Brunei Darussalam WT/TPR/S/84
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I. ECONOMIC ENVIRONMENT
(1) RECENT ECONOMIC DEVELOPMENTS
1. Brunei Darussalam has one of the highest standards of living amongst its ASEAN partners;
estimated per capita income was B$23,627 (some US$13,800) for the year 2000 (Table I.1).  The
country, situated on the northern end of the island of Borneo, has a total area of 5,765 square
kilometres, some 80% of it forested.  Brunei's population in 2000 was estimated at around 338,000, ofwhich, it appears, some 40% were expatriate workers.
Table I.1
Basic economic and social indicators, 1990-2000
(B$ million and per cent)
1990 1991 1992 1993 1994 1995 1996 1997 1998a1999a2000b
National income
Current GDP
(B$ million)6,508.6 6,620.5 6,565.1 6,585.1 6,686.2 7,394.2 7,408.6 7,628.1 7,030.5 7,615.3 7,995.5
GDP per capita (B$ '000)
At market
prices25,685 25,415 24,515 23,833 23,502 24,980 24,283 24,260 21,760 23,028 23,627
At constant
prices14,227 14,398 13,851 13,493 13,340 13,211 12,951 13,020 12,165 12,180 12,256
Share in GDP Per cent
Agriculture 1.8 1.8 1.9 1.9 1.9 1.8 1.9 2.0 2.3 2.1 2.0
Forestry 0.2 0.2 0.2 0.3 0.3 0.3 0.3 0.3 0.4 0.4 0.3
Fishing 0.4 0.4 0.4 0.5 0.5 0.5 0.5 0.5 0.6 0.6 0.6
Petroleum and
natural gas49.6 50.4 45.4 41.8 36.0 38.7 36.3 39.2 30.4 35.3 36.9
Manufacturing 2.7 2.9 3.1 3.2 3.2 3.0 3.2 3.3 3.8 3.8 3.9
Electricity 0.9 0.9 1.0 1.0 1.0 1.0 0.8 0.7 0.9 0.8 0.8
Construction 4.3 4.6 4.8 5.1 5.5 5.5 6.6 6.9 7.7 7.0 6.9
Services 38.2 41.0 45.4 48.7 51.9 51.4 52.6 49.2 56.3 52.1 50.6
Financial services
Banking 3.4 3.6 3.7 3.9 4.1 4.0 4.8 4.8 5.6 5.3 5.2
Insurance 1.0 1.1 1.1 1.2 1.2 1.2 1.5 1.5 1.7 1.6 1.6
Wholesale
trade1.9 1.9 2.1 2.2 2.3 2.2 2.3 2.4 2.7 2.6 2.7
Retail trade 4.0 4.1 4.3 4.5 4.6 4.4 5.4 5.3 6.0 5.7 5.6
Hotels and
restaurants1.0 1.0 1.1 1.1 1.1 1.1 1.2 1.2 1.4 1.3 1.2
Transport and
communication3.3 3.6 3.8 4.0 4.2 4.0 4.1 4.5 5.3 5.1 4.9
Real estate 1.0 1.0 1.1 1.1 1.1 1.1 1.2 1.2 1.4 1.3 1.2
Social and
personal
services21.8 23.7 27.2 29.6 32.2 32.3 30.9 27.1 30.9 28.0 27.0
Ownership of
dwellings0.8 1.0 1.0 1.1 1.1 1.1 1.2 1.2 1.3 1.2 1.2
Less banking
charges2.2 2.3 2.4 2.5 2.6 2.5 2.7 2.8 3.1 2.9 2.8
Table I.1 (cont'd)WT/TPR/S/84 Trade Policy Review
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1990 1991 1992 1993 1994 1995 1996 1997 1998a1999a2000b
Share in employment
Agriculture,
forestry and
fishing.. 2.0 .. .. .. 2.5 .. .. .. .. ..
Petroleum and
gas.. 5.0 .. .. .. 4.0 .. .. .. .. ..
Manufacturing .. 3.8 .. .. .. 4.8 .. .. .. .. ..
Electricity and
water. . 2 . 1. .. .. .. .. .. .. .. . ..
Construction .. 13.3 .. .. .. 8.9 .. .. .. .. ..
Services .. 73.7 .. .. .. 79.8 .. .. .. .. ..
Social indicators (Million)
Population 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
Urban
population. . 0 . 2. .. .. .. .. .. .. .. . . .
Unemployment
(%).. 4.7 .. .. .. 4.9 .. .. .. 4.6 ..
Birth rate (per
1,000
population)27.7 27.3 27.2 26.5 25.6 24.8 25.0 23.7 22.9 22.3 ..
Life expectancy at birth
male .. 72.1 .. .. .. .. .. 74.2 73.8 74.0 ..
female .. 76.5 .. .. .. .. .. 75.0 75.8 76.3 ..
Education (%)
Primary/
preparatory62.5 61.3 61.0 60.6 60.9 60.9 60.7 59.9 59.5 58.4 ..
