## 1tlsea2025001-source-pdf ## Source details **Canonical URL:** [1tlsea2025001-source-pdf](https://www.imf.org/-/media/files/publications/cr/2025/english/1tlsea2025001-source-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2025/english/1tlsea2025001-source-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2025/english/1tlsea2025001-source-pdf.pdf.json) --- ### Executive Board Assessment - Growth expected to remain robust in 2025 and inflation to remain contained, with balanced risks to the medium-term outlook. - Cessation of oil production in 2025 and substantial fiscal and external imbalances underscore the importance of: - Gradual fiscal consolidation. - Growth-enhancing structural reforms to avoid depletion of the Petroleum Fund, secure fiscal and external sustainability, and promote economic diversification. - WTO accession and forthcoming accession to ASEAN expected to boost trade and attract more foreign investment. - Need to improve composition and quality of public spending and gradually enhance revenue mobilization to support fiscal consolidation. - Welcome for initiatives to restrain recurrent spending. - Encouragement to reduce untargeted transfers and contain the public wage bill while prioritizing investments in human capital and high-quality capital projects. - Welcome plans for the implementation of VAT by 2027 and encouragement to strengthen tax administration and compliance. - Caution on Greater Sunrise gas field: directors called for careful management of development risks. - Encouragement to fully implement ongoing public financial management and procurement reforms to improve budget discipline and spending efficiency. - Financial sector: shallow system despite strong credit growth; welcome for legal reforms; call to accelerate issuance of land titles and develop a national digital ID to address lending impediments and support growth. - Close monitoring and supervision urged given rapid credit growth. - Addressing AML/CFT framework deficiencies is important. - Structural reforms are crucial to boost private sector development, enhance financial inclusion, and support sustainable growth. - Continue efforts to strengthen governance and the rule of law. - Human capital development, including strengthening vocational training, to unlock demographic dividend. - Directors welcomed ongoing capacity development projects and noted continued IMF engagement would support the reform agenda. ### Key projections and macro outlook - Real sector (annual percent change): - Real Non-oil GDP: 2022: 4.0; 2023: 2.4; 2024: 4.1; 2025 (Proj.): 3.9; 2026 (Proj.): 3.3; 2027–2030 (Proj.): 3.2 each year. - Real Non-oil GDP per capita: 2022: 2.2; 2023: 1.3; 2024: 3.0; 2025: 2.6; 2026: 2.0; 2027: 1.9; 2028: 1.8; 2029: 1.7; 2030: 1.7. - Inflation: - CPI (annual average): 2022: 7.0; 2023: 8.4; 2024: 2.1; 2025: 0.9; 2026: 1.8; 2027–2030: 2.0 each year. - CPI (end-period): 2022: 6.9; 2023: 8.7; 2024: -0.4; 2025: 1.9; 2026–2030: 1.7–2.0 (2026: 1.7; 2027–2030: 2.0). - Money and credit (annual percent change): - Deposits: 2022: 8.6; 2023: 2.5; 2024: 7.3; 2025: 6.8; 2026: 6.2; 2027–2030: 6.1 each year. - Credit to the private sector: 2022: 34.5; 2023: 20.6; 2024: 31.8; 2025: 22.6; 2026: 12.3; 2027–2030: 6.1 each year. - Lending interest rate (percent, end of period): 2022: 11.0; 2023: 10.7; 2024: 10.5. - Balance of payments (percent of Non-oil GDP): - Current account balance: 2022: 24.3; 2023: -9.8; 2024: -29.0; 2025: -31.8; 2026: -32.3; 2027: -32.7; 2028: -33.3; 2029: -33.7; 2030: -33.9. - Exports of goods: 2022: 107.3; 2023: 35.1; 2024: 10.1; 2025: 4.8; 2026: 3.7; 2027: 3.0; 2028: 3.2; 2029: 3.4; 2030: 3.6. - Imports of goods: 2022: 46.9; 2023: 42.9; 2024: 43.1; 2025: 45.8; 2026: 43.8; 2027: 43.2; 2028: 42.6; 2029: 41.8; 2030: 41.1. - Public foreign assets (in months of imports): - 2022: 169.0; 2023: 195.7; 2024: 183.5; 2025: 160.7; 2026: 150.1; 2027: 135.3; 2028: 122.3; 2029: 109.6; 2030: 96.9. - Memorandum items: - Nominal Non-oil GDP (in millions of U.S. dollars): 2024: 1,947; 2025: 2,079; 2026: 2,208; 2027: 2,343; 2028: 2,485; 2029: 2,637; 