Fiscal stimulus can soften impact of falling oil prices

Koo Jin Shen
BANDAR SERI BEGAWAN


GOVERNMENT stimulus is necessary to soften the impact of low oil prices on the Bruneian economy.

In an interview with The Brunei Times, Alan Boyd, Southeast Asian analyst for UK-based analysis and advisory firm Oxford Analytica, said a government stimulus can help an economy hurting from sinking oil prices and lower export revenues.

“The government’s most pressing task is to soften the impact of the economic downturn on consumers by creating jobs and supporting private consumption,” he said.

Brunei’s economy remains highly reliant on oil and gas sector. It accounts for more than half of its GDP and 90 per cent of its exports.

While recent diversification efforts are starting to see fruit, the fall in oil and gas prices has forced the government to operate at a budget deficit for this year.

The Ministry of Finance announced at the second sitting of the Legislative Council Meeting in March that with a proposed national budget of $6.4 billion, Brunei would run into a deficit of $2.28 billion for the fiscal year 2015/216.

Minister of Finance II Yang Berhormat Pehin Orang Kaya Laila Setia Dato Seri Setia Hj Abdul Rahman Hj Ibrahim (pictured) said weak oil prices will reduce total government revenue which is projected at $4.117 billion.

The government eventually only approved a budget of $5.7 billion and this should bring the actual deficit down to over $1.58 billion.

Boyd acknwledged that public revenues have taken a hit from falling oil prices. But he said an increase in government spending should still be considered.

“The government had a fiscal surplus equivalent to two per cent of gross domestic product at the end of 2014, which provides ample room for stimulus spending,” he said.

Boyd said Brunei’s challenge is to spread risks that are derived from cyclical commodity slumps and providing a “growth buffer” that will keep the economy afloat during tougher times.

He cited Malaysian and Indonesian economies, their growth dependent on commodity exports. But those two countries also have strong manufacturing, services and agricultural sectors that can help them get through slumps in commodity prices.

“Brunei doesn’t have such a buffer,” he said.

Boyd said all ASEAN countries are experiencing economic difficulties as they prepare for the start of the AEC.

“But these are magnified in Brunei by the absence of any other significant economic drivers that can compensate for the loss of oil revenues,” he said.


Sumber - The Brunei Times