget and for public enterprises.

BIA investment in public enterprises.

Table 14.Brunei Darussalam: Composition of Government Revenues, 1993-98
BudgetActualBudget
199319941995199619971998
(In millions of Brunei dollars)
Total revenue and transfers3,4164,3184,4073,7902,3533,9892,775
Tax revenue1,1371,0921,2231,4041,1861,5611,515
Import duty105101164183192224199
Estate duty2010212
Corporate income tax1,0299891,0551,2179901,3331,313
Stamp duty2234232
Nontax revenue1,1371,1551,2271,4561,1671,2821,260
Licenses68898109
Service receipts68910101111
Commercial receipts248259264279327303302
Property income8768809461,158822957937
Transfers 1/1,1422,0721,9579291,146
(In percent of total revenue and transfers)
Tax revenue33.325.327.837.150.439.154.6
Of which:
Import duty3.12.33.74.88.25.67.2
Corporate income tax30.122.923.932.142.133.447.3
Nontax revenue33.326.727.838.449.632.145.4
Of which:
Commercial receipts7.36.06.07.413.97.610.9
Property income25.620.421.530.534.924.033.8
Transfers 1/33.448.044.424.528.7
(In percent of GDP)
Total revenue and transfers51.964.659.649.329.249.634.2
Tax revenue17.316.316.518.314.719.418.7
Of which:
Import duty1.61.52.22.42.42.82.4
Corporate income tax15.614.814.315.812.316.616.2
Nontax revenue17.317.316.619.014.515.915.5
Of which:
Commercial receipts3.83.93.63.64.13.83.7
Property income13.313.212.815.110.211.911.5
Transfers 1/17.331.026.512.114.2
Sources: Ministry of Finance, Statistical Yearbook (various issues); and data provided by the Brunei authorities.

Transfers from BIA to the budget and for public enterprises.

Sources: Ministry of Finance, Statistical Yearbook (various issues); and data provided by the Brunei authorities.

Transfers from BIA to the budget and for public enterprises.

Table 15.Brunei Darussalam: Current Expenditures by Ministries and Major Departments, 1993-98 1/
BudgetActualBudget
199319941995199619971998
Ministries
(In millions of Brunei dollars)
Prime Minister’s Office157162164177211183199
Defense378400405463820548596
Foreign Affairs799087104126116124
Finance580425559490702502590
Home Affairs8888888811394105
Education285301311329373347394
Law14161618191721
Industry and Primary Resources38403941474349
Religious Affairs8996100105122113124
Development306350319303339286296
Culture, Youth, and Sports48484851595357
Health142148154163207178200
Communication797279979586109
Total2,2812,2352,3692,4283,2332,5642,866
(In percent of total “ordinary expenditures”)
Prime Minister’s Office6.97.26.97.36.57.17.0
Defense16.617.917.119.125.421.420.8
Foreign Affairs3.54.03.74.33.94.54.3
Finance25.419.023.620.221.719.620.6
Home Affairs3.93.93.73.63.53.73.7
Education12.513.513.213.511.513.513.7
Law0.60.70.70.70.60.60.7
Industry and Primary Resources1.71.81.71.71.51.71.7
Religious Affairs3.94.34.24.33.84.44.3
Development13.415.613.512.510.511.110.3
Culture, Youth, and Sports2.12.22.02.11.82.12.0
Health6.26.66.56.76.46.97.0
Communication3.53.23.34.02.93.33.8
Total100.0100.0100.0100.0100.0100.0100.0
Major departments
(In millions of Brunei dollars)
Education285301311329373347394
Electrical8197928910192101
Medical and Health142148154163207178200
Police69636166756773
Public Works193218192180198158156
Royal Brunei Armed Forces378400405463820548596
Religious Affairs8996100105122113124
Sources: Ministry of Finance, Statistical Yearbook (various issues); data provided by the Brunei authorities.

“Current expenditures” are approximated here by the authorities’ category of “ordinary expenditures.”

Sources: Ministry of Finance, Statistical Yearbook (various issues); data provided by the Brunei authorities.

“Current expenditures” are approximated here by the authorities’ category of “ordinary expenditures.”