2030: 2,797. - Petroleum Fund balance (closing balance, in millions of U.S. dollars): 2022: 17,273; 2023: 18,288; 2024: 18,274; 2025: 17,746; 2026: 17,054; 2027: 16,145; 2028: 15,133; 2029: 14,022; 2030: 12,807. - Petroleum Fund balance (in percent of Non-oil GDP): 2024: 939; 2025: 853; 2026: 772; 2027: 689; 2028: 609; 2029: 532; 2030: 458. - Public debt (in percent of Non-oil GDP): 2024: 13.8; 2025: 14.2; 2026: 14.7; 2027: 14.7; 2028: 14.6; 2029: 14.6; 2030: 14.7. - Population (2024): 1.392 million; Non-oil GDP per capita (2024): US$1,399; Quota: SDR 25.6 million. ### Fiscal outlook, Petroleum Fund trajectory, and public finances - Fiscal deficits and composition: - Fiscal deficit (percent of non-oil GDP): 2024: -45.0; 2025: -51.5; 2026: -50.1; 2027: -50.6; 2028: -51.2; 2029: -51.6; 2030: -51.8. - Net lending/borrowing: 2022: -56.4; 2023: -40.1; 2024: -45.0; 2025: -51.5; 2026: -50.1; 2027: -50.6; 2028: -51.2; 2029: -51.6; 2030: -51.8. - Recurrent spending (percent of non-oil GDP): 2024: 66.7; 2025: 73.3; 2026: 69.6; 2027: 67.9; 2028: 66.2; 2029: 64.6; 2030: 63.0. - Net acquisition of nonfinancial assets (capital): 2024: 17.4; 2025: 16.9; 2026: 16.5; 2027: 16.5; 2028: 16.5; 2029: 16.3; 2030: 16.1. - Petroleum Fund (PF) key figures and projections: - PF balance at end-2024: $18.3 billion (939 percent of non-oil GDP), covering 183 months of prospective goods and services imports. - Average nominal return on PF assets during 2020–24: 4.4 percent. - Assumed PF investment returns in projections: around 4.5 percent annual nominal return during 2025–30; 4 percent thereafter. - Staff estimate the PF will be fully depleted in 2038 under baseline; PF fully depleted by 2038 reiterated in multiple sections. - PF closing balance ($ million) under baseline: 2023: $18,274; 2024: $17,746; 2025: $17,054; 2026: $12,807; 2030 baseline: $4,991; 2035 baseline: $0 million. - Public external debt and financing: - Outstanding public external debt at end-2024: $269 million, corresponding to 13.8 percent of non-oil GDP. - Loan terms and service: average maturity of existing loans: 25.5 years; debt service payments average $28 million annually (close to 1.1 percent of GDP) in the medium term. - External financing assumptions: concessional borrowing in 2025 estimated around 2.2 percent of non-oil GDP; non-concessional loan assumptions: 5 percent interest rate, 20-year grace period, 40-year maturity for remaining financing gap. - Under baseline, external debt stock rises substantially after PF depletion (e.g., projected 365 percent of GDP by 2045 under one projection column). ### Outlook and reform scenario highlights - Growth outlook: - Growth: estimated 4.1 percent in 2024; projected 3.9 percent in 2025; 3.3 percent in 2026; medium term converge to 3.2 percent (about 1.7 percent in per-capita terms). - Staff reform scenario (objective and outcomes): - Objective: reduce fiscal deficits gradually during 2026-35, stabilize fiscal buffers within 10 years so no excess PF withdrawals from 2035 onwards. - Real non-oil GDP growth (percent): Reform scenario: 2024: 4.1; 2025: 3.9; 2026: 3.5; 2030: 4.5; 2035: 5.7; 2045: 6.1. - PF closing balance under reform: 2026: 17,116; 2030: 14,407; 2035: 13,687; 2045: 15,118. - Fiscal balance (percent of non-oil GDP) under reform: 2026: -47.2; 2030: -26.8; 2035: -6.5; 2045: -2.9. - Domestic revenue mobilization under reform: domestic revenue (percent of non-oil GDP) 2026: 12.3; 2030: 15.4; 2035: 17.0; 2045: 17.0. - VAT implementation: urgent implementation of VAT by January 2027; expected additional revenues about 2½ percentage points of GDP by 2035 (10 percent VAT rate applied to an evolving tax base as specified). - Combined reform revenue measures and structural reforms target raising domestic revenue toward the ASEAN average of 17 percent of GDP by 2035. ### Policy recommendations and reform package - Fiscal policy priorities: - Spend substantial savings better and more prudently to support growth and macroeconomic stability. - Improve composition and quality of public spending by prioritizing investment in physical and human capital. - Contain