Secondary 37.5 38.7 39.0 39.4 39.1 39.1 39.3 40.1 40.5 41.6 ..
a Provisional (GDP figures only).
b Estimated data... Not available.
Source: Government of Brunei Darussalam.
2. Brunei's economic prosperity is largely based on its abundant petroleum and natural gas
resources, first discovered in the 1920s;  the petroleum and natural gas sector currently accounts for
around 37% of GDP, although this figure has declined from almost 50% of GDP in 1990.  With
agriculture and manufacturing playing relatively minor roles in the economy, the importance of
services has grown, from a share of 38% to 51% of GDP between 1990 and 2000.  Services are also akey source of employment, providing jobs for some 80% of the labour force.
3. Recent economic growth has varied considerably  owing mainly to changes in international
prices for petroleum, Brunei's main export, the effects of the Asian economic and financial crisis,
which has affected the south-east Asian region since 1997, and the collapse of Amedeo, a large
development corporation.  As a result, real GDP  growth, which averaged 2% between 1990 and 1997
(non-oil GDP growth averaged 4.5% during this peri od), contracted by 4% in 1998;  the contraction
was largely due to a sharp fall in real growth of the petroleum and natural gas sector by almost 12% in1998, compared with growth of 5.4% the year before.  Higher petroleum prices in 1999 have led to a
recovery in the petroleum and gas sector, alt hough non-oil GDP growth remains weaker than in
1990-97, primarily due to a contraction in the construction industry in 1999 (Table I.2).  Real GDP
growth is expected to be 3% in 2000.Brunei Darussalam WT/TPR/S/84
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Table I.2
Economic performance, 1990-2000
1990 1991 1992 1993 1994 1995 1996 1997 1998a1999a2000b
Real GDP growth (% change) 2.7 4.0 -1.1 0.5 1.8 3.0 1.0 3.6 -4.0 2.5 3.0
Petroleum and gas 2.2 3.1 -5.7 -2.4 -1.0 1.0 -0.3 5.4 -11.8 3.4 3.2
Non-oil GDP 3.7 5.7 6.5 4.8 5.6 5.7 2.6 1.4 5.7 1.5 2.8
Agriculture and fishing 0.9 1.1 1.6 1.7 0.7 2.2 4.9 2.8 2.4 -0.2 2.3
Manufacturing, mining & quarrying 2.0 5.2 -5.7 -2.2 0.0 1.6 5.3 4.5 -12.3 3.8 3.3
Electricity and water 7.7 1.0 3.5 0.3 1.6 3.1 -5.3 -6.3 6.7 -5.3 9.6
Construction 3.3 2.6 1.2 2.7 6.1 8.1 3.0 6.9 3.1 -4.0 2.5
Services .. .. .. .. .. .. .. .. .. .. ..
Transport and communications 4.7 -1.6 2.5 3.0 5.5 3.1 4.2 6.4 1.5 1.4 2.4
Social and personal services (incl.
Government services)2.4 9.9 10.1 6.9 6.9 6.2 1.6 -2.1 7.1 1.1 2.4
Trade hotels and restaurants 4.5 -7.7 -0.6 -0.6 -4.8 0.9 -27.7 15.3 9.5 2.0 2.9
Banking and insurance 13.7 0.4 3.2 3.6 6.0 7.1 8.5 7.7 5.3 3.4 2.3
Government services .. .. .. .. .. .. .. .. .. .. ..
Savings and demand (% of GDP)
G r o s s  n a t i o n a l  s a v i n g s . .. .. .. .. .. .. .. .. .. . . .
Gross domestic investment .. .. .. .. .. .. .. .. .. .. ..
Inflation and exchange rate (% change)
GDP deflator 8.4 -2.2 0.3 -0.2 -0.3 7.3 -0.9 -0.6 -4.0 5.7 2.0
CPI (period average) 0.0 1.6 1.3 4.3 2.4 6.0 2.0 1.7 -0.4 -0.1 1.0
Nominal effective exchange rateb
(1995 = 100).. 90.7 93.3 94.9 97.5 100.0 103.2 104.6 .. .. ..
Real effective exchange rateb
(1995 = 100).. 89.2 90.1 92.9 94.6 100.0 102.7 103.6 .. .. ..
Money and credit (B$ million)
Broad money (M3) 4,468 4,669 4,871 5,392 7,472 8,020 7,834 8,116 8,022 8,070 8,941
Credit to public sector .. .. .. .. .. .. .. .. .. .. ..