Table 16.Brunei Darussalam: Development Expenditures
Sixth NDP 1991-95 ActualSeventh NDP 1996-2000 Allocation 1/1996 Spent1997 Spent1998 Budget
(B$mn)(% total)(B$ mn)(% total)(B$ mn)(% total)(B$mn)(% total)(B$ mn)(% total)
Industry and Commerce1755.890811.5315.0273.0161.7
Agriculture210.71732.250.860.730.3
Forestry190.61041.330.580.940.4
Fisheries220.7730.950.740.420.2
Commerce120.4550.791.460.720.2
Industrial development1003.35046.4101.520.360.7
Transport and Communications71423.61,77222.414623.122825.626727.8
Roads2668.81,01212.89114.419321.620721.6
Civil aviation411.31301.7274.2171.9191.9
Marine and ports481.61632.1193.0121.4181.9
Telecommunications35111.63995.081.370.7212.1
Postal services10.030.000.100.000.0
Radio and television80.3640.810.100.020.2
Social services1,20839.82,34529.722836.241146.033534.9
Education43014.24135.2294.5333.7363.7
Medical and health431.42332.9304.7192.1161.7
Government housing1234.14195.3243.819822.2697.2
National housing47315.695612.1589.311713.117818.6
Religious affairs481.6630.881.270.8111.1
Public facilities913.02613.38012.7364.1252.6
Public Utilities60920.11,57219.99615.312614.116717.4
Electricity35811.81,07213.6518.1364.1505.2
Sanitation260.9951.2111.8232.5121.2
Water supplies1926.33043.8243.9525.8899.3
Drainage331.11021.3101.6151.7161.7
Public Buildings1886.27018.911117.6899.914715.4
Security1183.95286.7132.180.9222.3
Royal Brunei Armed Forces1013.34665.9111.870.8181.9
Police170.6620.820.310.140.5
Miscellaneous210.7761.040.740.530.4
Surveys and investigations210.7690.940.740.530.4
Contingency reserves00.070.100.000.000.0
Total3,033100.07,902100.0629100.0893100.0957100.0
Memorandum item
Total (US$ mn.)1,916446601573
Sources: Ministry of Finance, Sixth and Seventh National Development Plans; data provided by the Brunei authorities.

Includes Istana Project Section (IPS) projects.

Sources: Ministry of Finance, Sixth and Seventh National Development Plans; data provided by the Brunei authorities.

Includes Istana Project Section (IPS) projects.

Table 17.Brunei Darussalam Accounts of the Brunei Currency Board, 1993-98
19931994199519961997End-June

1998
(In millions of Brunei dollars; end-of-period)
Assets5385506051,2581,4281,455
External assets4314464691,0711,1501,153
Of which: Reserve for currency431446469533604574
Liquid assets255155197447499489
Of which: Reserve for currency255155197216255237
Securities174290270316344335
Accrued interest212152
IMF reserve position and holdings of SDRs307301327
Other assets107104136187277302
Of which: Cash at bank107104136187258283
Liabilities5385506051,2581,4271,455
Allocation of SDRs in IMF307301327
Currency479515573601644625
Notes459493551577601
Coins2122222424
Deposits by commercial banks310371367
Other liabilities20202020
Reserve fund5935122091116
Memorandum items:
Ratio to demand liabilities of
external assets 1/0.900.870.820.890.940.92
liquid external assets 2/0.530.300.340.360.400.38
External assets (net, US$ mn.)268305332546507484
Source: Data provided by the Brunei authorities.

Ratio of external reserve (for currency) to currency.

Ratio of liquid external reserve (for currency) to currency.

Source: Data provided by the Brunei authorities.

Ratio of external reserve (for currency) to currency.

Ratio of liquid external reserve (for currency) to currency.

Table 18.Brunei Darussalam: Monetary Survey, 1993-98
19931994199519961997End-June

1998
(In millions of Brunei dollars; end of period)
Net foreign assets3,8475,3136,1846,1493,8333,957
BCB431446469764849826
Commercial banks3,4164,8675,7155,3852,9843,131
Assets3,7085,1605,8555,5163,3513,431
Liabilities292293140131368299
Claims on private sector2,4103,2372,5623,1605,2194,605
Other assets335289502673805972
BCB107104136187277302
Commercial banks228185366486527669
Assets=liabilities6,5918,8399,2489,9829,8569,533
Money2,4584,3984,1263,2712,3312,520
Currency426432482507545528
Demand deposits2,0323,9663,6442,7651,7861,992
Quasi-money2,9353,1183,8944,5625,1354,967
Time deposits1,9352,0402,7263,2993,8603,770
Savings and other deposits9991,0781,1681,2631,2761,197
Other liabilities1,1991,3231,2282,1492,3902,047
BCB593532350482503
Commercial banks1,1401,2881,1961,7991,9081,544
Memorandum items:
Currency with banks538391949997
Broad money5,3937,5168,0207,8337,4667,487
Prime lending rate (end of period)5.86.06.56.56.57.0
(Percent change)
Net foreign assets-4.938.116.4-0.6-37.7
Claims on private sector25.134.3-20.923.365.2
Money0.578.9-6.2-20.7-28.7
Currency2.01.311.65.17.6
Demand deposits0.295.2-8.1-24.1-35.4
Quasi-money21.06.324.917.112.6
Time deposits27.15.433.621.017.0
Savings and other deposits10.67.98.48.11.0
(In percent of broad money 12 months ago)
Contribution to broad money growth
Net foreign assets-4.127.211.6-0.4-29.6
Claims on private sector9.915.3-9.07.526.3
Memorandum item:
Broad money10.739.46.7-2.3-4.7
Source: Data provided by the Brunei authorities.
Source: Data provided by the Brunei authorities.
Table 19.Brunei Darussalam: Direction of Loans by Commercial Banks, 1993-98
19931994199519961997End-June

