Worldbox Business Intelligence Risk Rating – March 2025: BRUNEI

Worldbox Business Intelligence Risk Rating – March 2025

BRUNEI

Summary

NEW – Technology is an increasingly important driver of economic success, and we are now including a separate Technology sector in our quarterly country risk reports and integrating the core into our overall score.

Overall Risk Score 29/40 (Stable)

Political risk: Stable 8/10

Economic risk: Stable 7/10

Commercial risk: Stable 7/10

Technology risk: Negative 7/10

The risk assessment of a country is made up of four components, being Political, Economic, Commercial and Technological. Each component is scored out of 10 with 1 being the highest risk and 10 the lowest.

ESG Risk: 8/10 (Stable)*

*Environmental, social and governance (ESG) issues are becoming increasingly important to companies, investors and consumers in Southeast Asia. That is why we are now preparing a separate ESG score and section with our quarterly country risk reports. We explain how each country rates, looking at the E, S and G individually, and outline recent developments.

Political Risk – Stable at 8

Brunei is the smallest country in Southeast Asia, with a population of 450,000. However, thanks to immense oil wealth, it is also one of the richest. Located on the island of Borneo and surrounded by Malaysia and the South China Sea, the country is politically stable. The Sultan of Brunei is both head of state and head of government, and exercises absolute power.

There are no elected representatives at the national level, while freedom of the press and assembly are significantly restricted. A legislative council with 36 appointed members is limited to a consultative role. Brunei operates two legal systems: Common Law, which has its origins in the English system, and a Sharia Penal Code, running in parallel with the Common Law system. Around 80% of the population is Muslim. All senior judges are appointed by the sultan. However, according to Freedom House, the courts appear to act independently when handling civil matters.

There is little sign of dissent and the monarchy appears to enjoy popular support. The sultan has used the oil wealth to provide citizens with basic medical and dental services at no charge, as well as free education and heavy investment in infrastructure development. There is no personal income tax. Citizens also enjoy heavy subsidies on fuel, electricity, water, rice, sugar and other staple foods.

Crown Prince Haji Al-Muhtadee Billah, 50, the eldest son of the Sultan of Brunei, is heir to the throne. Brunei maintains close ties with the US, the UK (from which it gained independence in 1984), Malaysia and Australia.

China is also increasingly influential and has become Brunei’s largest trading partner, foreign investor and source of tourists. China is the biggest investor in Brunei’s port and petrochemical refinery, the country’s two major infrastructure initiatives. Brunei has become an enthusiastic supporter of China’s Belt and Road initiative.

Economic Risk – Stable at 7

Oil and gas account for around 90% of Brunei’s total exports and just under two-thirds of the country’s GDP. Brunei has no sovereign debt, domestic or foreign. It has the second-highest GDP per capita in ASEAN, after Singapore, at around US$77,000 in 2024, according to the IMF.

The Brunei dollar is pegged to the Singapore dollar at a one-to-one ratio, and the Singapore dollar is legal tender in the sultanate. The peg has provided the country with prudent monetary policy management from the Monetary Authority of Singapore. Together with generous fuel and energy subsidies, this policy has helped keep inflation under control.

Brunei aims to diversify its economy in line with the authorities’ Vision 2035, focusing on sectors like downstream oil and gas, food, tourism, information and communications technology (ICT), and services. The country has had some success in diversifying the income derived from sales of oil and gas, but the sector still accounts for about 50% of its GDP. Moreover, challenges remain in addressing job creation and youth unemployment, reducing the large public-sector deficit, and improving the business environment to attract private-sector involvement, according to the IMF.

In an Article IV assessment released in September 2024, the IMF said that Brunei’s economy grew by 1.4% in 2023, after two years of recession. Growth was driven mainly by the non-oil-and-gas sector and by earlier-than-anticipated production from the new Salman oil field in Q4 2023.

Inflation fell to 0.4% in 2023, from 3.7% in 2022, supported by the easing of post-pandemic supply-chain disruptions and softening commodity prices, as well as large subsidies and price controls.

Commercial Risk – Stable at 7

The US State Department’s 2024 Investment Climate Statement describes Brunei as having a well-educated, largely English-speaking population, excellent infrastructure, and a government intent on attracting foreign investment and projects. It adds that in parallel with Brunei’s efforts to attract foreign investment and create an open and transparent investment regime, the country has taken steps to streamline the process for entrepreneurs and investors to establish businesses.