Credit to private sector 1,255 1,831 1,927 2,410 3,200 2,562 3,160 5,219 3,776 3,761 4,024
Interest rate (%)
Saving rate on deposits below B$100,000 .. .. .. .. 1.50 1.25 1.75 1.75 2.00 1.00 1.00
Time deposit rate below B$500,000 .. 3.25 2.00 3.25 3.00 2.75 2.75 3.00 3.00 2.25 2.25
Prime rate .. 7.00 6.00 5.75 6.00 6.50 6.50 6.50 6.50 5.50 5.50
Balance of trade and payments (US$ billion)
Exports, f.o.b. 2.2 2.5 2.4 2.2 2.2 2.4 2.6 2.7 1.9 2.6 2.9
Imports, f.o.b. 0.9 1.0 1.4 1.8 1.7 2.0 2.4 2.0 1.3 1.3 1.4
Trade balance 1.3 1.4 1.0 0.4 0.5 0.4 0.3 0.7 0.6 1.3 1.4
Services balance -0.3 -0.3 -0.4 -0.2 -0.1 0.01 -0.01 -0.4 -0.7 -0.6 -0.7
Investment, income, net 1.9 2.0 1.9 1.7 2.5 2.5 2.0 2.8 2.5 2.0 2.2
Current transfers, net -0.2 -0.1 -0.1 -0.1 0.0 -0.4 -0.1 -0.2 -0.1 -0.1 -0.1
Current account balance (% of GDP) 75.9 76.8 60.0 47.8 63.7 47.3 54.2 51.7 50.0 58.8 60.8
Balance of payments (% of GDP) -0.02 0.3 10.8 2.2 3.6 0.2 10.7 9.5 1.3 13.3 14.2
a Provisional (GDP figures only).
bP r e l i m i n a r y ... Not available.
Source: Government of Brunei Darussalam;  and IMF (1999), Recent Economic Developments,  19 April [Online].
Available at:  http://www.imf.org/external/country/brn/index.htm [12 D ecember 2000].WT/TPR/S/84 Trade Policy Review
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4. Brunei's heavy dependence on petroleum and gas, prospects of diminishing reserves, which
are expected to be depleted in 20-25 years, and the recent volatility in the international petroleum
market, have prompted efforts by the Government  to diversify the economy away from this sector.
Tax and non-tax incentives are provided for investors in agriculture and a number of manufacturing
activities.  In the services sector, banking and tourism are being encouraged in particular,  with the
recent launching of the Brunei International Financial Centre (BIFC), to attract investment, especiallyby the private sector, and to develop the country's financial services.  Brunei has also emphasized the
need for privatization of a number of services and industrial activities that are currently carried out by
the public sector.  Some efforts have been made since the early 1990s, under the Sixth National
Development Plan, to privatize public-sector activities, including cellular telecommunications
services, poultry production, and an abattoir (Chapter III(4)(iii)(b)).
5. The public sector, nevertheless, remains the largest employer, providing jobs for 94% of the
Brunei nationals in the labour force;  it is also the largest provider of economic and social services in
Brunei.  Key activities in the non-oil sector, including construction, services and, to some extent,
manufacturing, are also dependent on Government development expenditures and contracts.
Increased income from petroleum revenues may also have resulted in a "Dutch disease" situation,with a somewhat appreciating real exchange rate  contributing to a crowding out of the non-oil
tradeable sector.
1  In addition, the public sector offers more attractive salaries and other benefits than
the private sector, such as rent subsidies and low interest loans for the purchase of housing and motor
vehicles.
6. Along with diversification, a related concern is unemployment among Bruneians.  With
population growth averaging around 3% annually, th ere is concern that real growth has to be
accelerated.2  Official estimates place unemployment at around 4.6% of the labour force in 1999.  In
order to help absorb the estimated 5,000 persons entering the labour market each year, the
Government put in place a policy of "Bruneization" in the Seventh National Development Plan (1996-
2000) period, which gives preference to local workers over foreign employees, except in cases where
there is no local interest or qualified personnel available.3  Success with this policy appears to have
been achieved mainly in the government and petr oleum sectors.  The authorities estimate that some
78% of employees in the petroleum sector are Bruneians and that the employment of Bruneians in the
banking subsector has increased;  however, blue collar employment still appears to be dominated by
foreign workers.  An Employees Pension Fund was also created in January 1993, requiring mandatory
contributions into the Fund by employers  for private-sector employees;  this has improved the
attractiveness of  jobs in the private sector.  In addition, the Government has pledged to increaseexpenditure devoted to human resource development during the Seventh Plan period.
7. Despite these efforts, the considerable differential between government and private sector
salaries and benefits still appears to discourage Bruneians from seeking employment in the private
sector;  this is especially true for the small and medium-sized companies, which are being encouraged
by the Government through various tax and non-tax incentives but nonetheless find themselves unableto match the salaries offered by the public sector, and large private companies such as Brunei Shell
                                                     
1 The "Dutch disease" may be the consequence of the crowding out of the non-resource tradeable sector
as a result of an increase in wealth from resource-based earnings.  This results in an appreciation of the realexchange rate, diverting demand and investment fr om the tradeable into th e non-tradeable sector.
2 For example, a report by the Brunei Darussalam Economic Council pointed out that forecasts of job
prospects for school leavers between 1992 and 2001 s uggest that up to a quarter may not be able to find
employment.  (Brunei Darussalam Economic Council, 1999).
3 According to the authorities, there are no official guidelines on Bruneization;  instead, the
Government recommends that local employers give priority to nationals.Brunei Darussalam WT/TPR/S/84
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Petroleum and Brunei International Airlines.  The authorities maintain that the gap between public
and private sector salaries has been declining owing to a freeze on salaries in the public sector.
