IMF Executive Board Concludes 2022 Article IV Consultation with Timor-Leste
September 22, 2022
Washington, DC
:
The Executive Board of the International Monetary Fund (IMF) concluded the
Article IV consultation
[1]
with Timor-Leste on August 24, 2022 and endorsed the staff appraisal
without a meeting on a lapse-of-time basis.
[2]
Timor-Leste is slowly emerging from several waves of COVID-19 outbreaks and
from severe floods following cyclone Seroja in April 2021. Steady progress
with vaccination has allowed the authorities to lift strict containment and
travel restrictions. After a sharp contraction in growth in 2020, there was
a moderate rebound in 2021. Inflation has been rising steadily since early
2021 driven by higher food and oil prices while non-tradable inflation
remains muted.
Real non-oil GDP growth in 2022 is projected at 3.3 percent, underpinned by
strong government support, a rebound in private consumption, and the
reopening of borders. Inflation is projected to pick up, reflecting the
increase in food and energy prices. A gradual recovery of private
consumption and investment will underpin GDP growth at around 3 percent in
the medium term.
Executive Board Assessment
In concluding the 2022 Article IV consultation with Timor-Leste, Executive
Directors endorsed the staff’s appraisal, as follows:
Timor-Leste’s strong progress with vaccination has allowed for the
lifting of strict containment restrictions, and the economy is expected
to continue its recovery.
Non-oil real GDP is projected to grow at 3.3 percent in 2022, after an
estimated growth of 1.5 percent in 2021, supported by public spending and
rebounding private consumption.
Large downside risks remain.
An important near-term downside risk is a re-intensification of a health
crisis. Ongoing geopolitical tensions pose additional risks through more
prolonged and/or heightened high oil and food prices. Domestic political
instability could stall reforms, and natural disasters could further slow
the recovery.
Fiscal consolidation and structural reforms are needed to secure fiscal
sustainability, strengthen the external sector position, and support a
smoother transition to a private sector-led economy.
The external sector position in 2021 was substantially weaker than implied
by fundamentals and desirable policy settings. Active oil fields are drying
up, with oil revenues expected to cease in 2023. The 2022 budget envisages
large fiscal imbalances in the medium term that would deplete the Petroleum
Fund in the long term, leading to a fiscal cliff. Domestic revenue
mobilization and government expenditure rationalization are needed in
future budgets to underpin fiscal consolidation. Government spending should
prioritize investment projects to enhance the productive capacity of the
economy and programs to protect the poor.
Addressing public financial management (PFM) weaknesses is essential
for strengthening fiscal management and improving the quality of
government spending.
High priority areas of PFM reforms include budget credibility, public
investment management, procurement performance and monitoring, and
fragmentation caused by the proliferation of autonomous agencies. The
authorities have adopted some PFM reforms and are committed to continuing
their reform efforts with technical support from the Fund and other
development partners. The introduction of a Fiscal Responsibility Law (FRL)
can also help improve fiscal discipline by requiring the government to
commit to a monitorable fiscal policy objective and to lay out a strategy
to achieve that objective.
A significant number of structural barriers need to be lifted to
facilitate diversification and generate inclusive and resilient growth.
These include transforming the predominantly subsistence-oriented
agricultural sector into a commercially viable sector, raising
productivity, and enhancing food security. Improving the business
environment and strengthening AML/CFT and anti-corruption effectiveness
will foster private investment. So far, progress in private sector
development and job creation has been tepid, as reforms have been slow and
limited. Investing in climate-resilient infrastructure is key to building
resilience to natural disasters, however, adaptation plans have not been
integrated into the budgetary planning, and coordination amongst various
public stakeholders and capacity constraints to access external
grant-financing remain key challenges.
[1]
Under Article IV of the IMF’s Articles of Agreement, the IMF holds
bilateral discussions with members, usually every year. A staff
team visits the country, collects economic and financial
information, and discusses with officials the country’s economic
developments and policies. On return to headquarters, the staff
prepares a report, which forms the basis for discussion by the
Executive Board.
[2]
The Executive Board takes decisions under its lapse-of-time
procedure when the Board agrees that a proposal can be considered
without convening formal discussions.