Other advantages include the stable political climate and the fact that the country is generally sheltered from natural disasters. Brunei’s central location in Southeast Asia, with good telecommunications and airline connections, business tax credits in specified sectors, and the absence of income, sales or export taxes offers a welcoming climate for potential investors, adds the report.

Other important characteristics for foreign investors, according to the State Department, include:

Brunei’s regulatory system has limited transparency, particularly in lawmaking processes and impact assessments.
Brunei’s protection and enforcement regime for intellectual property rights is still in development but is increasingly strong and effective.
US companies do not generally identify corruption as an obstacle to conducting business in Brunei. The level and extent of reported corruption in Brunei is generally low.

The Heritage Foundation ranked Brunei’s economy as the 43rd freest in its 2023 Index. The country moved five places up the rankings compared with the previous year. Brunei ranks eighth among 39 countries in the Asia–Pacific region, and its overall score is above the regional and world averages.

The Heritage Foundation said that the economy maintains a relatively high degree of market openness that facilitates trade and investment. The legal system generally secures private property and macroeconomic stability. The investment environment is relatively efficient and transparent, although the regulatory framework needs to be more streamlined to enhance overall economic competitiveness.

The banking system remains stable, and risks appear contained, according to the IMF’s September 2024 Article IV report. The IMF said the capital ratio of banks was strong, at around 21% of risk-weighted assets in 2023, well above regulatory requirements (10%). Gross non-performing loans (NPLs) as a share of total loans declined from 3.3% in 2022 to 2.6% in 2023, owing both to a decrease in loans classified as NPLs and an increase in gross loans. Banks’ return on assets (before tax) improved to 2.1% in 2023, from 1.3% in 2022, as higher global interest rates pushed up earnings from offshore assets. Banks continue to have abundant liquidity, funded mostly by domestic deposits.

NEW

Technology Risk – Stable at 7

The Global Innovation Index (GII), from the World Intellectual Property Organization, is an important index used by countries and multinational companies to assess innovation ecosystems and aid in policymaking and investment decisions.

Brunei Darussalam ranked 88th among the 133 economies in the GII for 2024. The sultanate ranked 50th among high-income economies and 14th among 17 economies in Southeast Asia, East Asia and Oceania.

Brunei has the tenth-fastest 5G download speed in the Asia-Pacific region, at 149.6 megabits per second (Mbps), according to Opensignal. Around 92% of households in Brunei have access to a fibre-optic network, while 90% of the population is covered by 5G mobile services.

Government policies

Brunei has identified ICT as a key sector it wishes to expand to help reduce the dependence on oil and gas. In 2020, the government announced a Digital Economy Masterplan 2025, with multiple projects that will propel Brunei to become a smart nation through digitization. The projects include:

The National Information Hub – a platform for information integration among government agencies
The Digital Identity – a single nationwide digital authentication key that provides access to multiple online services offered by the government
The Digital Payment Hub – a flagship project consisting of a National QR Code and an Instant Payment System, allowing users to make immediate and cost-effective fund transfers.

The digital-payment and e-commerce segments have grown rapidly since the onset of the pandemic. Collaborations between domestic financial institutions and fintech companies have resulted in innovative payment solutions, including e-wallets such as BIBD QuickPay, Progresif Pay, DSTPay and Beep Digital Solutions.

However, despite the advances in digitzation in recent years, the ICT sector remains in its infancy, accounting for just over 2% of GDP.

Infrastructure

The government has invested heavily in developing a fibre-optic network (which now measures around 6000 kilometres in length) and in installing 5G.

Education and skilled staff

Brunei has placed an emphasis on STEM education for many years and now produces one of the highest proportions of STEM graduates among developing countries. In 2023, for example, just over 38% of Brunei students graduated in STEM subjects. The drive is continuing, with new initiatives to push students in the direction of STEM subjects being announced in 2024.

March Bulletin

Political Risk – Stable at 8

There is little obvious threat to Brunei’s political stability. There is no credible opposition, the government controls the media, and Sultan Hassanal Bolkiah, 78, remains popular. The sultan shows no sign of wishing to relinquish the throne, but the succession of Crown Prince Haji Al-Muhtadee Billah, when the sultan does step down, seems assured. That should ensure continuity of government economic and social policy.

