Neither the crises nor the pandemics nor even the war in Ukraine have caused the debt burden of the small country of Brunei to skyrocket, as it has in many countries.
While the rest of the world has been forced to varying degrees to withdraw government spending to combat the effects of covid-19 or more recently inflation, Brunei remains the country with the lowest debt-to-GDP in the world by a figure of 1.9%.
But while a low debt ratio is generally desirable, it doesn’t necessarily mean one healthy economy.
Many developing countries have a low debt ratio because both their debt level and their wealth creation are low.
However, this is not the case in Brunei.
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The small state has one of the highest standards of living in the world thanks to the abundant oil and gas reserves.
Is he fourth richest country of the world.
“Brunei It’s a petrostate. Crude oil and natural gas production accounts for about 90% of GDP,” explains Ulrich Volz, director of the Center for Sustainable Finance and professor of economics at the School of Oriental and African Studies (SOAS) at the University of London.
It is estimated that at the end of 2017, Brunei had reserves of 1,100 million barrels of oil – 0.1% of the world’s reserves – and 2.6 trillion cubic meters of gas – just over 0.13% of the world’s reserves.
Located on the north coast of the island of Borneo in Southeast Asia, Brunei It shares a border with Malaysia and Indonesia.
The members of his royal family, headed by the head of state, Sultan Hassanal Bolkiah, have huge private fortunes.
its citizens they pay no taxes on income and the government provides free medical services and education up to university level.
And the capital, Bandar Seri Bagawan, is safe, clean and very quiet, say those who have visited it.
In addition, the sultan, who enjoys great popularity among his subjects, regularly allocates lots and houses to deserving residents under various government schemes.
“This is a country small in population, it does not reach half a million inhabitants, who also live relatively concentrated in a territory of barely 5,700 km2,” they explain to BBC Mundo of Spain’s Secretary of State for Trade.
The reason Brunei has such a low level of debt is the income from the sale of hydrocarbons.
“This has allowed it to build up large fiscal reserves that have been financed with those reserves in years of government deficits. without going into debt”, they add.
“In an absolute sense Brunei is a very small economy with lower relevance in the region. It only matters as a supplier of oil and gas to Asia. All this within the framework of a very special political situation that wants to maintain itself in exchange for material compensation to its citizens,” they say.
“Owing to fossil fuel exports, it has large current account surpluses, meaning the country is a net lender to the rest of the world and I didn’t have to borrow money.”recalls Professor Volz.
Brunei is one of the few countries with no external debt thanks to the industry it generates huge inflow of money for their banks and treasury.
Thus, while the rest of the world countries depend to a greater or lesser extent on financing from foreign lenders, both government and private small government borrowers can finance their economy with loans from their own banks.
One of the benefits to Brunei’s economy is that you don’t need to buy any foreign currency to repay your loans.
And the other is that the government and its economy keep profits and taxes within its own economy.
“The effective tax management it’s a consistent policy priority for the government, keeping the tax burden low” for its citizens and businesses, said Eric Chiang, an economist at Moody’s Analytics.
“Brunei consistently runs current account surpluses, which has helped to finance its foreign debt. Borrowing costs have remained relatively low in recent years and this allows the nation to keep debt service to a minimum without having to resort to austerity measures to reduce government spending.
Despite efforts to diversify the economy, Brunei faces significant tax risks as the global economy decarbonises.
“The massive dependence on the oil and gas sector could seriously disrupt the functioning of the country in the process transformation of the world energy model continue to consolidate,” warn ICEX Foreign Trade technicians.
strict Islamic law
Under a British protectorate since 1888, Brunei was the only Malaysian state to opt out of joining the federation that became neighboring Malaysia in 1963.
Full independence came relatively late, in 1984.
The Sultan of Brunei, Hassanal Bolkiah, is one of the oldest absolute monarchs and one of the few remaining in the world.
Used to be crowned in August 1968 after the abdication of his father, Haji Omar Ali Saifuddin.
After Brunei’s independence in 1984, he appointed himself Prime Minister and in 1991 introduced a ideology called Malaysian Muslim Monarchyin which the monarch was presented as the defender of the faith.
In 2014, Brunei became the first country in East Asia to do so adopt strict Islamic sharia law.
But in 2019, he reversed his decision to punish sex between men and adultery with stoning after he was criticized and even boycotted by celebrities such as George Clooney.
After international condemnationthe sultan also applied a moratorium on the execution of the death penalty, as had been the case for more than two decades.
Because although Brunei law still punishes some crimes with executions, by 1957 the authorities had stopped carrying them out.
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