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Non-oil GDP at current prices (2020): US$1.595 billion |
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|
Population (2020): 1.318 million |
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|
Non-oil GDP per capita (2020): US$1,210 |
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|
Quota: SDR 25.6 million |
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|
2018 |
2019 |
2020 |
2021 |
2022 |
2023 |
|
|
Est. |
Proj. |
Proj. |
||||
|
(Annual percent change) |
||||||
|
Real sector |
||||||
|
Real Non-oil GDP |
-0.7 |
2.1 |
-8.6 |
1.5 |
3.3 |
4.2 |
|
CPI (annual average) |
2.3 |
0.9 |
0.5 |
3.8 |
7.0 |
4.0 |
|
CPI (end-period) |
2.1 |
0.3 |
1.2 |
5.3 |
7.0 |
4.0 |
|
(In percent of Non-oil GDP, unless otherwise indicated) |
||||||
|
Central government operations |
||||||
|
Revenue |
57.6 |
51.6 |
57.0 |
54.1 |
51.9 |
46.9 |
|
Domestic revenue |
12.0 |
11.0 |
11.4 |
9.6 |
9.6 |
9.6 |
|
Estimated Sustainable Income (ESI) |
34.8 |
31.0 |
34.1 |
33.0 |
30.8 |
25.8 |
|
Grants |
10.8 |
9.5 |
11.5 |
11.5 |
11.5 |
11.5 |
|
Expenditure |
84.0 |
81.9 |
82.6 |
97.2 |
106.8 |
114.4 |
|
Recurrent |
51.8 |
54.0 |
61.1 |
77.5 |
79.0 |
62.4 |
|
Net acquisition of nonfinancial assets |
21.4 |
18.4 |
10.0 |
8.3 |
16.3 |
40.6 |
|
Donor project |
10.8 |
9.5 |
11.5 |
11.5 |
11.5 |
11.5 |
|
Net lending/borrowing |
-26.4 |
-30.3 |
-25.6 |
-43.2 |
-54.9 |
-67.6 |
|
(Annual percent change, unless otherwise indicated) |
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|
Money and credit |
||||||
|
Deposits |
2.8 |
-7.5 |
10.1 |
29.3 |
10.5 |
9.9 |
|
Credit to the private sector |
-3.8 |
5.5 |
10.1 |
4.6 |
8.9 |
5.8 |
|
Lending interest rate (percent, end of period) |
14.5 |
16.3 |
11.3 |
11.3 |
11.3 |
11.3 |
|
(In millions of U.S. dollars, unless otherwise indicated) |
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|
Balance of payments |
||||||
|
Current account balance |
-191 |
133 |
-308 |
43 |
-284 |
-821 |
|
(In percent of Non-oil GDP) |
-12 |
8 |
-19 |
3 |
-15 |
-40 |
|
Trade of Goods |
-589 |
-566 |
-510 |
-569 |
-647 |
-726 |
|
Exports of goods |
25 |
26 |
17 |
32 |
35 |
39 |
|
Imports of goods |
613 |
592 |
527 |
601 |
682 |
765 |
|
Trade of Services |
-349 |
-357 |
-275 |
-244 |
-279 |
-316 |
|
Primary Income |
843 |
1,126 |
620 |
925 |
718 |
305 |
|
of which: other primary income (oil/gas) 1/ |
510 |
756 |
324 |
720 |
634 |
46 |
|
Secondary Income |
-96 |
-70 |
-143 |
-70 |
-77 |
-84 |
|
Overall balance |
129 |
-18 |
0.2 |
278 |
62 |
153 |
|
Public foreign assets (end-period) 2/ |
16,477 |
18,348 |
18,946 |
19,884 |
18,442 |
17,654 |
|
(In months of imports) |
187 |
212 |
270 |
275 |
218 |
181 |
|
Exchange rates |
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|
NEER (2010=100, period average) |
130.9 |
134.1 |
135.8 |
131.9 |
… |
… |
|
REER (2010=100, period average) |
142.0 |
143.8 |
143.8 |
137.8 |
… |
… |
|
Memorandum items |
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|
Nominal Non-oil GDP (in millions of U.S. dollars) |
1,584 |
1,704 |
1,595 |
1,681 |
1,858 |
2,043 |
|
Nominal Non-oil GDP per capita (in U.S. dollars) |
1,249 |
1,318 |
1,210 |
1,251 |
1,357 |
1,464 |
|
(Annual percent change) |
-3.9 |
5.5 |
-8.2 |
3.4 |
8.5 |
7.9 |
|
Crude oil prices (U.S. dollars per barrel, WEO) 3/ |
68 |
61 |
41 |
69 |
106 |
95 |
|
Petroleum Fund balance (in millions of U.S. dollars) 4/ |
15,803 |
17,692 |
18,289 |
18,949 |
17,446 |
16,504 |
|
(In percent of Non-oil GDP) |
998 |
1,038 |
1,146 |
1,127 |
939 |
808 |
|
Public debt (in millions of U.S. dollars) |
145 |
193 |
218 |
237 |
274 |
321 |
|
(In percent of Non-oil GDP) |
9.1 |
11.3 |
13.7 |
14.1 |
14.7 |
15.7 |
|
Population growth (annual percent change) |
2.0 |
2.0 |
2.0 |
1.9 |
1.9 |
1.9 |
|
Sources: Timor-Leste authorities; and IMF staff estimates |
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1/ Oil sector activities are considered non-resident |
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2/ Includes Petroleum Fund balance and the central bank’s |
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3/ Simple average of UK Brent, Dubai, and WTI crude oil |
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4/ Closing balance. |
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IMF Communications Department
MEDIA RELATIONS
PRESS OFFICER: Pemba Sherpa
Phone: +1 202 623-7100Email: [email protected]
https://www.imf.org/en/News/Articles/2022/09/22/pr22317-imf-executive-board-concludes-2022-article-iv-consultation-with-timor-leste