Living standards remain very high on a global and regional basis, and there is no sign of any significant opposition to the status quo. Brunei has close military ties with the US, the UK and Australia, which continue to provide protection against any possible regional instability.

Economic Risk – Stable at 7

The Brunei Ministry of Finance and Economy states a growth of 4.2% in 2024, driven by strong oil and gas production. The IMF is forecasting growth of 2.5% in 2025.

The Asia Development Bank (ADB) states that risks depend largely on external demand factors and global oil and gas markets. While geopolitical tensions pose downside risks through supply-chain disruptions, expects strong energy demand in Asia in 2025.

Commercial Risk – Stable at 7

In its September 2024 Article IV assessment, the IMF said that the financial sector remained stable, with strong capital and liquidity buffers, and systemic risk was contained. It warned, however, that careful tracking of credit growth in both offshore and domestic personal loans is warranted, as declining oil prices could pose risks, despite low NPLs. The IMF added that ensuring that foreign loans continue to be invested in highly credit-rated assets will help to mitigate credit risk.

Technology Risk – Stable at 7

In October 2024, the Universiti Teknologi Brunei (UTB) entered the Times Higher Education (THE) World University Rankings 2025, becoming one of the world’s top 1000 universities. The development highlights its rapid ascent as a higher education institution. UTB ranks among the top 23 universities in ASEAN.

Environmental, Social and Governance (ESG) – Stable at 8

The Sustainable Development Report from Cambridge University Press assesses the progress of all 193 UN Member States on the Sustainable Development Goals (SDGs). It provides a useful means of ranking Southeast Asian countries on their ESG progress.

Brunei is ranked 102 out of 166 in the 2023 report, with a score of 65.7.

Environment – With a humid climate and low-lying topography, Brunei is particularly vulnerable to climate change. According to climatechange.gov.bn, the nation’s coastal areas already lie ‘up to 12 metres below sea-level’, leaving Brunei at risk of frequent flooding. Meanwhile, wildfires have destroyed approximately 3.23 thousand hectares of forest cover in less than 20 years. Brunei’s heavy reliance on fossil fuels, which currently make up 99.9% of its total energy sources, is a huge contributor to its climate-related disasters.

On a brighter note, the Brunei government has released ten key strategies to combat climate change, which it hopes to complete by 2035. Aptly named the Brunei National Climate Change Policy, the initiative includes planting 500,000 new trees to mitigate the effects of deforestation, which contributed to an 11.2% loss in forest cover between 2001 and 2005. The government also plans to increase its renewable energy share to 30%, up the use of electric vehicles to 60%, and prompt a reduction in emissions within the industrial sector.

Social – Brunei emerges well from the US State Department’s annual analysis of human rights. The latest report states that there are no reports of political prisoners or detainees, or of disappearances by or on behalf of government authorities. It adds that the government generally respects judicial independence, and there were no known instances of government interference with the judiciary.

Governance – Responsible business conduct is a relatively new concept in Brunei, and there are no specific government programmes encouraging foreign and local enterprises to follow generally accepted corporate social responsibility (CSR) principles, according to the 2024 US State Department Investment Climate report. It adds, however, that there is broad awareness of CSR among producers and consumers, and individual private- and public-sector organizations have formalized CSR programs and policies. There are no reporting requirements and no independent NGOs in Brunei that promote or monitor CSR.

March Bulletin

Environmental, Social and Governance (ESG) – Stable at 8

In September 2024, Brunei Gas Carriers, Brunei Shell Marketing Company Sendirian Berhad, the Maritime and Port Authority of Brunei Darussalam and Royal Brunei Airlines joined forces in launching a CSR initiative to safeguard Brunei’s environment through a tree-planting and cleaning campaign.

Latest economic data

f – forecasts
1 – Trading Economics
Source: IMF/ADB, except where stated

Useful links

https://www.amro-asia.org/

https://www.transparency.org/en/cpi/2021

https://www.imf.org/en/Countries/BRN

https://asiatimes.com/

https://thediplomat.com/

http://www.csps.org.bn/

https://www.state.gov/reports/2024-investment-climate-statements/brunei/

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