8. To address some of these concerns and to help revitalize the economy in the aftermath of the
regional crisis and the collapse of the local Amedeo development corporation (ADC), Brunei's largest
non-government employer, the Government set up the Brunei Darussalam Economic Council (BDEC)
in 1998.  The BDEC, which was chaired by the curr ent Minister for Foreign Affairs, found that real
GDP growth was not keeping pace with populatio n growth, resulting in rising unemployment
especially among the local population.  In addition, the Government's chronic budget deficit did not
allow sufficient resources to be devoted to investment, a problem compounded by Brunei's weak
private sector, which was then facing its worst crisis since 1984.  The Council made a number of
recommendations, some of which were to be implemen ted within six months (Box I.1).  A year after
the BDEC published its recommendations, a number of short-term projects are being implemented.
These include:  the provision of bank credit to small and medium-sized companies at low rates of
interest, with government guarantees;  construction of 512 houses for resettlement and related
infrastructure;  construction of 25 small-scale tourism infrastructure projects;  enhancement and
expansion of the Internet service provider BruNet;  provision of computers for all Governmentschools;  and the provision of hospitality and tourism training for job seekers.  The Secretariat of the
BDEC has recently been renamed the Economic Planning and Development Department and has been
moved to the Prime Minister's Office.
4
Box I.1:  Highlights of the Report of the Brunei Darussalam Economic Council
The Brunei Darussalam Economic Council (BDEC) was established in September 1998 with the task of
examining the economic situation of the country and recommending short- and long-term measures to deal
with the regional financial and economic crisis and to revitalize the economy of Brunei.  Five workingcommittees were formed to assist the Commission in its task:  the Committee on Review of the CurrentEconomic Conditions;  the Committee on Diversifying the Oil and Gas Industry;  the Committee onFacilitation of Economic Policies, Infrastructure, Fi nance, Credit, Commerce, Labour etc.;  the Committee
on Finance and Banking;  and the Committee on Promotion of Manufacturing and Services.
The findings of the BDEC were that economic conditions in Brunei, which had resulted in declining per
capita income, rising unemployment, a continuing budget deficit since 1994, and weak private sector
activity, were unsustainable.
Recommendations
The Council recommended a strategy for recovery and long-term sustainable growth:
A. An Action Plan for Recovery was to be implemented within six months.  It involved the following
three elements:
1. a stimulus package to inject liquidity into th e economy and provide financial assistance to local
small and medium-sized enterprises (SMEs) so as to avoid the collapse of large sections of the non-oil
private sector;
2. an implementation strategy aimed at ensuring that decisions taken are properly implemented
(including the appointment of a Senior minister for the economy, an International business advisory Panel, a
Public Policy Think-Tank and a Permanent Business Council);  and
3. a communications initiative aimed at signalling the Government's resolve to address Brunei's
economic problems and restoring private sector an d public confidence, with maximum transparency
accorded to the government's economic initiatives.
Box I.1 (cont'd)
                                                     
4 Government of Brunei Darussalam, On Line News , 15 February 2001 [Online].  Available at:
http://www.brunei.gov.br/hotnews/0201/15/SECB_Renamed.htm [15 February 2001].WT/TPR/S/84 Trade Policy Review
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B. A strategy for Sustainable Growth would be long term, but implementation should begin within oneyear.  Its objectives included:
1. Strengthening  government finances through control of expenditure;  reduction of the size of the
public sector through privatization;  broadening and strengthening the tax revenue base, gradual removal of
subsidies, and corporatization and privatization of the public sector;  and developing mechanisms to meet
temporary shortfalls in liquidity, such as government bonds and other financial instruments.
2. Strengthening the private sector by expanding it through privatization and increased foreign
investment;  encouraging local and foreign private investment through simplification of governmentpolicies;  developing SMEs by easing their access to financing;  encouraging investment in Brunei byreviewing and revising foreign investment restrictions on land ownership;  facilitating private-sectorliquidity by ensuring prompt government payment;  expanding and enhancing the competitiveness of the oil
and gas industry;  and promoting economic diversification by providing incentives and infrastructure
facilities.
3. Strengthening the foundations for sustainable growth by modernizing the legal and regulatory
framework;  enhancing human resource development and deployment;  launching a concerted drive toenhance productivity in the public and private sectors;  and establishing a first class communications andinformation technology infrastructure through public and private investment.
Measures to be taken during the first year included streamlining government expenditure and stabilizing and
expanding government revenue;  launching a privatization plan and investment promotion drive;  creatingwider participation in the economy;  expanding and improving competitiveness in the oil and gas industry;enhancing the capabilities of SMEs;  strengthening and modernizing institutions;  launching a drive to
improve national productivity;  enhancing human resources development;  and preparing an Economic
Blueprint for Brunei.
Source:  Brunei Darussalam Economic Council (1999).