1998
(In millions of Brunei dollars)
Total Loans2,4063,2672,5643,1605,2194,605
Agricultural17916183438
Credit and Finance5991,3082591671,601884
Manufacturing222636406789
Transport492921116221229
Construction271343514569822819
General Commerce319311340389562568
Professional Services328030364244
Personal Loans1,0971,1621,3481,8251,8701,934
(In percent of total loans)
Total Loans100.0100.0100.0100.0100.0100.0
Agricultural0.70.30.60.60.70.8
Credit and Finance24.940.010.15.330.719.2
Manufacturing0.90.81.41.31.31.9
Transport2.00.90.83.74.25.0
Construction11.310.520.018.015.817.8
General Commerce13.39.513.312.310.812.3
Professional Services1.32.41.21.10.81.0
Personal Loans45.635.652.657.835.842.0
(Percent change)
Total Loans24.835.8-21.523.265.2
Agricultural90.2-49.584.812.588.9
Credit and Finance67.9118.2-80.2-35.5858.7
Manufacturing-3.717.536.711.167.5
Transport53.4-41.3-26.8452.490.5
Construction-3.426.649.710.744.5
General Commerce27.2-2.79.514.444.5
Professional Services45.1153.2-62.520.016.7
Personal Loans15.06.016.035.42.5
Source: Data provided by the Brunei authorities.
Source: Data provided by the Brunei authorities.
Table 20.Brunei Darussalam: Assets and Liabilities of Finance Companies, December 1995 - June 1998
(In millions of Brunei dollars)(Annual percent change)
1995199619971998199619971998
Dec.Jun.Dec.Jun.Dec.Jun.Dec.Jun.Dec.Jun.
Assets509.5565.8671.4847.8697.9732.331.849.84.0-13.6
Cash6.31.61.81.81.5-71.512.7-18.4
Deposits with MoF 1/20.521.424.330.825.931.718.843.76.53.0
Deposits with financial institutions81.566.583.9117.355.960.43.076.6-33.4-48.5
Of which:
Banks25.021.520.343.643.948.3-19.0102.2116.410.9
Loans and advances404.0469.9558.3692.3606.2630.138.247.38.6-9.0
Hire-purchase388.4451.6541.1674.2597.9623.439.349.310.5-7.5
Lease14.517.616.817.57.96.415.2-0.9-53.2-63.6
Factoring0.00.00.00.00.00.00.00.00.0
Housing0.00.20.20.20.30.39.08.19.1
Other1.00.40.20.50.10.1-80.013.3-26.3-79.4
Fixed assets1.21.11.61.91.82.033.578.114.21.4
Other assets2.40.71.83.66.46.6-26.5423.8258.981.3
Liabilities509.5565.8671.4847.8698.0732.331.849.84.0-13.6
Deposits of banks0.00.00.00.00.00.00.00.00.00.0
Deposits of nonbanks356.2386.7460.1592.5447.7469.129.253.2-2.7-20.8
Borrowings from financial institutions5.413.18.420.428.738.854.355.8243.890.6
Of which:
Banks12.68.119.928.738.858.6256.694.7
Other0.50.30.40.00.0-12.9-100.0-99.8
Other100.1121.1156.2185.7180.0179.556.053.315.2-3.3
Paid-up capital6.06.08.09.07.08.033.350.0-12.5-11.1
Reserves27.031.031.335.529.633.915.914.4-5.5-4.5
Balance of profit and loss14.87.97.44.6784.92.9-49.9-40.8-33.4-37.2
Memorandum item:
Number of finance companies3355
Source: Financial Institutions Division, Ministry of Finance.

Includes cash in 1995.

Source: Financial Institutions Division, Ministry of Finance.

Includes cash in 1995.

Table 21.Brunei Darussalam: Balance of Payments, 1993-98
19931994199519961997Est.

