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Analysing Policy Impact in Preparation for Post-Hydrocarbon Era of Brunei Darussalam

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Environmental Economics and Computable General Equilibrium Analysis

Part of the book series: New Frontiers in Regional Science: Asian Perspectives ((NFRSASIPER,volume 41))

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Abstract

Brunei Darussalam (hereafter Brunei), a small and open economy highly dependent on hydrocarbon revenues, is facing the inevitable fate of the economic depletion of its oil and gas resources. With limited success in its diversification efforts for the past decades, Brunei will face a challenging future. In this chapter, using a recursive dynamic, computable general equilibrium (CGE) model called BRUGEM, we attempt to elucidate such a post-hydrocarbon scenario. We also outline an alternative (policy) scenario in which unspecified policy options are put in place to revive economic growth in Brunei through improved productivity performance.

Findings from the policy simulation indicate that in order to add one percentage point to annual growth in real GDP, overall productivity in the economy has to improve by an average of 2.5% per annum relative to the base case. This result may suggest the implementation of microeconomic reforms to improve productivity for economic growth. However, we remain cautious if the pursuit of productivity growth can lead to improved economic welfare in the context of Brunei’s economy if this is achieved through the shedding of public sector jobs, which can lead to the collapse of real wage rate under the conditions imposed in the simulation. The key lesson of the modelling is that reforms need to be complemented by labour market measures to address some of the underlying structural issues. We also find that distributing some of the hydrocarbon proceeds indirectly to the people may be necessary during the transition period in preparation of the post-hydrocarbon era.

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Notes

  1. 1.

    Source: http://www.deps.gov.bn/SitePages/National%20Statistics.aspx (viewed 27 April 2020).

  2. 2.

    Average exchange rate for 2019 was US$1 = B$1.36.

  3. 3.

    Source: http://www.deps.gov.bn/SitePages/National%20Accounts.aspx (viewed 27 April 2020).

  4. 4.

    Source: http://www.depd.gov.bn/SitePages/International%20Merchandise%20Trade.aspx (viewed 16 August 2019).

  5. 5.

    Depletion in this context implies that oil and gas reserves are no longer economically extractable based on available technology, and does not necessary mean complete exhaustion physically.

  6. 6.

    Source: http://borneobulletin.com.bn/bsp-finds-oil-lumut/ (viewed 15 April 2017).

  7. 7.

    Source: https://www.chemicals-technology.com/projects/zhejiang-hengyi-petrochemicals-refinery-aromatics-cracker/ (viewed 26 August 2019).

  8. 8.

    IMF notes that Brunei has sizable financial assets to help absorb and insulate its economy from negative shocks (IMF 2015). The existence of a sovereign wealth fund (SWF) provides some financial protection. The SWF is managed by the Brunei Investment Agency (BIA) and there is no official published data on the holdings. Brunei’s SWF has been estimated to be worth between US$30 and $40 billion (Investment Management Institute 2012) and the Sovereign Wealth Fund Institute stated the current assets under management for BIA is US$60 billion (https://www.swfinstitute.org/profile/598cdaa50124e9fd2d05aadd (viewed 29 April 2019).

  9. 9.

    Brunei has a currency board system with the Brunei dollar pegged to Singapore dollar at par.

  10. 10.

    In trade terms, CIF stands for cost, insurance and freight.

  11. 11.

    See https://borneobulletin.com.bn/telbru-celebrates-5-4k-ftth-milestone/ (viewed 29 April 2019).

  12. 12.

    See https://borneobulletin.com.bn/bruneis-blue-shrimp-bound-japanese-market/ (viewed 12 August 2019).

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Parts of this chapter were originally published as proceedings of the first International Conference on Business, Economics and Finance held on August 23–24, 2017, in Brunei Darussalam. Disclaimer: The views expressed in this chapter are those of the authors and do not necessarily represent the views of the organisations the authors are associated with.

Appendix

Appendix

Table A.1 New list of industries created from input–output tables 2005

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Yap, T.I., Adams, P.D., Dixon, J.M. (2020). Analysing Policy Impact in Preparation for Post-Hydrocarbon Era of Brunei Darussalam. In: Madden, J., Shibusawa, H., Higano, Y. (eds) Environmental Economics and Computable General Equilibrium Analysis. New Frontiers in Regional Science: Asian Perspectives, vol 41. Springer, Singapore. https://doi.org/10.1007/978-981-15-3970-1_4

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