Brunei Darussalam's response to mitigate COVID-19 economic fallouts

This article is a chapter out of the e-book, "Impacts of the COVID-19 outbreak on Islamic finance in the OIC countries" that is available as a pdf download from HERE. Read the article in the e-book for the complete set of tables, charts and references. 

Brunei Darussalam has been hit by two shocks—the spread of COVID-19 and the sharp decline in global oil prices. The first confirmed case of the novel coronavirus in the country was detected on March 9, 2020, and infections have since increased to 139 as of May 6, 2020.Similar to many other countries, Brunei’s government is actively responding to the risks of the pandemic from further spreading by implementing a range of measures, including strict inbound and outbound travel restrictions and banning all mass gatherings, including weddings and sporting events.

As a result of these restrictions, there has been a significantly lower demand for travel and tourism, as well as energy, all of which impacts oil-exporting countries such as Brunei. A projection by the Asian Development Bank says Brunei’s tourism revenue will decline by 0.086% of GDP as a best case scenario. This is equivalent to a reduction of $11.7 million. On the other end of the scale, ADB estimates a worse case scenario of a decline of 0.192% of GDP, equivalent to a loss of $26.1 million in tourism revenues for Brunei.

Oil and gas accounts for nearly 90% of Brunei’s exports and the shock of historic low oil prices has led to the government expecting a budget deficit of about 1.81 billion Bruneian dollars ($1.28 billion). However the government warns that GDP forecasts and estimated revenue for the financial year did not consider the current situation of declining oil prices. As such, the country’s economic position will be affected and government revenue will be lower than the estimated amount, which can cause a bigger deficit.

GOVERNMENT STIMULUS AND FINANCIAL SUPPORT

First State-led Measure

With regards monetary and macro-financial policy, the Autoriti Monetari Brunei Darussalam (AMBD), the central bank, the Ministry of Finance and Economy (MOFE), and the Brunei Association of Banks (BAB), agreed on the following measures effective April 1, 2020 for a period of six months:

1. To support the business sectors in the form of a six-month deferment of principal repayments of financing / loan for the following sectors: (a) tourism; (b) hospitality / event management; (c) restaurant / cafes (food and beverages); (d) air transport
2. This deferment will also be extended to food and medical supplies importers to support the higher cash flow requirements to meet the surge in demand
3. All bank fees and charges, except third party charges, related to trade and payment transactions for companies in these sectors will be waived for a period of six months. This will help businesses to self-sustain, and banks are encouraged to transfer these savings to the public.

Second State-led Measure

The second set of measures centered on tax, utility and social security deductions and deferments to help Brunei’s private sector mitigate the fallouts from the COVID-19 crisis. This was announced on March 21.

It was also clarified that the deferring of loan repayments would be extended to the wider business community, subject to case-by-case review by the lending institutions. The new measures effective April 1, 2020 for six months are:

1. A six-month deferment on Employees Trust Fund (TAP) and Supplementary Contributory Pension (SCP) for micro, small and medium enterprises (MSMEs) with employees earning less than $1,500. The government will continue monthly contributions to ensure that the annual dividend payments to employees are not affected. MSMEs need to apply for the deferment and are to repay the contributions within a year after the final month of deferment.

2. The government will provide the full SCP contribution for the self-employed. The self-employed SCP scheme carries a survivorship benefit which includes a $400 monthly payout to dependents for up to 15 years – in addition to receiving the SCP already paid up – if the participant passes away before 60-years-old.

3. For tourism, hospitality, including hotels and registered lodging houses, food and beverage as well as air and water transport, 30% discount on rental rates for government buildings for MSMEs, 50% discount on corporate tax for companies (private/public limited or sendirian berhad/berhad) for 2020 and 15% discount on water and electric bills.

4. Up to six months extension for i-Ready apprentices for trainees whose contracts are ending before September 2020.

5. Temporary exemption of customs and excise duties on personal hygiene products to help retailers and consumers manage prices amidst increasing demand. Pricing of essential items will continue to be monitored and regulated under the Consumer Protection Order and Price Control Act.

6. Business matching by Darussalam Enterprise (DARe) for MSMEs to onboard e-commerce platforms to help market their services/products online more effectively to mitigate challenges in offline retail.

Third State-led Measure

On March 31, the government announced additional steps to the interim measures in supporting various micro, small and medium enterprises (MSMEs) and individuals affected by the crisis.

These steps include an additional economic relief package amounting to approximately 250 million Bruneian dollars in the form of deferment of principal or loan repayment and exemption of fees and charges.

This measure, combined with previously announced fiscal assistance, including business productivity, will boost the economic stimulus package for Brunei Darussalam for COVID-19, totaling 450 million Bruneian dollars.