overall spending to preserve fiscal sustainability. - Gradually enhance revenue mobilization and strengthen tax administration and compliance, including implementation of VAT by 2027. - Continue reforms in public financial management and procurement to improve budget discipline and spending efficiency. - Reduce untargeted transfers and contain the public wage bill. - Specific fiscal measures and targets: - Staff recommend an overall spending envelope for central government around US $1.85 billion for 2026, about $50m lower than the baseline. - Recent measures expected to yield estimated savings around $15 million, 0.7 percent of GDP (mandatory retirement age and civil service hiring freeze). - Achieve savings by cutting recurrent spending: shift away from broad transfers including energy subsidies toward targeted transfers to vulnerable households; contain public sector wage bill. - Structural reforms and private sector development: - Advance financial sector reforms, including issuance of land titles and development of a national digital ID to address lending impediments. - Strengthen governance and the rule of law. - Strengthen vocational training and human capital development to unlock demographic dividend. - Carefully manage risks related to Greater Sunrise gas field development. - Financial sector supervision and AML/CFT: - Closely monitor and supervise the financial sector given rapid credit growth. - Address AML/CFT framework deficiencies; implement recommendations from the Asia Pacific Group’s Mutual Evaluation Report (adopted September 2024). - Public financial management and legal reforms: - Fully implement PFM law (promulgated April 2025) and procurement decree-law (expected early 2026); strengthen top-down budgeting and public investment management. - Continue capacity development projects (IMF CD, World Bank technical assistance) and improve macroeconomic statistics and reporting frequency. ### Financial sector, land titles, and structural bottlenecks - Financial sector indicators and developments: - Credit to private sector: 27 percent y/y in 2025Q1; credit-to-GDP ratio increased to 33 percent (from 27 percent in 2023). - Banking indicators at end-2024: non-performing loans ratio 2.2 percent; loan-to-deposit ratio 52.8 percent. - State-owned bank BNCTL: holds 75 percent of banking system loans with capital adequacy ratio 27.8 percent, NPL ratio 2.7 percent, return on assets 2.6 percent at end-2024. - LDR regulatory floor of 35 percent since January 2024 had limited traction among private banks. - Banks have begun implementing IFRS-9; compilation and dissemination of core FSIs expected by end-2025. - Land title reforms (Annex VI): - Customary tenure governs roughly "90 percent of land." - "26 percent of firms report land access as a major or very severe constraint" in Timor-Leste; ASEAN median: 6 percent. - Staff regression: narrowing severe land access from 26 percent to 6 percent could raise credit-to-GDP by 10 percentage points and investment-to-GDP by 2 percentage points. - As of 2024: "some 55,000 parcels remained under dispute" and no clear data on total valid certificates outstanding. - Policy implications: accelerate issuance of land titles, recognize customary land coherently, ensure transferability and mortgageability, and include community-based mapping and adjudication. - Digital ID and payments: - Central bank priorities: develop instant retail payments platform and explore fast cross-border payments; prioritize establishing a national digital ID to enhance efficiency, inclusion, social transfer targeting, and tax compliance. ### Risks, scenarios, and external sector assessment - Overall risk assessment: Risks to the outlook are balanced. - Key risks and likelihood/impact summary: - Deepening geoeconomic fragmentation: Likelihood: High; Impact: Medium. Policy response: mobilize domestic revenue; promote private sector development. - Commodity price volatility: Likelihood: Medium; Impact: Medium. Policy response: targeted support for vulnerable households; improve agricultural productivity. - Development of