Oil Price Affects Brunei's National Spending (2016)
Oil price drop affects national spending
on: January 20, 2016
| Siti Hajar |
THE falling global oil prices are taking their toll on Brunei’s economy, with the government acknowledging yesterday that the current international economic climate surrounding the oil and gas industry is expected to further feed into Brunei’s financial deficit, should the trend continue.
From a $213 million shortage in government spending for the year 2014/2015, it can spiral to $2.3 billion by the end of the current fiscal year if global oil prices continue to fall.
In a speech delivered yesterday at the launching of the Enterprise Open Day at the Design and Technology Building in Anggerek Desa, Pehin Orang Kaya Laila Setia Dato Seri Setia Awang Haji Abdul Rahman bin Haji Ibrahim, Minister at the Prime Minister’s Office and Minister of Finance II, pointed to the “reality” that the shortfall in income that accounts for more than half of the country’s GDP, “has implications on the government’s abilities and ways in current and future spend-ing, especially if the situation is prolonged.”
According to the short-term energy outlook report published by the US Energy Information Administration, the international benchmark for oil prices, Brent Crude, is predicted to be at US$40 per barrel for the year 2016, increasing next year to US$50 per barrel, which is about half of what prices were in 2014 at US$98.89.
The minister pointed out that over the past few weeks, a number of oil-producing countries introduced measures to offset the lowering price of international oil, including the introduction of Goods and Services Tax as well as reducing subsidies for certain oil-related products.
As of yesterday, the price for oil fell to below US$30 per barrel, attributed to the continuous global supply glut, stock piling and the recent lifting of sanctions over Iran, whose oil is expected to enter the already oversupplied market.
“Brunei Darussalam is not exempted from experiencing the negative impact brought about by this phenomenon,” he said, stating that current global oil price has significantly affected the country, whose government is financially dependent on the oil and gas sector by roughly 90 per cent.
In his reaction to these concerns, the minister stressed for the need to practise prudency in spending to ensure economic sustainability.
But because national spending isn’t limited to just the government, the people were also urged to “accept the fact that government’s ability to spend will be limited”, with the spending focus now being priority, needs, capacity and significance in harnessing economic activity and work opportunities for locals.
The public sector, he said, will be required to diversify the economy beyond the volatile oil and gas sector, referring to strategies that include attracting Foreign Direct Investments (FDIs) and strengthening Small and Medium Enterprises (SMEs), in keeping with several titahs made by His Majesty Sultan Haji Hassanal Bolkiah Mu’izzaddin Waddaulah ibni Al-Marhum Sultan Haji Omar ‘Ali Saifuddien Sa’adul Khairi Waddien, Sultan and Yang Di-Pertuan of Brunei Darussalam.
“We need to change the ‘business as usual’ practice as a means to overcome our current challenges. The government, the public sector and the public must change their mindset and the way they work to one which is more positive in order to play a more significant role in being proactive and efficient in any effort, especially in terms of reducing their respective operational costs,” said the minister.