Brunei’s fiscal dependency on oil and gas highlights the need for revenue diversification. Inspired by GCC reforms, Brunei aims to broaden its tax base, enhancing fiscal stability.
Brunei’s Fiscal Sensitivity to Oil and Gas Prices
Brunei Darussalam’s economy is significantly influenced by oil and gas (O&G) prices due to its heavy reliance on these commodities for fiscal revenue. In FY2025, a decline in hydrocarbon prices expanded the fiscal deficit to 19.0 percent of GDP, marking the largest deficit since 2020 as total revenue plummeted by nearly a quarter to 14.3 percent of GDP. However, as O&G prices surged in 2026 due to Middle Eastern tensions, the ASEAN+3 Macroeconomic Research Office (AMRO) projected a significant reduction in the deficit by nearly half. This highlights the critical need for economic diversification away from a volatile revenue source and the importance of implementing complementary expenditure reforms.
Learning from Global Best Practices
Brunei’s reliance on O&G receipts, which constitute about three-quarters of public revenue, raises the critical issue of diversifying its revenue base. The experiences of the Gulf Cooperation Council (GCC) countries provide valuable insights, particularly in expanding domestic taxation. GCC countries responded to the 2014–16 oil price dip by introducing taxes such as VAT and excise duties, with Saudi Arabia’s non-oil revenue doubling over four years due to these measures. For Brunei, the takeaway is not to replicate tax rates or structures from elsewhere but to sequence reforms thoughtfully, building its capacity to diversify its tax base progressively. The experience of Trinidad and Tobago, a small hydrocarbon economy with a longstanding VAT system, also serves as a pertinent model.
Towards a Stable Fiscal Future
Brunei is making strides toward broadening its fiscal base, focusing on improving the administrative side of tax collection. Actions like reviewing government fees and charges and expanding excise duties contribute to revenues and build the necessary infrastructure and expertise. Looking ahead, implementing a broad-based consumption tax will be a crucial step. The AMRO 2026 report suggests this tax could stabilize non-O&G revenues if designed effectively. A high registration threshold and a low initial rate could ease initial transitions, while targeted support for vulnerable households could mitigate potential adverse effects. Ultimately, leveraging current high energy prices provides a strategic window for Brunei to prepare its institutions for long-term fiscal sustainability, minimizing future reforms under duress.
Source: Broadening Brunei’s Revenue Base – ASEAN+3 Macroeconomic Research Office