Greater Sunrise: Likelihood: Medium; Impact: Large. Policy response: careful risk management; fiscal adjustment plans. - Extreme climate and weather shocks: Likelihood: Medium; Impact: Medium. Policy response: climate-proof infrastructure; fiscal prudence and concessional financing. - Higher-than-expected private sector growth: Likelihood: Medium; Impact: Medium. Policy response: prioritize reforms to support inclusive growth. - External sector assessment (Annex II): - Overall Assessment: external position in 2024 was substantially weaker than level implied by fundamentals and desirable policies. - Total external assets (end-2024): $20.8 billion (1,068 percent of non-oil GDP); total external liabilities (end-2024): $0.8 billion (39 percent of non-oil GDP). - NIIP (end-2024; percent of non-oil GDP): 1,029. - Estimated annuity value and adjusted CA: annuity value -31 percent of non-oil GDP in 2024; adjusted CA -24.6 percent of non-oil GDP; CA gap -30.8 percent of non-oil GDP in 2024. - Gross international reserves (end-2024): $0.7 billion; reserve metrics: 7.1 months of imports; 55 percent of broad money; 276 percent of external debt; 38 percent of non-oil GDP. - Stress tests and vulnerabilities: - Debt-carrying capacity upgraded to "Medium" (CI index 2.73). - Baseline DSA mechanical rating: "high risk of debt distress"; judgmental adjustment: "moderate" risk of debt distress given large PF buffers. - PF depletion timing sensitivity: baseline depletion by 2038; with lower PF nominal return of 2.5 percent, depletion by 2036. ### Recent developments, data, and process notes - Recent developments: - Real non-oil GDP estimated at 4.1 percent in 2024 (up from 2.4 percent in 2023), driven by higher public capital expenditure execution and stronger private credit growth. - Inflation declined from 8.4 percent in 2023 to 2.1 percent in 2024; May 2025: -0.2 percent (y/y); July 2025: 0.3 percent (y/y). - Joined WTO in August 2024; accepted to join ASEAN as full member in October 2025. - Government implemented a public service hiring freeze in May 2025 and introduced forced retirement (age 65) for public servants. - PF balance at end-2024: $18.3 billion, broadly unchanged from 2023. - Data improvements and capacity: - New PFM law promulgated April 2025; procurement decree-law expected early 2026. - Recent Living Standards Survey completed with World Bank support; rebasing of national accounts and CPI basket update underway. - PFTAC and STA providing CD for government finance statistics, balance of payments, and financial soundness indicators. - Staff mission and process: - Staff discussions in Dili during June 19 – July 2, 2025. - Staff team: Yan Carrière-Swallow (Head), Raju Huidrom, Ken Teoh (all APD); José Aloisio Costa Filho (OEDBR) joined some discussions. - Meetings included Minister of Finance Santina Cardoso, Central Bank Governor Hélder Lopes, and representatives from government ministries, private sector, civil society, and development partners. *Source: DEMOCRATIC REPUBLIC OF TIMOR-LESTE — STAFF REPORT FOR THE 2025 ARTICLE IV CONSULTATION (August 25, 2025).* ### 1.8 percent in 2026—as global food prices rise. Risks to the outlook are balanced. ### 1tlsea2025001-source-pdf - 1.8 percent in 2026—as global food prices rise. Risks to the outlook are balanced. ### Executive Board Assessment - Growth expected to remain robust in 2025 and inflation to remain contained, with balanced risks to the medium-term outlook. - Cessation of oil production in 2025 and substantial fiscal and external imbalances underscore the importance of: - Gradual fiscal consolidation. - Growth-enhancing structural reforms to avoid depletion of the Petroleum Fund, secure fiscal and external sustainability, and promote economic diversification. - WTO accession and forthcoming accession to ASEAN expected to boost trade and attract more foreign investment. - Need to improve composition and quality of public spending and gradually enhance revenue mobilization to support fiscal consolidation. - Welcome for initiatives to restrain recurrent spending. - Encouragement to reduce