(2) MACROECONOMIC INDICATORS
(i) Fiscal balance
(a) The State Budget
9. The annual budgetary limit for all government agencies is drawn up by the Ministry of
Finance (the fiscal year is the same as the calendar year).  Fiscal revenue is derived mainly from
petroleum and natural gas;  it includes taxes on corporate income as well as royalties derived frompetroleum and natural gas companies.  In 1999, royalties and dividends from oil and gas were
B$455.6 million while corporate taxes from oil and gas companies accounted for some 94.5% of total
corporate tax revenue.  Brunei has no personal income tax or sales taxes.  The corporate income tax
rate is 55% for petroleum companies, 50% for natural gas companies, both of which pay taxes on a
quarterly basis, and 30% for all other companies that are not exempted from paying taxes under taxexemption schemes.  Corporate tax accounted for the largest share of tax revenue in 1999, around
93%.  The other major tax is customs duty, which accounted for around 6.8% of tax revenue (1.2% of
GDP) in 1999;  its share declined from around 13.3 % of tax revenue (2.2% of GDP) in 1995.  Other
minor taxes are estate duty, stamp duty, and building tax (Chart I.1 and Table AI.1).
10. Government revenues are supplemented by transfers, it appears, from the Brunei Investment
Agency (BIA);  these transfers into the budget apparently accounted for around 21.5% of GDP in
1999, and include the Government's investme nt income (Chart I.1 and Box I.2).Brunei Darussalam WT/TPR/S/84
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010203040506070
TR TE TR TE TR TE TR TE TR TE TR TEChart I.1
Fiscal position, 1995-2000
Preliminary.
Data provided by the authorities of Brunei Darussalam.-40-30-20-10010203040506070
1995 1996 1997 1998 1999 2000Expenditure
Transfers
Balance (including transfers)Revenue
Balance (excluding transfers)
a
Source :(a)  Budget balance
Per cent of GDPPer cent of GDP
a
(b)  Revenue and expenditure
  1995                                 1996                               1997                               1998                              1999                                           2000
Current expenditure
Investment in public sector enterprisesTax revenue Non-tax revenueTR = Total revenue: TE = Total expenditure:
Capital expenditureaWT/TPR/S/84 Trade Policy Review
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Box I.2:  Budgetary financing
The Government has two separate reserve funds:  the Government Consolidated Fund and the
Development Fund.
The Consolidated Fund includes the Government's tax and non-tax revenues and transfers from the General
Reserve Fund (see below), from which the Government's expenditures are paid.
The Development Fund is a reserve fund, which allo cates resources according to the five-year National
Development Plan.  The Consolidated Fund provides financing for the Development Fund (contribution tothe Development Fund) on an annual basis.
In addition, the Government's Trust Fund, which appears to be largely self-financed, provides loans on
favourable terms to government and public sector employees;  the fund is sometimes replenished bytransfers from the Consolidated Fund.
The General Reserve Fund is the largest fund and cont ains the Government's external assets. The Fund is
controlled and managed by the Brunei Investment Authority (BIA).  Information on this fund, its operationand size is not available, although the BIA's funds appear to include revenue from petroleum and are
invested, inter alia , in global equity, and fixed income and property markets.  An external audit of the BIA
was to be conducted, however, details are not available.
Source:  Information provided by the authorities.
11. The Government's budgetary expenditure consists of current expenditures, which mainly
includes public sector salaries and expenditure, and capital expenditure.  Total government budgetaryspending as a percentage of GDP, at 57% in 1999, has remained relatively steady since 1995,
although it has shown a tendency to increase recently, mainly due to higher capital expenditure in
1998 and 1999 (Table A1.1).  In addition, investment in public sector enterprises accounted for
around 2.8% of GDP in 1999, falling from around 10% in 1995;  an increase in investment in public
sector enterprises in 1998 and 1999 appears to be due, in part, to the collapse of Amedeo and itsassociated companies.
12. With revenue heavily dependent on petroleum and natural gas and a narrow tax base
(consisting mainly of corporate taxes levied on oil and gas companies), the overall budget balance,
minus transfers from the BIA, has been negative, varying between 11% and 30% of GDP, during the
period 1995-99.  The balance, including the transfer from the BIA, was positive until 1996, going intodeficit in 1997, with the deficit increasing as revenues fell and expenditures continued to rise.  Rising
petroleum prices, however, have led to an improvement in the budget, which rose from a deficit of
2.1% of GDP in 1999, to an estimated surplus of 18.5% in 2000 (Table A1.1).
13. The Brunei Investment Agency (BIA) plays a key role in investing Brunei's petroleum and
gas revenues and in ensuring that the earnings on its investments can, if necessary, contribute to
bridging the gap when government expenditures exceed tax revenues, which are largely derived from
petroleum and gas revenues and therefore tend to be volatile.  The returns on the funds invested by theBIA can also be drawn upon as Brunei's reserves of oil and gas are depleted over the next 20-25 years.