1998
(In millions of U.S. dollars)
Trade balance456441411239662175
Exports2,2482,1542,3902,6032,6761,894
Imports1,7921,7131,9792,3642,0131,718
Services, net 1/-160-1197-339-343-288
Receipts7453562459526486
Payments234171555798869774
Investment income, net 2/1,8192,3792,4512,6432,7392,381
Receipts2,0072,5302,6922,7722,8532,439
Payments18815124112911458
Current transfers, net 1/-88-6-441-343-184-184
Receipts112114128
Payments897461357196192
Current account balance2,0272,6962,4292,2002,8752,085
Capital transfers, net-400400
Foreign investment, net824670-634119126151
Long-term capital, net-3,603-4,360-2,954-2,685-3,583-2,610
Short-term capital, net7591,0321,186576543376
Overall balance43726214-393
External assets BCB
(increase -)-4-37-26-21439-3
(In percent of GDP)
Trade balance11.210.17.94.412.23.6
Exports55.249.245.847.849.339.0
Imports44.039.137.943.437.135.4
Services 1/-3.9-2.70.1-6.2-6.3-5.9
Receipts1.81.210.88.49.710.0
Payments5.83.910.614.616.015.9
Investment income, net 2/44.654.447.048.550.549.0
Receipts49.357.851.650.952.650.2
Payments4.63.44.62.42.11.2
Current transfers 1/-2.2-0.1-8.4-6.3-3.4-3.8
Receipts0.00.00.40.30.20.2
Payments2.20.28.86.63.64.0
Current account balance49.761.646.640.453.042.9
Sources: Ministry of Finance, Statistical Yearbook (various issues); data provided by the Brunei authorities; and staff estimates.

There is a statistical break between 1994 and 1995.

Investment income is based on staff estimates.

Sources: Ministry of Finance, Statistical Yearbook (various issues); data provided by the Brunei authorities; and staff estimates.

There is a statistical break between 1994 and 1995.

Investment income is based on staff estimates.

Table 22.Brunei Darussalam: Exports by Commodity, 1993-98
19931994199519961997Est.

1998
(In millions of Brunei dollars)
Total exports3,6323,2903,3883,6703,9733,162
Food and live animals2119322
Beverages and tobacco11011
Crude material (inedible), except fuel01222
Mineral fuels, lubricants, and related materials3,5003,0693,1483,4023,6202,771
Animal and vegetable oils and fats00000
Chemicals66455
Manufactured goods classified chiefly by material2222273150
Machinery and transportation equipment68118108133179
Miscellaneous manufactured articles1554808193
Miscellaneous transactions and commodities not elsewhere classified01151522
(In percent of total exports)
Mineral fuels, lubricants, and related materials96.393.392.992.791.187.6
(In percent of total non-oil/gas exports)
Food and live animals15.68.51.40.80.5
Beverages and tobacco0.80.20.10.20.1
Crude material (inedible), except fuel0.20.50.90.60.5
Animal and vegetable oils and fats0.00.00.00.00.0
Chemicals4.82.51.51.71.3
Manufactured goods classified chiefly by material16.39.811.411.714.1
Machinery and transportation equipment50.953.244.949.550.8
Miscellaneous manufactured articles11.124.533.430.126.5
Miscellaneous transactions and commodities not elsewhere classified0.20.66.45.56.2
(Percent change)
Total exports-7.2-9.43.08.38.3-20.4
Mineral fuels, lubricants, and related materials-6.0-12.32.68.16.4-23.5
Other-30.266.88.511.631.711.0
Sources: Ministry of Finance, Statistical Yearbook (various issues); and data provided by the Brunei authorities.
Sources: Ministry of Finance, Statistical Yearbook (various issues); and data provided by the Brunei authorities.
Table 23.Brunei Darussalam: Value and Destination of Selected Exports, 1993-98
19931994199519961997Est.

1998
(In millions of Brunei dollars)
Value of major exports
Petroleum1,9081,6561,5871,8191,7611,236
Crude petroleum1,7861,5501,4761,7021,650
Petroleum products123106111117110
Natural gas1,5911,4131,5611,5831,8601,534
(In millions of U.S. dollars)
Petroleum1,1811,0841,1191,2901,186740
Crude petroleum1,1051,0151,0411,2071,111
Petroleum products7669788374
Natural gas9859251,1021,1231,252919
(In millions of Brunei dollars)
Major exports by destination
Crude petroleum
Japan527385424503433
Korea391353316437424
Philippines82512000
Singapore291279219216182
Taiwan Province of China1068884104106
Thailand360361371420444
Natural gas: Japan1,5911,3581,3841,4021,614
Korea054177181246
Petroleum products
Japan10354735060
Korea1545376050
Singapore07020
United States50000
(In percent of total)
Crude petroleum
Japan29.524.828.729.526.2
Korea21.922.721.425.725.7
Philippines4.63.31.30.00.0
Singapore16.318.014.812.711.0
Taiwan Province of China6.05.75.76.16.4
Thailand20.223.325.224.726.9
Natural gas: Japan100.096.188.688.686.8
Korea0.03.911.411.413.2
Petroleum products
Japan83.951.366.343.054.3
Korea12.342.433.751.345.7
Singapore0.06.30.01.80.0
United States3.80.00.00.00.0
Sources: Ministry of Finance, Statistical Yearbook (various issues), and data provided by the Brunei authorities.
Sources: Ministry of Finance, Statistical Yearbook (various issues), and data provided by the Brunei authorities.
Table 24.Brunei Darussalam: Exports by Country of Destination, 1993-98
19931994199519961997Est.

