OBG talks to Pehin Dato Abd Rahman Ibrahim, Minister of Finance II at the Prime Minister’s Office

Interview: Pehin Dato Abd Rahman Ibrahim

How would you summarise the major objectives of the national budget for the fiscal year 2014/15?

PEHIN DATO ABD RAHMAN IBRAHIM: The year’s national budget of $5.22bn was formulated based on the theme “Generating Economic Growth, Creating Employment Opportunities”. Greater emphasis is being placed on generating stronger and more sustainable economic growth, creating permanent employment opportunities, and developing the private sector as a catalyst for growth and diversification. There are four key areas of focus.

The first area is strengthening education and training. We see investing in these as a prerequisite for the country’s prosperity and well-being. Effective development in this area can contribute towards sustainable socio-economic growth, and a skilled, educated workforce is an important asset, taking into account the current challenges and global competition.

We also aim to stimulate investment activities and enhance the role of the private sector as an important engine of growth by promoting investment and business activities. This strategy, coupled with intensified efforts to attract foreign and domestic investment to spur growth, is in line with the economic diversification effort to shift from an over-reliance on oil and gas. Special attention will be given to enhance the role of small and medium-sized enterprises and develop them into an important contributor of growth and provider of permanent and quality employment opportunities.

The third area of focus is enhancing productivity. In the current global economic environment, it is important to shift towards achieving more robust growth by enhancing productivity. This is fundamental to stay competitive in a rapidly changing global economy. Moreover, with an enhanced level of productivity, costs can be reduced, quality of work can be improved, and greater revenue can be achieved. Several areas that have been identified for increasing productivity include efforts geared towards strengthening human resources, increasing investment in research and development, promoting innovation, and use of the latest technology.

We must also ensure the socio-economic welfare of our people, which is an important priority. Efforts cover areas such as the provision of essential facilities such as affordable public housing, free education and provision of high-quality medical services. Additionally, through various agencies and programmes, the government continues to provide welfare assistance to eligible citizens. The government will also continue its efforts to ensure a sound and sustainable level of government finances. This will be achieved through the overarching policy of fiscal sustainability and prudence.

What kind of structural reforms have been taken to aid the diversification of the national economy?

PEHIN DATO ABD RAHMAN: Brunei Darussalam continues to be committed to diversifying its economy away from an overdependence on the oil and gas sector. This endeavour is a key component of the Wawasan Brunei 2035 (National Vision 2035) plan, which envisions developing Brunei Darussalam into a dynamic and sustainable economy. This drive towards economic diversification is a collaborative effort undertaken by the various ministries and government agencies.

We at the Ministry of Finance (MoF) are constantly exploring and developing creative ways to promote and attract investments, as well as boost business activities. In order to enhance the government’s economic diversification policy, government-linked companies (GLCs) have been formed. Such companies are intended to serve as a catalyst to spur areas of importance to Brunei Darussalam’s long-term development strategy, in particular, where the local private sector has been constrained by lack of access to technology and resources. However, to date, the pace of GLCs’ growth and performance has been limited, and it is recognised that the commitment to GLC development needs to be further improved. This has led to a decision to set up an investment holding company to consolidate ownership, management and support of GLCs. The company, Darussalam Assets Sdn Bhd, is registered under the Companies Act (Chapter 39). This ensures that the company and the GLCs under its ownership operate according to the same requirements as private commercial businesses, including the appointment of a qualified board of directors; maintenance of timely, accurate and transparent financial accounts; and adherence to decision-making procedures and processes that comply with the best practice standards of good corporate governance. In addition, the company will focus on management training and business skills development to boost human capital across the GLC portfolio, which is considered a key success factor in achieving sustainable business performance.

The establishment of the Strategic Development Capital Fund, under the Sustainability Fund Act, is another initiative to reinforce diversification efforts. The purpose of this fund is to provide risk capital for strategic local developments that contribute to economic growth and diversification across various sectors and that broaden the revenue base of the government.

What benefits will result from Brunei Darussalam’s initiative on public finance management (PFM)?

PEHIN DATO ABD RAHMAN: Improved PFM systems, including a well-functioning medium-term expenditure framework, will enable the government to efficiently direct resources toward the priorities outlined in Wawasan Brunei 2035. Through the MoF, and in consultation with the IMF, the government undertook reform of the PFM system by adopting a PFM Action Plan in 2012. The plan takes into account international standards and best practice, and is intended to ensure understanding of the scope and phasing of the PFM Improvement Plan, including the associated policy and operational implications for the MoF in particular.

The PFM reform has several key objectives. First, it aims to boost efficiency and professionalism in the day-to-day management of government revenues and expenditure. Second, it seeks to improve fiscal management by placing greater emphasis on the medium-term planning and implementation of public expenditure. Third, the reform aims to improve service quality by focusing on the performance and effectiveness of line ministries and departments based on budget allocation outcomes. This link to performance will also ensure the use of the budget as a policy vehicle to enhance economic growth, social well-being and fiscal sustainability. Finally, line ministries will be given more flexibility and accountability in their financial management.

The objectives outlined above will require more accurate planning, management and reporting of budget expenditures. Similarly, this involves a strict adherence to regulations, financial control systems and procedures to enhance compliance. It will also require the allocation of financial resources across sectors and ministries according to specified priorities in budget programmes and activities, rather than on the basis of traditional inputs and costs. Ultimately, this will lead to greater transparency in budget policies and spending operations, as well as improved accountability for both financial and non-financial performance.

Some aspects of the PFM Action Plan have already been successfully initiated. These include the introduction of a programme and performance budgeting concept; a multi-year budgeting plan; and a top-down process that places budget policies in a sustainable fiscal framework. This has been introduced to all line ministries. Streamlining of virement rules and procedures has been implemented, and the MoF has established an improved fiscal reporting and monitoring process. A concerted effort is required by the MoF and line ministries to ensure the new methods are fully understood and adhered to. This will require more professionalism in budget management and financial discipline, and a determination to improve timeliness and accountability. The MoF is aware that the reform is a continuous effort and involves learning by doing. The phasing of reforms needs to be carried out diligently with efficient monitoring to ensure reform programmes are kept on track and adjustments are made when necessary.