untargeted transfers and contain the public wage bill while prioritizing investments in human capital and high-quality capital projects. - Welcome plans for the implementation of VAT by 2027 and encouragement to strengthen tax administration and compliance. - Caution on Greater Sunrise gas field: directors called for careful management of development risks. - Encouragement to fully implement ongoing public financial management and procurement reforms to improve budget discipline and spending efficiency. - Financial sector: shallow system despite strong credit growth; welcome for legal reforms; call to accelerate issuance of land titles and develop a national digital ID to address lending impediments and support growth. - Close monitoring and supervision urged given rapid credit growth. - Addressing AML/CFT framework deficiencies is important. - Structural reforms are crucial to boost private sector development, enhance financial inclusion, and support sustainable growth. - Continue efforts to strengthen governance and the rule of law. - Human capital development, including strengthening vocational training, to unlock demographic dividend. - Directors welcomed ongoing capacity development projects and noted continued IMF engagement would support the reform agenda. ### Selected Economic and Financial Indicators, 2022–30 (key projections and levels) - Non-oil GDP at current prices (2024): US$1.947 billion - Non-oil GDP per capita (2024): US$1,399 - Population (2024): 1.392 million - Quota: SDR 25.6 million Real sector (annual percent change) - Real Non-oil GDP: 2022: 4.0; 2023: 2.4; 2024: 4.1; 2025 (Proj.): 3.9; 2026 (Proj.): 3.3; 2027–2030 (Proj.): 3.2 each year. - Real Non-oil GDP per capita: 2022: 2.2; 2023: 1.3; 2024: 3.0; 2025: 2.6; 2026: 2.0; 2027: 1.9; 2028: 1.8; 2029: 1.7; 2030: 1.7. Inflation - CPI (annual average): 2022: 7.0; 2023: 8.4; 2024: 2.1; 2025: 0.9; 2026: 1.8; 2027–2030: 2.0 each year. - CPI (end-period): 2022: 6.9; 2023: 8.7; 2024: -0.4; 2025: 1.9; 2026–2030: 1.7–2.0 (2026: 1.7; 2027–2030: 2.0). Central government operations (percent of Non-oil GDP) - Revenue: 2022: 58.3; 2023: 50.7; 2024: 48.9; 2025: 45.4; 2026: 42.4; 2027: 39.5; 2028: 36.6; 2029: 33.9; 2030: 31.4. - Domestic revenue: 2022: 12.0; 2023: 13.1; 2024: 12.2; 2025: 12.2; 2026: 11.9; 2027: 12.0; 2028: 12.0; 2029: 12.1; 2030: 12.3. - Estimated Sustainable Income (ESI): 2022: 33.1; 2023: 27.2; 2024: 26.8; 2025: 26.5; 2026: 24.1; 2027: 21.8; 2028: 19.5; 2029: 17.2; 2030: 15.0. - Grants: 2022: 13.2; 2023: 10.4; 2024: 9.9; 2025: 6.7; 2026: 6.4; 2027: 5.7; 2028: 5.1; 2029: 4.6; 2030: 4.1. - Expenditure: 2022: 114.7; 2023: 90.8; 2024: 94.0; 2025: 97.0; 2026: 92.5; 2027: 90.1; 2028: 87.9; 2029: 85.5; 2030: 83.3. - Recurrent: 2022: 90.6; 2023: 68.6; 2024: 66.7; 2025: 73.3; 2026: 69.6; 2027: 67.9; 2028: 66.2; 2029: 64.6; 2030: 63.0. - Net acquisition of nonfinancial assets: 2022: 10.9; 2023: 11.8; 2024: 17.4; 2025: 16.9; 2026–2030: 16.5, 16.5, 16.5, 16.3, 16.1 respectively. - Donor project: same values as Grants (above). - Net lending/borrowing: 2022: -56.4; 2023: -40.1; 2024: -45.0; 2025: -51.5; 2026: -50.1; 2027: -50.6; 2028: -51.2; 2029: -51.6; 2030: -51.8. Money and credit (annual percent change) - Deposits: 2022: 8.6; 2023: 2.5; 2024: 7.3; 2025: 6.8; 2026: 6.2; 2027–2030: 6.1 each year. - Credit to the private sector: 2022: 34.5; 2023: 20.6; 2024: 31.8; 2025: 22.6; 2026: 12.3; 2027–2030: 6.1 each year. - Lending interest rate (percent, end of period): 2022: 11.0; 2023: 10.7; 2024: 10.5. Balance of payments (percent of Non-oil GDP) - Current account balance: 2022: 24.3; 2023: -9.8; 2024: -29.0; 2025: -31.8; 2026: -32.3; 2027: -32.7; 2028: -33.3; 2029: -33.7; 2030: -33.9. - Trade of Goods: 2022: 60.4; 2023: -7.8; 2024: -33.0; 2025: -40.9; 2026: -40.1; 2027: -40.2; 2028: -39.4; 2029: -38.4; 2030: -37.5. - Exports of goods: 2022: 107.3; 2023: 35.1; 2024: 10.1; 2025: 4.8; 2026: 3.7; 2027: 3.0; 2028: 3.2; 2029: 3.4; 2030: 3.6. - Imports of goods: 2022: 46.9; 2023: 42.9; 2024: 43.1; 2025: 45.8; 2026: 43.8; 2027: 43.2; 2028: 42.6; 2029: 41.8; 2030: 41.1. - Trade of Services: 