1998
(In millions of Brunei dollars)
ASEAN829862752784829
Of which:
Indonesia011357
Malaysia-West653132292
-Sabah24445
- Sarawak5036161214
Philippines82592111
Singapore329348313318264
Thailand360362372421446
European Union1528263946
Of which:
France45824
Other2,7892,4002,6102,8473,098
Of which:
Australia29224228
Japan2,2211,7981,8831,9552,108
Korea406452531678721
Taiwan Province of China1068884104106
United States2246677697
Total3,6323,2903,3883,6703,9733,162
(In percent of total exports)
ASEAN22.826.222.221.420.9
Of which:
Indonesia0.00.00.40.10.2
Malaysia-West0.21.60.40.62.3
-Sabah0.10.10.10.10.1
- Sarawak1.41.10.50.30.3
Philippines2.31.80.60.00.0
Singapore9.110.69.28.76.6
Thailand9.911.011.011.511.2
European Union0.40.90.81.11.2
Of which:
France0.10.10.20.00.1
Others76.872.977.077.678.0
Of which:
Australia0.80.00.70.00.7
Japan61.154.655.653.353.1
Korea11.213.715.718.518.1
Taiwan Province of China2.92.72.52.82.7
United States0.61.42.02.12.5
Sources: Ministry of Finance, Statistical Yearbook (various issues); and data provided by the Brunei authorities.
Sources: Ministry of Finance, Statistical Yearbook (various issues); and data provided by the Brunei authorities.
Table 25.Brunei Darussalam: Imports by Commodity, 1993-98
19931994199519961997Est.

1998
(In millions of Brunei dollars)
Total imports3,0552,7602,9603,5163,1543,027
Food and live animals229327324354352
Beverages and tobacco5360678362
Crude material (inedible), except fuel2869111130108
Mineral fuels, lubricants, and related materials25516106
Animal and vegetable oils and fats79101513
Chemicals134143166188201
Manufactured goods classified chiefly by material602630909865804
Machinery and transportation equipment1,5141,1721,0391,5041,229
Miscellaneous manufactured articles449339303350364
Miscellaneous transactions and commodities not elsewhere classified127141716
(In percent of total imports)
Total imports100.0100.0100.0100.0100.0100.0
Food and live animals7.511.811.010.111.1
Beverages and tobacco1.82.22.32.41.9
Crude material (inedible), except fuel0.92.53.83.73.4
Mineral fuels, lubricants, and related materials0.80.20.50.30.2
Animal and vegetable oils and fats0.20.30.30.40.4
Chemicals4.45.25.65.36.4
Manufactured goods classified chiefly by material19.722.830.724.625.5
Machinery and transportation equipment49.642.435.142.839.0
Miscellaneous manufactured articles14.712.310.210.011.6
Miscellaneous transactions and commodities not elsewhere classified0.40.20.50.50.5
(Percent change)
Total imports26.4-9.67.218.8-10.3-4.0
Sources: Ministry of Finance, Statistical Yearbook (various issues); and data provided by the Brunei authorities.
Sources: Ministry of Finance, Statistical Yearbook (various issues); and data provided by the Brunei authorities.
Table 26.Brunei Darussalam: Imports by Country of Origin, 1993-98
19931994199519961997Est.

1998
(In millions of Brunei dollars)
ASEAN9221,3181,4891,5011,435
Of which:
Indonesia9299615259
Malaysia-West244335336350361
- Sabah5618148
- Sarawak419526359
Philippines4471614
Singapore524768937900807
Thailand498676104124
European Union825505486563565
Of which:
Denmark92534178
France2024313237
Germany363114132123189
Italy15955627474
Netherlands8761264138
United Kingdom130192171245192
Other1,3089389851,4521,154
Of which:
Australia7696949683
China3849899278
Hong Kong SAR502981123115
Japan286279261278353
Korea2726425357
Taiwan Province of China2843524542
United States766313262614316
Total3,0552,7602,9603,5163,1543,027
(In percent of total imports)
ASEAN30.247.750.342.745.5
Of which:
Indonesia3.03.62.01.51.9
Malaysia-West8.012.111.310.011.5
- Sabah0.20.20.60.40.2
- Sarawak0.10.71.81.81.9
Philippines0.10.10.30.40.5
Singapore17.227.831.725.625.6
Thailand1.63.12.63.03.9
European Union27.018.316.416.017.9
Of which:
Germany11.94.14.53.56.0
United Kingdom4.27.05.87.06.1
Other42.834.033.341.336.6
Of which:
Japan9.410.18.87.911.2
United States25.111.38.817.510.0
Sources: Ministry of Finance, Statistical Yearbook (various issues); and data provided by the Brunei authorities.
Sources: Ministry of Finance, Statistical Yearbook (various issues); and data provided by the Brunei authorities.
Table 27.Brunei Darussalam: International Reserves, 1993-98 1/
19931994199519961997Est.