It follows that Brunei's fiscal stability and future prosperity both depend heavily on the BIA's efficient
and prudent investment of the funds entrusted to it.  The operations of the BIA and its managementBrunei Darussalam WT/TPR/S/84
Page 9
lacks transparency, with the Agency not publishing an annual report and its accountability to the
public being unclear.5
(b) The National Development Plan and other expenditure
14. In addition to annual budgetary expenditure, the Government of Brunei draws up a five-year
National Development Plan, which is coordinated and monitored by the Economic Planning and
Development Department in the Ministry of Finance.   In practice, the Plan is coordinated between a
number of different Ministries and Departments before it is finalized.  The current National
Development Plan, the seventh, runs from 1996 to  2000 and has budgeted development spending of
around B$7.95 billion;  B$5.7 billion was allocated for the Sixth Plan.  Expenditure under the Seventh
Plan was concentrated in social services (27.5% of total development spending), public utilities
(22%), transport and communications ( 19.5%), and industry and commerce (12.6%).6  According to
the authorities, the Eighth National Development Plan has, been drawn up and budgeted and will run
from 2001 to 2005.
15. Other expenditures are made through the Trust Fund, which is used to provide favourable
loans to government employees (Box I.2).
(ii) Exchange rate and balance of payments
16. The Brunei dollar is issued by the Brunei Currency Board only against payments in, and at
par with, the Singapore dollar.  Under a Currency Interchangeability Agreement, signed between the
Brunei Currency Board and Singapore's Board of Commissioners of Currency of Singapore in 1967,
the Singapore dollar is also legal tender in Brunei and both currencies may be exchanged at par and
without any charge.  Brunei's Currency Board deals only in Singapore dollars and does not quote rates
for other currencies.  There are no restrictions on commercial banks dealing in other foreign
currencies and no exchange controls are imposed except on gold and jewellery, for which only bankslicensed to operate in gold and jewellery may buy and sell gold bars.  There are no capital controls,
and no distinction is made between accounts held by Brunei nationals and non-nationals.
7
17. The authorities appear to believe that the advantages of pegging the Brunei dollar to the
Singapore dollar outweigh its disadvantages.  One possibly major disadvantage of the peg is that the
resulting steady effective appreciation of the Brunei dollar since 1991 may not only hamper recoveryfrom the Asian crisis but also impede the Government's efforts to diversify the economy.  On the
other hand, the authorities seemingly consider that maintenance of the peg imparts a high degree of
stability to the financial system and the economy as a whole.
18. As with the exchange rate, trends in interest ra tes closely follow those in Singapore.  Brunei's
prime interest rates are set each month by the Brunei Bankers' Association, usually within a0.25-0.5% margin of corresponding rates in Singapore, and act as a benchmark lending rate for
commercial  banks.  The prime rate has declined since 1995, from 6.5% to 5.5% in 2000;  with
inflation currently at 1%, the real interest rate is one percentage point lower (Table I.2).  The
                                                     
5 Accusations of mismanagement and misappropriation of a reported US$15 billion of government
funds by the BIA led to a dismissal of the management of the BIA and a civil suit against the management;  a
settlement has reportedly been reached and certain funds returned ot the BIA.  (Government of Brunei, undated,
Press Release  [Online].  Available at:  http://www.brudirect.com/Prince_%20
Jefri's_%20Settlement_Announcement.htm [11 January 2001]).
6 Government of Brunei Darussalam (1997) .
7 IMF (2000) .WT/TPR/S/84 Trade Policy Review
Page 10
authorities do not believe that prevailing interest rates in any way impede economic or private sector
growth in Brunei.
19. Brunei's petroleum and natural gas reserves have ensured a sizeable surplus on the balance of
trade account, despite fluctuations in petroleum prices.  Although data on gross savings and
investment in the economy are not available, the sizeable gap between savings and investment is
reflected in Brunei's current account surplus, which was expected to be just over 60% of GDP in 2000(Chart I.2 and Table AI.2).  While the merchandise trade surplus grew from US$249 million in 1996
to US$1.4 billion in 2000, the deficit on the services balance has continued to grow.  Both the trade
and current account surpluses have shown increasing trends since 1998, due mainly to improved
petroleum prices, but also to lower levels of imports over previous years.
-1,000-50005001,0001,5002,000
010203040506070US$ millionChart I.2
Balance of payments, 1995-2000
a        
    
Source :Provisional.
Data provided by the authorities of Brunei Darussalam.Per cent of GDP
     1995                            1996                           1997                             1998                             1999                            2000a  
Overall balance of  paymentsLeft-hand scale:
Current account Services, net Merchandise trade balanceRight-hand scale:
20. The size of the balance-of-payments surplus has fluctuated considerably since 1995,
increasing from 0.2% of GDP to 10.7% and 9.5% in 1996 and 1997, before declining sharply to 1.3%
in 1998.  Higher petroleum prices in 1999 were the main reason for the balance-of-payments surplus
rising to 13.3% of GDP in 1999;  the surplus is expected to have risen further in 2000, to 14.2% of
GDP.Brunei Darussalam WT/TPR/S/84
Page 11
(3) DEVELOPMENTS IN TRADE
(i) Composition of trade
(a) Trade in goods
21. Brunei's merchandise exports were valued at US$2.3 billion in 1998, slightly higher than in
1993.  Imports were valued at US$1.6 billion, down from US$1.8 billion in 1993 (Chart I.3 and Table
AI.3).  The most significant change in the structure of exports is the increasing diversification awayfrom mining, which includes petroleum and natural gas, to clothing and other manufactures.  In 1998,
mining and petroleum accounted for almost 89% of exports compared with almost 100% in 1993.