2022: -26.3; 2023: -18.1; 2024: -16.6; 2025: -16.7; 2026: -16.5; 2027: -16.4; 2028: -15.5; 2029: -14.5; 2030: -13.6. - Primary Income: 2022: -18.7; 2023: 11.2; 2024: 11.9; 2025: 14.1; 2026: 12.8; 2027: 12.9; 2028: 11.0; 2029: 9.1; 2030: 7.4. - Secondary Income: 2022: 8.9; 2023: 4.9; 2024: 8.7; 2025: 11.8; 2026: 11.5; 2027: 11.0; 2028: 10.5; 2029: 10.1; 2030: 9.8. - Overall balance: 2022: -6.1; 2023: -2.7; 2024: -2.2; 2025: 4.1; 2026: 1.2; 2027: 2.0; 2028: 1.6; 2029: 1.5; 2030: 1.5. Public foreign assets (in months of imports) - 2022: 169.0; 2023: 195.7; 2024: 183.5; 2025: 160.7; 2026: 150.1; 2027: 135.3; 2028: 122.3; 2029: 109.6; 2030: 96.9. Memorandum items - Fiscal impulse (percentage point of non-oil GDP): 2022: -7.4; 2023: 22.1; 2024: -4.6; 2025: -6.2; 2026: 3.8; 2027: 1.8; 2028: 1.7; 2029: 1.9; 2030: 1.9. - Nominal Non-oil GDP (in millions of U.S. dollars): 2022: 1,676; 2023: 1,802; 2024: 1,947; 2025: 2,079; 2026: 2,208; 2027: 2,343; 2028: 2,485; 2029: 2,637; 2030: 2,797. - Nominal Non-oil GDP per capita (U.S. dollars): 2022: 1,231; 2023: 1,309; 2024: 1,399; 2025: 1,475; 2026: 1,547; 2027: 1,620; 2028: 1,695; 2029: 1,773; 2030: 1,854. - Annual percent change: 2022: 5.4; 2023: 6.3; 2024: 6.9; 2025: 5.5; 2026: 4.9; 2027: 4.7; 2028: 4.6; 2029: 4.6; 2030: 4.6. - Petroleum Fund balance (closing balance, in millions of U.S. dollars): 2022: 17,273; 2023: 18,288; 2024: 18,274; 2025: 17,746; 2026: 17,054; 2027: 16,145; 2028: 15,133; 2029: 14,022; 2030: 12,807. - Petroleum Fund balance (in percent of Non-oil GDP): 2022: 1,031; 2023: 1,015; 2024: 939; 2025: 853; 2026: 772; 2027: 689; 2028: 609; 2029: 532; 2030: 458. - Public debt (in percent of Non-oil GDP): 2022: 15.1; 2023: 14.4; 2024: 13.8; 2025: 14.2; 2026: 14.7; 2027: 14.7; 2028: 14.6; 2029: 14.6; 2030: 14.7. - Population growth (annual percent change): 2022: 1.7; 2023: 1.1; 2024: 1.1; 2025: 1.3; 2026: 1.3; 2027: 1.3; 2028: 1.4; 2029: 1.4; 2030: 1.4. ### Key Issues and Context - Timor-Leste’s financial buffers and favorable demographics provide an opportunity for development, but the economy remains under-diversified and fiscal and external imbalances are large. - Petroleum Fund (PF) balance at 939 percent of non-oil GDP in 2024 makes Timor-Leste’s Net Foreign Asset position one of the highest in the world as a share of the domestic economy. - Oil and gas production has ceased; continued large withdrawals to finance fiscal deficits would lead to full PF depletion by the end of the 2030s. - Large fiscal deficits have created excessive dependence on the public sector and have not delivered the desired pace of economic growth and development. - Per capita growth averaged 1.9 percent over 2021-24—lower than most ASEAN countries. - Timor-Leste has one of the youngest populations in the Asia-Pacific region, offering potential demographic dividend. ### Recent Developments - Growth: Real non-oil GDP estimated at 4.1 percent in 2024 (up from 2.4 percent in 2023), driven by higher-than-expected public capital expenditure execution and stronger private credit growth. - Inflation: Declined from 8.4 percent in 2023 to 2.1 percent in 2024; remained low in 2025 with inflation reaching -0.2 percent (y/y) in May 2025 due to moderation of global rice prices and low domestic inflation. - Infrastructure: Airport expansion (ADB and JICA financed) and water and sanitation projects proceeding; fiber-optic submarine cable installed but unutilized pending regulatory framework; Franco-Japanese solar energy joint venture planned. - Regional integration: Joined WTO in August 2024; accepted to join ASEAN as a full member in October 2025; planned reforms include new insolvency framework, introduction of VAT, and improved macroeconomic statistics. - Fiscal: Fiscal deficit in 2024 deteriorated to 45 percent of non-oil GDP (from 40 percent in 2023) due to higher public capital expenditure. 