1998
(In millions of U.S. dollars)
1. Brunei Currency Board268305332546507510
Of which: liquid assets159106139319298296
2. Consolidated Fund877591,5011,5441,3691,635
3. Official reserves (1.+2.)3551,0651,8332,0901,8752,145
4. Commercial banks2,1243,3324,0413,8471,7811,866
5. International reserves (3.+4.)2,4794,3965,8745,9373,6564,011
(In months of imports of goods and services)
Official reserves2.16.58.77.98.810.2
International reserves14.626.827.822.417.219.1
Memorandum items:
Imports of goods and services (US$ mn.)2,0261,8842,5343,1622,8832,492
Brunei dollar/U.S. dollar (end of period)1.6081.4611.4141.4001.6761.650
Sources: Brunei Currency Board, Annual Report (various issues); and data provided by the Brunei authorities.
Sources: Brunei Currency Board, Annual Report (various issues); and data provided by the Brunei authorities.
Table 28.Brunei Darussalam: Exchange Rates, 1993-98 1/
______Brunei dollar per______Yen per

Brunei dollar
Brunei dollar per

ECU
Brunei dollarSingapore dollar

Real effective

exchange rate 2/
__U.S. dollar____SDR__Effective exchange rates
Nominal 2/Real 2/
PeriodEnd ofPeriodEnd ofPeriodEnd ofPeriodEnd ofPeriodPeriodPeriod
averageperiodaverageperiodaverageperiodaverageperiodaverageaverageaverage
19931.6161.6082.262.2169701.891.8094.992.994.9
19941.5271.4612.192.1367681.821.8097.594.698.4
19951.4171.4142.152.1066731.851.86100.0100.0100.0
19961.4101.4002.052.0177831.791.75103.2102.7103.5
19971.4851.6762.042.2682781.681.85104.6103.6105.7
1996
Q11.4141.4082.072.0675751.821.81102.6102.7102.8
Q21.4081.4102.042.0376781.771.77103.1102.2103.7
Q31.4121.4082.052.0377791.791.77103.0102.7103.2
Q41.4051.4002.032.0180831.771.75103.9103.4104.4
1997
Q11.4201.4451.982.0085861.671.68105.1104.6107.0
Q21.4351.4301.981.9983801.641.62104.6103.9106.3
Q31.4881.5302.032.0979791.621.70104.4103.2105.6
Q41.5961.6762.182.2678781.791.85104.4102.7104.0
1998
Q11.6761.6062.262.1576821.821.73106.1103.0104.2
Q21.6451.7072.202.2782831.811.87107.5103.6105.0
Q31.7291.6852.322.3181801.931.97106.1100.0
Sources: IMF, International Financial Statistics; and staff estimates.

Exchange rates for the Brunei dollar are based on Singapore dollar rates reported to IMF, International Financial Statistics.

1995=100

Sources: IMF, International Financial Statistics; and staff estimates.

Exchange rates for the Brunei dollar are based on Singapore dollar rates reported to IMF, International Financial Statistics.

1995=100

References

IMF Documents

    International Monetary Fund“Brunei Darussalam--Calculation of Quota for Brunei Darussalam”July141995 (EB/CM/Brunei Darussalam/95/1).

    International Monetary Fund“Brunei Darussalam--Recent Economic Developments”April11996 (SM/96/73).

    International Monetary Fund“Brunei Darussalam-Report on the Balance of Payments Statistics Mission”May30 - June121996 (Statistics Department technical assistance report prepared byMr. R.Heath).

    International Monetary Fund“Brunei Darussalam-A Blueprint for the Longer Term Development of the Tax System”July1996 (Fiscal Affairs Department technical assistance report prepared byMessrs.GandhiGoormanand Bristow).

    International Monetary Fund“Brunei Darussalam-Developing the Financial System of Brunei Darussalam”December1997 (Monetary and Exchange Affairs Department technical assistance report prepared byMessrs.GalbisRobertsand Ryan and Ms.Cherebin).

    International Monetary Fund“Brunei Darussalam-A Medium-Term Strategy for Fiscal Sustainability”June1998 (Fiscal Affairs Department technical assistance report prepared byMessrs.Gandhi and Bogetićand Ms. Simard).

    International Monetary Fund“Brunei Darussalam-Draft report on Money and Banking Statistics Mission”November101998 (Statistics Department technical assistance report prepared byMr. R.Skarzynski).

Official Publications
Other Publications

The Seventh National Development Plan (1996-2000) [NDP7] foresees oil sector output to grow at an average rate of 2 percent per annum, based on the 1996 average international price of around US$22 per barrel. In addition, the government’s conservation policy, initiated in the 1980s, permits the sole oil producing company (Brunei Shell Petroleum, BSP) to vary its annual production of oil according to the evolution of the international oil price, the exchange rate, and actual demand, subject to a limit on its annual capital budget consistent with a production level of 150,000 bpd. Because of the lower international price of oil in recent years, output has remained higher than the 150,000 bpd long-term ceiling.

