I don't normally like putting my economist hat on. I do that in my day job and I like to go home and think, read and write about other things - and that's why I look at history and other things. However with the budget debate just over, sometimes I get people asking me what I think will happen to the Brunei's economy this year now that the budget has been passed especially given that that some of the lawmakers have been pressing the government to spend the amount allocated so that it will help spur the economy. [Caveat: In this article, I am talking about the economy as a whole and not individual economic sectors where most people had argued in the past that their particular sector is not growing or facing recession.]
During the budget speech, the indicative growth rate that was announced by the second finance minister was some 2.6% to 3.0% growth next year. A lot of people have been asking me whether that rate is achievable or is that an underestimation or an overestimation given that the growth rate for 2005 was 0.4%. Admitedly, forecasting is not easy. But if you were to ask me, we should look to 2006 and see whether we can use that as a base. Just to look at the data for the past three quarters of 2006, Brunei should grow by about 3.5% or more this year. This compares favourably to that 0.4% growth in 2005.
If we were to use that 3.5% rate for 2006 as a base, the forecast of 2.6% to 3.0% for 2007 may be slightly underestimating the growth rate somewhat. This rate just about keep pace with population growth. Can we grow any faster than this? It is possible. Personally, I am fairly confident that we maybe able to look at a more optimistic figure of close to 4% growth next year. BUT this is of course dependent on a number of factors.
The first factor is that oil prices should remain about or thereabouts about USD$50+ per barrel. Anything above a certain threshold will provide a budget surplus and that kind of price will help to maintain the treasury's coffers and provide a little bit excess. Even though our currency has been strengthening against the dollar and may affect the total amount of revenue received by the government (we sell our oil and gas in US Dollars, revenues are affected both by price and exchange rates assuming our production remains stable), but it may also help to contribute towards cheaper import costs and hence hopefully lower business costs.
Secondly, hopefully with the RKN9 that will be about to be launched and that there is now pressure for the government agencies to spend the amount allocated to them - hopefully will lead to a higher implementation rate of projects - higher implementation means more money goes into the economy. What is important is that if there is a higher implementation rate of projects - this will also directly increased Brunei's investment rate, and this will stimulate private sector spending.
The third factor is something which a number of people have argued in this blogsite in the past - improved private sector spending amid a more favourable interest rate environment. The MOF's directives issued in 2005 was that the Brunei Association of Banks can no longer impose an industry wide prime lending rate. The banks are now free to charge their own rate and this has led to some banks giving 0% mortgage rates for the first few years - unthinkable before. At the same time, the downward pressure in interest rate will continue as it is underpinned by low inflation rate and relative stability in the exchange rate through 2007. All these factors will, fingers crossed, stimulate both consumption spending and investment (especially by the SMEs).
Last year, the Economic planners announced a new GDP methodology which hopefully will bring Brunei's economic data in line with international standards. I wrote about this last August when our GDP per capita ballooned to B$42,900. Normally the statisticians will say that even just by changing bases, Brunei may also gain from what is known as 'gain from base level effect'. Stastically it is posssible that we may grow somewhat because of the changes even though nothing else has changed.
But of course the one important factor to remember is that all this can be undone easily. Growth rates assume on a number of factors but should just one factor not take place - the most important of which is that - projects implementation had not been achieved as high as expected, then forget about growth. This factor is very much dependent on what and how the various ministries can do to overcome their sluggishness in implementing projects. Overcome this, then a 4% growth will definitely be there.