2025 budget authorized a large permanent increase in transfers to veterans and pensioners. PF balance at $18.3 billion at end-2024, broadly unchanged from 2023. - Government implemented a public service hiring freeze in May 2025 and introduced forced retirement (age 65) for public servants to address wage bill increases. - External sector: Current account deficit widened to 29 percent of non-oil GDP in 2024 (from 10 percent in 2023) reflecting diminishing oil revenues and larger fiscal deficit; exports fell to 10 percent of non-oil GDP in 2024 reflecting a 73 percent decline in oil exports and moderation of non-oil exports. - Financial sector: Credit to private sector continued high (27 percent y/y in 2025Q1); credit-to-GDP ratio increased to 33 percent (from 27 percent in 2023) but remains below ASEAN median. Banking indicators at end-2024: non-performing loans ratio 2.2 percent; loan-to-deposit ratio 52.8 percent. State-owned bank BNCTL holds 75 percent of banking system loans with capital adequacy ratio 27.8 percent, NPL ratio 2.7 percent, return on assets 2.6 percent at end-2024. - Regulatory measures: LDR regulatory floor of 35 percent since January 2024 had limited traction among private banks. ### Outlook - Growth: Estimated 4.1 percent in 2024; projected 3.9 percent in 2025 and 3.3 percent in 2026. - Inflation: Fell sharply in 2024; expected to increase moderately in remainder of 2025 as global food prices rise. - Risks: Risks to the outlook are balanced. ### Policy Recommendations - Fiscal policy - Spend substantial savings better and more prudently to support growth and macroeconomic stability. - Improve composition and quality of public spending by prioritizing investment in physical and human capital. - Contain overall spending to preserve fiscal sustainability. - Gradually enhance revenue mobilization and strengthen tax administration and compliance, including implementation of VAT by 2027. - Continue reforms in public financial management and procurement to improve budget discipline and spending efficiency. - Reduce untargeted transfers and contain the public wage bill. - Structural reforms and private sector development - Advance financial sector reforms, including issuance of land titles and development of a national digital ID to address lending impediments. - Strengthen governance and the rule of law. - Strengthen vocational training and human capital development to unlock demographic dividend. - Carefully manage risks related to Greater Sunrise gas field development. - Financial sector supervision - Closely monitor and supervise the financial sector given rapid credit growth. - Address AML/CFT framework deficiencies. ### Staff appraisal and process notes - Staff discussions took place in Dili during June 19 – July 2, 2025. - Staff team comprised Yan Carrière-Swallow (Head), Raju Huidrom, and Ken Teoh (all APD); José Aloisio Costa Filho (OEDBR) joined some discussions. - Meetings included Minister of Finance Santina Cardoso, Central Bank Governor Hélder Lopes, and representatives from government ministries, private sector, civil society, and development partners. *Source: DEMOCRATIC REPUBLIC OF TIMOR-LESTE — STAFF REPORT FOR THE 2025 ARTICLE IV CONSULTATION (August 25, 2025).* ### 9. The fiscal deficit is projected to widen ### 9. The fiscal deficit is projected to widen ### Key projections and macro outlook - Fiscal deficit projected to widen to 51½ percent of non-oil GDP in 2025, driven by the large increase in transfers. - Fiscal impulse in 2025: expansionary of 6.2 percentage points of non-oil GDP; estimated to have a limited positive impact on growth. - PF balance expected to fall by end-2025 as withdrawals to finance the budget deficit more than offset interest income and dwindling gas receipts. - Growth forecasts: - 2025: 3.9 percent (somewhat higher than the 3.4 percent in the 2024 Article IV). - 2026: 3.3 percent. - Medium term: converge to 3.2 percent (about 1.7 percent in per-capita terms). - Inflation: - May 2025: -0.2 (y/y). - 2025 average: 0.9 percent. - 2026: 1.8 percent. - Medium term: converge to 2 percent. - External and policy influences: - US tariffs (10 percent on imports from Timor-Leste) expected to have a small adverse impact given export scale. - Reduction in USAID spending will have a meaningful effect on local development community