The figure of economically active people is taken from the latest Labor Force Survey of 1995.

The only two exceptions are the Brunei Shell group of companies and some financial institutions.

The current consumption basket is based on 1990 weights and reference prices. An updated index, based on the ongoing 1997/98 Household Expenditure Survey, is expected to be ready by September 1999.

Government foreign investment income is not recorded ex-ante in the budget, although it is used ex-post for financing. Ex-post transfers to the budget have been well below the estimated annual investment income of the government (See Section II. A).

Because of the depreciation of the Brunei dollar and higher gas production/price, the income of oil and gas companies in Brunei dollar terms increased in 1997 despite lower oil production/price.

Royalty payments differ for onshore and offshore fields; Offshore fields subject to lower royalties (see Section II A). The level of dividends is decided by the executive boards of the companies, taking various factors into account such as investment plan, so that dividends don’t necessarily move in parallel with income.

The increase in allowances was announced during the Sultan’s birthday celebrations in July. Allowances are given to all government officers and employees excluding those officers receiving basic salary of more than $6,800 a month. The increase raised salaries by up to 14 percent with lower-income employees benefiting the most. However, only 75 percent of this increase was given; the rest was paid into the Employees Trust Fund. Allowances were also given to all government officers and employees on pension under the Pension Act (B$80-140 per month, depending on monthly pension).

Capital expenditure is defined as the sum of other charged special expenditures (OCSE: equipment, vehicles and capital purchases) and development expenditures associated with the NDP (See II. A. for the classification of government expenditure).

Monetary aggregates are derived from data that are not compiled in accordance with international statistical standards or Fund methodology as defined in the draft Manual on Monetary and Financial Statistics. A STA technical assistance mission on money and banking statistics, which overlapped with the Article IV consultation mission, compiled both a monetary survey and a banking survey based on disaggregated data for end-June 1998. The main adjustments to the authorities’ data as of end-June 1998 are highlighted in Annex I.

Substandard loans are defined by the Ministry of Finance’s Financial Institutions Division (FID) as loans that are overdue by more than 120 days (either principal or interest). Banks are permitted to continue to record accrued interest on substandard loans as income until the loans are overdue by more than 240 days. International standards call for suspension of interest on assets that are 90 days or more in arrears. For further details on banking supervision, see Section II.B.

Foreign exchange exposure levels of locally incorporated banks and finance companies are not limited by regulation. In principle, foreign-owned banks are subject to the regulatory provisions in effect in their home country.

Although not captured in the monetary survey, credit to the private sector from finance companies, which accounted for about 12 percent of total loans, rose sharply from 1995 onward as a result of the decision to extend the repayment period for automobile loans by one year to 7 years and to reduce the amount of required down payment to 15 percent from 20 percent of purchase price for cars whose engines exceeded 2000 cc, following the sharp rise in import duties in that year. More recently, in the year to end-June 1997, the growth of hire-purchase loans remained high at 49 percent, although it had declined to 10 ½ percent by end-1997.

Neither the BCB nor the commercial banks extend credit to the government, although the government maintains deposits in commercial banks. The bulk of the domestic financing of the fiscal deficit comes from transfers from the BIA (see Section I.B on Fiscal Sector Developments).

Loans extended by finance companies declined by 9 percent on an annual basis to B$623 million.

Foreign investment income was estimated by adding to the amount of foreign investments reportedly controlled by the BIA at end-1985, the current account surpluses of subsequent years, and all investment earnings. Earnings were assumed to accrue at a rate equal to the average annual U.S. government bond yield (through 1992) and at an average of US, UK, and Singapore government bond yields (from 1993 onward).

Mostly exported to Europe and USA. Although the share of garment in total exports is still just 2 percent, the share in non-oil/gas exports reached 23 percent in 1997.

Consists of various items such as parts of aircrafts, cruise ships, drilling equipment etc, which are mostly re-exported to various countries (e.g., Malaysia, Singapore, Indonesia, USA, UK, Germany, Australia).

Development expenditure in 1997 includes the payments for Istana Project Section (IPS) projects which were previously outside the purview of the National Development Plan Committee. Most of the IPS projects have been awarded and some completed before 1997 (1994-96) and are not for new tenders. Therefore, this additional funding is only used to honor past commitments which would not induce extra importation of construction materials. By 1996, some big projects outside of the National Development Plan, including Yayasan Sultan Haji Hassanal Bolkiah Foundation Complex (opened in July 1996), were completed, and this also induced large imports in 1996.

As more and more Bruneians shopped across the border, drawn by the weak Malaysian ringgit, there was an increase in the outflow of Brunei dollars into neighboring Malaysian states. Thus, a significant amount of imports of goods and services and the outflow of Brunei dollars are not recorded in the official trade statistics and foreign exchange records.