Clothing accounts for a major share of non-mining and petroleum exports, 4.4% in 1998, up from
0.3% in 1993.  Brunei's exports of machinery and transport equipment have grown to almost 5% of
merchandise exports.
22. Imports are dominated by manufactured goods, although their share fell from 88% to 80%
between 1993 and 1998 (Chart I.3 and Table AI.4).  The major manufactured imports in 1998 were
transport equipment, non-electrical machinery, textiles and clothing, and other semi-manufactured
goods.  At almost 17%, agriculture accounts for an increasing share of imports;  the majority consists
of food imports, which grew from 9.5% of total merchandise imports to 16.5% during this period.
(b) Trade in services
23. Disaggregated data on trade in services are not available.  However, balance-of-payments
data indicate that the net services deficit has been growing rapidly since 1997, primarily due to an
increase in payments for services imports, wh ich grew from B$787 million (US$555.2 million) in
1995 to almost B$1.6 billion (US$930 million) in 1998;  services payments were expected to be
B$1.4 billion (US$0.8 billion) in 2000.  In comparison, receipts for services exports declined sharply
from B$797 million (US$562.2 million) in 1995 to an expected B$338 million (US$196.0 million) in2000.  A breakdown of the data by major service subsector is not available, making it difficult to
determine in which sectors the decline has primarily occurred.
(ii) Direction of trade
(a) Trade in goods
24. Brunei's exports are mainly destined for the east Asian region.  However, the share of trading
partners outside this region increased from 1.2% to 11.7% between 1993 and 1998 (Chart I.4 and
Table AI.5).  Japan remains Brunei's largest trading partner, although its share in exports fell from
63.3% to 53.1%.  Exports, mainly of natural gas, have also increased significantly to the Democratic
People's Republic of Korea, which accounted for almost 18% of exports in 1998.
8  Countries outside
the east Asian region whose shares have increased are the United States (9.1% in 1998) and theEuropean Union (2.0% in 1998).
                                                     
8 Data on merchandise trade used in Chapter I are based on the UNSD, Comtrade database (SITC
Rev.3).  The data used in this chapter differ considerably from those provided by the authorities for thepetroleum and natural gas sector (Chapter IV(3)).WT/TPR/S/84 Trade Policy Review
Page 12
Chart I.3
Product composition of merchandise trade, 1993 and 1998
1993 1998
(a)    Ex ports
Other mining
3.5Clothing
0.3Mining
99.7Natural gas, liquefied
45.3
Total:   US$2.1 billion Total:   US$2.3 billion
(b)    Im ports
Food
16.5
Other 
manuf.
10.7Other semi-
manufactures
16.7
Non-electrical
machinery 
8.2
Transport equip.
14.6Office machines &
telecom. equip.  
5.3Mining
2.6
Manufactures
79.9Chemicals
6.1
Total:   US$1.8 billion Total:   US$1.6 billion
Source :  UNSD, Comtrade database (SITC Rev.3).Per cent
Other semi-
manufactures
13.6Crude petroleum
33.7Mining
88.7
Machinery & transport
equipment  4.9Natural gas, liquefied
52.6
Clothing  4.4Other  manuf.  1.5
Iron &
steel
6.1
Other
 manuf.
13.9Crude petroleum
50.9Other mining
2.4
 Other 
electrical
 machines
5.1Textiles & 
clothing
7.1Textiles & clothing
3.1Other 0.5 Other  0.3Other  0.5
Other agriculture
0.4
Non-electrical
machinery
13.7Chemicals
4.4
Office machines &
telecom. equip.  
4.6
 Other electrical
 machines
5.9
Transport 
equipmentIron & 
steel
3.4
Other agri  0.4Mining  1.8
Food  9.5
Manufactures
88.0Brunei Darussalam WT/TPR/S/84
Page 13
Chart I.4
Direction of merchandise trade, 1993 and 1998
1993 1998
(a)    Ex ports
East Asia
98.8
Chinese Taipei
3.0Korea, Rep. of
11.6
Thailand
10.3Other 1.2Japan
63.3
Singapore
8.3
Total:   US$2.1 billion Total:   US$2.3 billion
(b)    Im ports
Singapore
17.1United States
25.1
Oceania 
2.9EU15
27.1
Other 
0.7
East Asia
44.2Singapore
22.7
Hong Kong, China
4.3 Japan
6.4Thailand
4.3EU15
15.2
East Asia
62.8United States
15.0
Total:   US$1.8 billion Total:   US$1.6 billion
Source :  UNSD, Comtrade database (SITC Rev.3).Per cent
Korea, Dem. 
