Brunei's $15.9 billion GDP: Good News and Bad News
The latest issue of Brunei Economic Bulletin (BEB, volume 4 issue 3 & 4, July 2006) issued by the Economic Planning and Development Department of the Prime Minister's Office, contains several interesting information about Brunei Darussalam’s economy. There are good news and bad news.Let me start with good news. The BEB wrote that the GDP statistics has been revised. Well, actually this is not new, because the announcement was already made sometimes in August 2006. But it is still good news because now we learn that our GDP statistics conform to the international practice (which uses the “1993 System of National Accounts”). The GDP statistics are also more comprehensive in terms of data coverage. Another good news: finally, our GDP statistics adopt two different approaches to compiling the data (ie, the production and expenditure approaches). Done this way, both the policy maker and analysts are now able to undertake data cross check. The revised methodology allows analysts to use GDP statistics more confidently.
Why are they good news? How do the new statistics help us? Let me give you one example. For a start, we now know better what drives the economy. From the GDP (by expenditure) statistics, we can see that on average, the investment rate is only around 14%. Mind you, we are talking about the domestic economy here. This figure is rather low if the country wants to accelerate its economic growth. (By the way, you can arrive at this figure by taking the ratio between capital formation and GDP). In comparison, the ratio between government consumption and GDP averaged around 24%.
What this means is that the economy spends 10 percentage points less on investment than on government consumption. Since the multiplier effect of consumption is typically small, while investment multiplier is high, you can expect the future growth rate would be rather slow. Investment (unlike consumption) is like “flour and eggs” in a cake: the smaller the amount of flour and eggs you put, the smaller the cake size you would get. (I am sorry introducing technical jargon, but actually the term “multiplier” refers to how many times 1 dollar gets multiplied in an economy in order to produce output).
You see: the improved GDP data now allows us to know more about the economy. With such data, not only that we know more about “the direction” of the economy, but we also know more about “the structure” and “the magnitude” of changes in the economy. Because knowledge is good, hence improved GDP statistics is good news.
What’s the bad news? There is a chart in BEB that conveys a very powerful message: Brunei economy slowed down. The growth rates in 2004 and 2005 were close to zero. What’s more, the average growth rate (between 2000-2005) was only around 1.6%. Is this low or high? To put this figure into perspective, I give you the average growth rates (2000-2005) of countries in this region: Malaysia 3.7%; Singapore 4.4%; Philippines 4.6%, Thailand 4.7%, Indonesia 4.7%, Cambodia 6.2%, Vietnam 7.3%, and; China 9.3%.
Finally, the new GDP statistics also revised Brunei’s total output upward. The nominal GDP figure for 2005 is now estimated at BND 15.9 billion, compared to BND 9.8 billion (based on the old series). The per capita GDP, therefore, gone up: from around BND 26,000 to around BND 42,000. This puts Brunei at par with Singapore in terms of per capita GDP.
But this revision should not lead Bruneians to think that they suddenly get richer (on a stroke of a pen). This figure only means that the old statistics series understated Brunei’s output. That’s all. The census in itself cannot create more GDP.
Today's entry is written by an expert who has been observing our economy for the last couple of years and still prefers his anonymity. He is a specialist in his field and has guest written once before this writing about food security in Brunei Darussalam.
Photo credit: DEPD
Comments