A more detailed description of Brunei’s exchange and trade system is contained in Annex II.

See Annex III for a summary of the tax system.

In the authorities presentation, “Ordinary expenditures” consist of three components: Personnel Emolument (PE: wage bills and bonuses), Other Charged Annually Recurrent expenditures (OCAR: perquisites and supplies), and Other Charged Special Expenditures (OCSE: equipment, vehicles and capital purchases). Here, as a rough estimation, we define current expenditure as the sum of PE, OCAR, and charged expenditures; and capital expenditure as the sum of OCSE and development expenditures.

Sum of defense expenditure in ordinary and development expenditures. A precise breakdown is not available.

This is essentially a revolving fund, which in principle should be self-financed. In practice, however, this fund is sometimes replenished by transfers from the Consolidated Fund.

It is likely, however, that through the BIA the Brunei government has a controlling or majority interest in enterprises domiciled abroad.

Defmed to include deposits in all currencies of nonbank residents and non-residents, and the net position of borrowings in all currencies from banks in Brunei less any claims in all currencies of such banks.

However, the BCB’s balance sheet includes a small amount of claims on government on account of amounts outstanding on the sale of commemorative coins. In addition, as the IMF accounts are held by the BCB on behalf of the Ministry of Finance, a counterpart balancing entry is recorded in BCB liabilities as credit from the government.

Between 1985 and 1988, failures of the United National Finance Company, the National Bank of Brunei, and the Jan Shen trading company, caused the government to be involved in the liquidation, the recovery of assets, and the repayment of depositors (including a budgetary transfer).

The Banking Act of January 1957, sets out license requirements and minimum paid-up capital for banks, and requires banks to establish a reserve fund from annual profits, submit monthly statements of assets and liabilities to FID (from which FID prepares an annual report on the operation of the banking system on a consolidated basis), and publish annual audited financial statements. A new draft Emergency (Banking) Order includes more extensive provisions on minimum capital ratios, restrictions on some large exposures and related party transactions, expanded prudential reporting, the carrying out of on-site inspections, and required corrective actions. The draft includes specific supervision provisions for branches of foreign banks. The Emergency (Islamic Banking) Order was passed in 1992 to promote Islamic banking, although only one bank has been licensed under this order to date (the Islamic Bank of Brunei). Unlike the Banking Act, the Islamic Banking Order contains detailed supervision provisions, including the requirement to maintain adequate levels of capital, reserves, and liquid assets; submitting and publishing annual audited financial statements; furnishing any other information required by the Minister of Finance; and empowering the latter to require corrective action, force the removal of directors and managers, issue cease and desist orders, and order the winding up of an Islamic bank. Finance companies are regulated and licensed under the Finance Companies Act of 1972. While more comprehensive than the Banking Act, its provisions are not as extensive as those of the Islamic Banking Order. No annual report is prepared on finance companies despite the compilation of information by FID on their operations, and no information is available on the share of their nonperforming loans or exposure levels. The TAIB is governed by the Emergency (Perbadanan TAIB) Order of 1991, and, contrary to banks and finance companies, is not subject to any licensing requirements. Money changers and remittance companies are governed by the Emergency (Money Changing and Remittance Businesses) Order of 1994, Finally, in their efforts to improve the legal framework, the authorities have also prepared a draft Emergency (Insurance) Order.

As mentioned above, the draft Emergency (Banking Act) Order includes specific supervision provisions applicable to branches of foreign banks. In addition, the authorities have prepared drafts of an International Trusts Act and an International Limited Partnership Order.

The CAMELS rating system is an off-site evaluation system that encompasses the adequacy of Capital, the quality of Assets and Management, Earnings capability, Liquidity management, and the effectiveness of control Systems of banks.

Entitled Emergency (Securities) Order.

Currently, Singapore government securities would provide useful proxy benchmark indicators for market pricing of Bruneian government securities.

The Council, comprised of government officials and private sector representatives, has set up five Working Groups. Four Working Groups, which are scheduled to submit their recommendations to the Cabinet sometime in 1999, cover the following areas: (i) Promoting Productivity, Manufacturing, and Services; (ii) Diversifying Oil and Gas Industries; (iii) Developing Finance and Banking; and (iv) Facilitating Economic Policy, Infrastructure, Regulation, Finance, Credit, Trade, and Labor. A fifth Working Group is tasked with assessing the current economic situation and drawing up recommendations on how to cushion the impact on the domestic economy of the ongoing economic downturn in nearby Asian countries, including Japan. This Working Group is expected to report to Cabinet by early 1999.

The “Bruneization” policy was adopted to help absorb the estimated 5,200 people who enter the working age population each year and as a way to achieve an increase the female participation rate. Bruneization has largely been achieved in the government, oil and gas, and financial sectors.

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