The packages announced are specific to all business sectors in the country and individuals, including those who are self-employed. The additional assistance hopes to ease the financial burden on businesses and affected individuals.

The packages are deferment of principal payment of loans or financing for all sectors; restructuring and deferring principal amounts on personal loans and hire purchase facilities such as car loans or financing for not more than 10 years; provision of deferment of principal amount or financing for real estate; restructuring outstanding credit card balance to loans for a period of not more than three years for individuals affected in the private sector only including the self-employed, but this measure will not increase the credit card limit amount during the three-year period; and all bank fees and charges, except for third party charges, will not be applied.

The postponement will begin from the date of application approval until March 31, 2021. Companies and individuals may apply for suspension and restructuring at their banks or financial institutions between April 1 and Dec 30, 2020.

AMBD assured that the banking sector in Brunei Darussalam remains resilient, stable and has sufficient capital funds. At the same time, AMBD will continue to monitor the development of the situation, along with financial institutions.

With the introduction of several financial aid packages in view of the COVID-19 pandemic Brunei’s packages are broken down into certain broad categories.

The first category: Brunei Darussalam has a welfare system where the Community Development Department (JAPEM) and the Brunei Islamic Religious Council (MUIB) financially help those in need, on top of the subsidies provided by the government on a monthly basis. In Brunei Darussalam, the management of zakat and other Islamic social finance are governed by MUIB, a statutory body that has the force of law, under the Laws of Brunei 1/1984, Religious Council and Kadi Courts, Chapter 77, Section 114.

The second category covers people who have lost jobs. The government is trying to protect jobs through the introduction of various measures including paying 25% of salaries, along with TAP and SCP contributions, and negotiating with banks for the restructuring or deferments of loans or financings for a period of time.

The above measures are to ensure that financial burdens of businesses will be reduced so they may continue to hire and not terminate workers, as well as take the opportunity to train their employees, and possibly rethink hiring foreign labour, so that in the future post-COVID-19 people are trained to take over the jobs of foreign workers. To this effect, on March 20 new regulations were announced to say that applications to recruit new foreign workers into Brunei were suspended until further notice. However foreign manpower required for critical operations of certain sectors in Brunei will be still assessed.

ISLAMIC FINANCE SECTOR

The financial aid packages also pertain to the Islamic financial sector.

There are four deferments or eligible delays in the new packages including for the Islamic finance sector: deferment on repayment for financing for all business sectors; restructuring and deferment of repayments for personal financings and hire purchase facilities including car financings for up to ten years for businesses and working individuals, including the self-employed; delaying repayment of  property/real estate financings for businesses and working individuals, including the self-employed; and restructuring outstanding credit card debt into financings not longer than three years for private sector employees and the self-employed. However, credit card limit will not be raised within these three years.

The deferments and the waiver of bank fees would cost the financial sector approximately $250 million. When factoring previous COVID-19 related economic relief measures – including deferred TAP/ SCP payments, 25% salary contribution for MSME’s Bruneian employees and sponsored training programmes for graduates, employees and businesses – the total government-led contribution is worth $450 million.

With the addition of these assistance measures, banks are expected to be able to provide support to MSMEs and individuals. Hopefully, it can ease their financial burden during this difficult time. AMBD wants to provide assurance that the banking sector in Brunei remains strong, and has sufficient capital funds. In the same period, AMBD will continue to monitor the development of this situation together with financial institutions.

CONCLUSION

His Majesty the Sultan and Yang Di-Pertuan of Darussalam, in his 2016 New Year’s Titah (speech), emphasized that in light of economic headwinds, citizens must double efforts to increase the Sultanate’s domestic productivity, particularly in the non-oil and gas sector. Sectors identified with high growth potential include: agriculture and fisheries, manufacturing, services sector including financial services sector, transportation, logistic, telecommunication, trade and tourism. His Majesty also pointed out that enterprises must aim to grow their business to not only cater for the domestic market but also to export their products and services to other countries. Productivity in this respect can be enhanced through continuous research and application of new technology.

Based on the Sultan’s directions in 2016, Brunei Darussalam is on track to implement and apply them. Hence, although the coronavirus crisis affects the Islamic financial industry, the government’s initiatives may minimize the effects for the country.

The full e-book, "Impacts of the COVID-19 outbreak on Islamic finance in the OIC countries" is available as a pdf download from HERE. The e-book is published by Indonesia's Islamic Finance and Economy Committee (KNEKS) in partnership with DinarStandard and Salaam Gateway. It was launched on May 27, 2020. The 12 countries covered are: Bahrain, Bangladesh, Brunei, Indonesia, Iran, Malaysia, Nigeria, Oman, Pakistan, Saudi Arabia, Turkey, and UAE.