Brunei Darussalam ‘Brunei’ is an independent wealthy small nation with a population of only 359,000 who enjoy one of the highest standard of livings in the world today home to a very generous social/welfare programs. A country rich in vast oil wealth, Brunei allows its citizens to enjoy world class free medical services, subsidies for food (rice staple) & housing along with an advanced educational system where the national literacy rate is at an impressive 90 percent for this Islamic nation. Brunei’s national currency, the Bruneian dollar (‘BND’) has performed very well over the last 10 years. The trading range is consistent when compared to the US-dollar (‘USD’). Since 1993, the BND is near its average trading low reached during year 2001-02 of 1.79 BND to the USD, it’s highest valuation (greatest appreciation) was achieved in 1996 at 1.41 BND. Below is an analysis of the relevant currency issues that will impact the BND as presented by BankINTRO.COM
POLITICS: Sultan and Prime Minister Sir H.M. Hassanal Bolkiah, Sultan of Brunei Darussalam since October 1967. Brunei achieved independence in January 1984 from the United Kingdom. Within Brunei, the same family dynasty has ruled this country for over 600 years.
ECONOMY: economic stability mixed in with healthy GDP growth rates and low inflation are the backbone of economic prosperity of which Brunei has enjoyed for the most part. Higher world oil prices since year 2000 have improved the overall macroeconomic variables from previous years when the oil price was at depressed levels. During the mid to late 1990’s, Brunei suffered with low petroleum prices and supported the economy by running large fiscal deficits. This has now change to the better for Bruenei with the return of high energy prices. Brunei is home to one of Asia’s best healthcare systems with an average lifespan at 74 years that is a vibrant young & growing population. The government employs 75 percent of the workforce. Very favorable tax policies as the government has a clear agenda to diversify the economy from its heavy reliance on the petroleum industry. The Bruneian economy of the future will see an increase in oil refining, aluminum smelting, a growing shipping hub centre, expanded rubber industry, increased agricultural output including rice farming, a growing vital offshore banking locale and in the development of tourism.
Energy - Petroleum
Brunei is currently the third largest oil producer in Southeast Asia, fourth-largest producer of liquefied natural gas in the world. The extensive oil and natural gas fields account for 50 percent of Brunei’s economic output, 80 percent of government revenues and 90 percent of exports. At present, year 2001 oil production was measured at 217,200 b/p/d with domestic consumption only 13,000 b/p/d, year 2002 production fell modestly to 203,000 b/p/d. Brunei is currently not an OPEC member. Liquefied natural gas ‘LNG’ has equivalent oil production at 300,000 b/p/d. Each one USD increase in price results in an extra $300 USD/per capita of national income to the citizens of Brunei.
Economic Statistics
GDP as measured by purchasing power parity is measured at $6.5 billion USD (2002) with corresponding GDP/Capita at $18,600 USD (2002). Year 2002 market GDP was measured at $4.01 billion USD or 7.35 billion BND. GDP growth 2003 estimated at 5.1 percent due to higher petroleum prices after year 2002 recording a respectable 3 percent growth, year 2004 is projected to perform well again with strong oil prices. Inflation for year 2001 was almost nil at only 0.6 percent, year 2002 came in at 1.8 percent, 2003 at 1.2 percent, year 2004 projected at 1.3 percent. Year 2000 trade surplus at $1.6 billion USD with exports at $3 billion USD and imports at $1.4 billion in 2000. Unemployment 2001 at 10 percent. No external debt. The economy is made up of services at 50 percent, industry at 45 percent inclusive of a small manufacturing sector and agriculture at 5 percent.
POSITIVES: Brunei’s large substantial foreign reserves can help shield the country against a regional economic downturn, politically & economically very stable, Brunei has a strong military/defense relationship with the United Kingdom and the United States who co-participate in military exercises and help provide for extensive defensive protection of Brunei’s vital oil fields, excellent telecommunications. CONCERN: national revenue is highly correlated to the price of oil as the economy remains largely dependent on the exports of crude & natural gas although it is successfully diversifying, high public sector wages.