People's Rep. of
17.9Other East Asia
1.4
Thailand
6.1East Asia
88.3Japan
53.1
Chinese Taipei
1.9Singapore
7.9
Malaysia
16.9Philippines
2.3Other  0.6EU(15)  2.0
United States
9.1
Oceania 
4.1Other East
 Asia   6.4
Japan
9.4Indonesia
3.0
Malaysia
8.3Other  2.9
Indonesia  3.4Other East Asia
4.8WT/TPR/S/84 Trade Policy Review
Page 14
25. Imports also originate mainly in east Asia, whose share increased from 44.2% to 62.8%
during the period, mainly at the expense of the United States and the European Union whose shares
declined from 25.1% to 15.0% and from 27.1% to 15.2%, respectively.  In east Asia, Singapore
continues to be the largest source of imports, increasing its share from 17.1% in 1993 to 22.7%,
followed by Malaysia, from 8.3% to 16.9%.
26. Since 1993, imports from other ASEAN countries have grown rapidly, from 30% of total
merchandise imports, to almost 48% in 1998 (Table AI.6).  This suggests that the lowering of trade
barriers within the ASEAN region through the ASEAN Free-Trade Agreement (AFTA) may have led
to significant trade diversion.  Trade with APEC countries also expanded during this period, although
to a lesser extent.
(b) Trade in services
27. Data on the direction of trade in services are not available.
(4) DEVELOPMENTS IN FOREIGN DIRECT INVESTMENT
28. Data on foreign direct investment inflows are not available.  Data reported in the balance of
payments indicate that net foreign investment increased from around B$297 million(US$209.5 million) in 1995 to B$323 million (US$229 million) in 1996 before declining in 1997 and
1998 (Chart I.5).  A recovery since 1999 shows that net FDI is back to pre-crisis levels, accounting for
around 4.4% of GDP in 2000, slightly higher than the share in 1995 (around 4%).
190195200205210215220225230
1995 1996 1997 1998 1999 20003.83.94.04.14.24.34.44.54.64.74.8Chart I.5     
Net foreign investment, 1995-2000
US$ million 
Based on estimated GDP.
Based on estimates for foreign investment and for GDP. Data provided by the authorities of Brunei Darussalam.Foreign investment 
(left-hand scale)Foreign investment/GDP
(right-hand scale)Per cent  of GDP
ab  a
a               
b        
Source:
29. Data by major foreign investor are not available.Brunei Darussalam WT/TPR/S/84
Page 15
(5) OUTLOOK
30. While Brunei experienced relatively steady economic growth during the 1990s, a combination
of external and internal factors in 1997 and 1998 had a negative impact on the economy.  These
factors include a considerable decline in international prices of petroleum, Brunei's major export, the
Asian economic crisis, which hit the region in 1997, and the collapse of a major domestic company,
Amedeo, in 1998.  The overall impact of these factors was not as severe as expected, mainly becausetransfers from the BIA were more than sufficient to cushion the effects.   Nevertheless, in the longer
run, the Government recognizes a need for diversification away from petroleum and energy-based
industries, and of the Government's revenue base, not only to protect the economy from such shocks
in the future but also to anticipate the eventual depletion of oil and gas reserves.
31. To date, Brunei's diversification policies seem to have met with little success.  The
implementation of the privatization plan, which has been ongoing since the early 1990s, appears to
have been slow;  there is concern about the effect of privatization on government revenue, prices, and
the influence of foreign companies in the economy.
9  In addition to privatization, investment by the
private sector is encouraged through various incentives, although the dominance of the Government in
the economy has made it hard for the private sector to compete for resources.  Budgetary and long-term development expenditures by the Government are also dependent to a large extent on petroleum
and gas revenues, which generate most of the tax revenues.  Although transfers from the BIA have
been used, when necessary, to offset declining pe troleum revenues, the narrowness of the existing tax
base suggests the need for comprehensive tax reform, a point raised by the BDEC.
10
32. In order to attract private, especially foreign, investment to diversify the economy, the
Government has put in place a system of tax and non-tax incentives.  However, guidelines on sectors
that require a certain amount of local participation, as well as on foreign investment procedures,remain unclear and thus create scope for discretion in government decision making.  More generally,
confidence in the economy, which was undermined by the regional economic crisis and the collapse
of Amedeo, would benefit from greater public disclosure of the assets and activities of state-owned
companies, and from stricter rules on their governance.  Confidence in the economy could be further
fostered by ensuring that WTO Agreements and related obligations are incorporated into domesticlegislation.  This would greatly enhance the transparency of Brunei's trade and investment regime and
curtail the scope for administrative discretion.
                                                     
9 The Seventh Plan for example argues that the "restructuring and readjustment of the department prior
to privatization may involve Government expenditure.  The involvement of foreign counterparts in the running
of the company may result in some social discomfort.  There is also a possibility of reduced employment
opportunities for the locals.  Being operated on a profit motive, prices of some of the products and services
provided by the private organization can be much higher  compared to the prices offered by the Government,
especially when the former has monopoly power."  (Government of Brunei Darussalam, 1997).
10 Brunei Darussalam Economic Council (1999).