It is a policy challenge for Brunei Darussalam to reduce its fuel subsidy amid the current economic situation that the sultanate is facing.

This was stated in the Asian Development Bank's (ADB) report on Brunei Darussalam economy on Outlook for 2016 which was published yesterday.

ADB said international studies show that subsidies on fossil fuels and electricity not only impose a burden on government budgets but also divert funds from more productive investments in physical and social infrastructure.

Moreover, subsidies artificially lower the price of energy, encouraging higher consumption and discouraging the development of alternative energy sources. They disproportionately benefit higher-income earners who own cars and air-condition their homes.

The ADB report further said the sharp decline in oil prices provides an opportunity to rein in subsidies without causing steep increases in fuel prices for consumers.

Indeed, subsidies left people with little awareness of the true value of energy, adding that it was important to educate people away from dependence on subsidies and to find innovative alternatives to traditional approaches.

Brunei's economy is projected to return to growth this year on the assumption that oil and gas production continues to recover gradually as new technology extracts more oil from existing fields and that the government maintains significant investment in infrastructure.

ADB further stated that the gross domestic product for the Sultanate is predicted to edge up by 1.0 per cent this year and accelerate to 2.5 per cent in 2017 if global demand and prices for hydrocarbons start to recover.

Construction will contribute to growth. The $100 million Sungai Kebun Bridge is to be completed this year and construction on a bridge to Pulau Muara Besar, an island in Brunei Bay to be developed as an industrial hub, is expected to run through 2018.

The impact that low oil and gas prices have on government revenue indicates that spending on public services and smaller capital projects will remain constrained. The FY2016 budget cuts total spending by 12.5 per cent from the previous year's budget, ADB said.

The country's revenue is projected to fall further and the budget is expected to post another deep deficit in FY2016. The budget puts a higher priority on spending that stimulates the economy, such as construction and maintenance of infrastructure and development of small and medium-sized enterprises.

Accumulated financial assets provide a buffer against declines in revenue. The government will push ahead with efforts to diversify the economy through foreign investment in export-oriented ventures.

Source:
@BRUDIRECT.COM

by BruDirect.com

If you have any stories or news that you would like to share with the global online community, please feel free to share it with us by contacting us directly at [email protected]