BANKING SYSTEM: year 2001 foreign exchange reserves at $20 billion USD excluding gold most of which to be used for future generations. The banking system is strengthening after a few difficult years in the late 1990’s when low world oil prices were in play. A economic shock to the Bruneian banking system took place in 1998 with the collapse of Amedo Development Corporation which is estimated to have cost upwards of 50 percent of Brunei’s foreign exchange reserves. In addition to low world oil prices in 1998, the Asian region was hit hard by the currency crisis that struck many Asian countries.
REGIONAL ANALYSIS: Singapore, Malaysia, Asia
Among Brunei’s relatively wealthy and stable neighbors of Malaysia & Singapore, the economic forecast is positive. Malaysia with a new leader that may be more open to other leaders in the West unlike their previous Prime Minister, Dr. Mahathir. Japan remains an important export market for Brunei as an energy buyer while Singapore provides for most of Brunei’s imports. Long term by year 2020, the ASEAN free trade zone which will include Brunei may indeed become a reality for southeast Asian countries.
KNOWLEDGE: increasing oil wealth is vital for continued wealth accumulation for Brunei as it is reported that new petroleum potential reserves lie offshore in the deep sea of the South China Sea. The government of Brunei Darussalam wants to attract $4.5 billion USD by year 2008 in foreign direct investment (FDI) to help develop Brunei into a trade and tourism centre. Located strategically to vital shipping lanes, Brunei wishes to emulate Singapore by evolving into a major shipping hub for Asia. Further, the government is focusing on diversifying the economy towards new industries including the development of a ‘cyber-park’ to help establish an information technology industry fostering increased growth into Internet ventures along with grande plans for Brunei to become an international offshore financial centre as it is presently has no personal income taxes coupled with a low tarriff regime for business. Offshore banking may indeed be a very profitable industry segment for Brunei with potential investors from Islamic countries have an estimated $1 trillion USD in liquid assets to park their monies. Brunei is emulating the financial set-up within successful Bermuda coupled with this perceived Western hostility towards Muslims, Brunei’s timing could not be better. Bruenei will systematically and carefully move its economy forward into these new industries, but as a society they remain cautious about integrating into the global economy.
CURRENCY: ISO Symbol ‘BND’, Bruneian dollar. At time of review on November 28, 2003, the Bruneian dollar had an exchange valuation of 1.715 BND to the USD while the Singapore dollar ‘SGD’ was very close in valuation at 1.724 to the USD, essentially at par. Brunei Darussalam operates a currency board with no central bank, the Brunei Currency Board (BCB) with the sole right to manage and issue currency notes in Brunei since inception on June 12, 1967. The Bruneian dollar (BND) is tied to the wealthy nation of Singapore and its national currency, the Singapore dollar ‘SGD’ since 1967 at par (1.0). Brunei’s currency operates in a bimonetary system where the SGD is used widely in the role of legal tender but it has a subsidiary role to the domestic BND currency, the SGD is widely accepted in Brunei.
CURRENCY HISTORY: during the Southeast Asian regional currency crisis in late 1997- early 1998, the Bruneian dollar did experience moderate depreciation with an exchange rate of 1.753 to the USD during January 1998 compared to the average for year 1997 at 1.484. Recent exchange valuations include year 2002 at 1.7906 BND to the USD, year 2001 at 1.7917, 2000 at 1.724, August 1999 at 1.6762, January 1998 at 1.75, year 1997 at 1.48, 1996 at 1.41, 1995 at 1.42, 1994 at 1.53, 1993 at 1.616.
CURRENCY FORECAST: is stable, the BND is less vulnerable now to exchange valuation shocks like it was in the past. The currency board tied to Singapore further provides stability as Singapore is a very wealthy city state sovereign nation, an advanced modern economy that is politically sound. Singapore is rebounding from a difficult recession during 2002-03, its worst since independence in 1965. Appreciation pressures will mount for the SGD and corresponding BND as Singapore is projecting a very strong 5 percent GDP growth in 2004. Moreover, continued higher energy prices will provide an additional windfall for higher national revenues and a larger international reserve position for Brunei. Any future oil price decline will most likely be less of an impact as it was in the 1990’s as Brunei is moving to diversifying their economy into several new industries. Further exchange support to the peg for Brunei is aided by its envious position of receiving substantial large capital inflows from dividends earned abroad. Please read the write up on ‘SINGAPORE’ for further background information on the Singapore dollar which was given a subjective currency safeness ranking of 81 with an increasing lean at time of review on November 22, 2002.
UPDATED: November 28, 2003