and a modest negative impact on growth in 2025. - ASEAN accession expected to begin supporting growth in 2026 through stronger FDI inflows and non-oil exports, with modest effects until reform agenda advances. ### Fiscal composition and implications - Staff upgraded the forecast for capital expenditure in 2025 to reflect faster-than-expected execution to-date, producing a larger deficit with a somewhat more growth-friendly fiscal composition. - Recurrent spending will continue to dominate public expenditures in 2025 and are associated with very low fiscal multipliers. - Expected expansion of public expenditures: 14.6 percent in 2025. - Baseline assumptions for medium term: - Public expenditures growth assumed around 4 percent annually in nominal terms. - Large fiscal deficits financed by excess withdrawals from the Petroleum Fund (PF), risking full depletion by the end of the 2030s. - Staff estimate the PF will be fully depleted in 2038. - Greater Sunrise: proven gas reserves are 150 percent larger than those of the now depleted Bayu-Undan field; development could boost long-term export receipts and public revenue but financing risks could deteriorate the net foreign asset position during development. ### Risks and scenarios - Risks to the outlook are balanced: - Upside: Implementation of financial and fiscal reforms could accelerate credit and private sector development and boost growth dividend from ASEAN accession. - Downside: Extreme climate events could harm food security, raise prices, and lower growth. Global commodity price volatility could affect inflation, especially for imported food crops such as rice. - Development of Greater Sunrise could boost receipts but financing may pose fiscal risks. - Escalating global trade tensions scenario: - Main downside: weaker performance of PF financial assets in prolonged global market downturn, potentially leading to earlier PF depletion and need for more pronounced fiscal adjustment. - Slower growth in major trading partners could weigh on growth but impact is small due to limited export exposure (Non-oil goods exports account for only 3 percent of non-oil GDP; exports to the US made up just 1.8 percent of total exports in 2023). - Upside: potential investment diversion to Timor-Leste could boost growth if Timor-Leste remains among the region’s economies facing the lowest US tariff rates. ### Authorities’ views - Authorities broadly agreed with staff’s assessment of the outlook and risks. - Authorities project slightly higher growth in 2025 from larger execution of capital spending, but expect sharper moderation in 2026 due to tight indicative budget ceiling for 2026. - Authorities remain committed to raising growth towards their 5-percent target over the medium term through better-quality public spending, structural reforms, and ASEAN accession. - Authorities note PF foreign asset portfolio as main exposure to global market risks and emphasize prudent asset management strategy. ### Policy priorities and recommendations - Overarching policy priorities: achievement of fiscal sustainability and promotion of private sector development to support growth. - Improve composition and quality of public spending by prioritizing investment in physical and human capital while containing overall spending. - Advance financial sector reform agenda, including issuance of land titles, to accelerate private sector development. A. Fiscal Policy — Specific findings and recommendations - 2025 budget: appropriate increase in capital projects, health, and education; excessive increase in recurrent spending with limited impact on growth. - Recommendation for 2026 budget: - Prioritize high-quality capital spending and contain recurrent expenditure. - Recent measures expected to yield estimated savings around $15 million, 0.7 percent of GDP (mandatory retirement age and civil service hiring freeze). - Staff expect revenue to decline moderately reflecting a lower ESI as PF balance is eroded and a reduction in import duties following ASEAN accession. - Fiscal deficit expected to improve to 50 percent of GDP in 2026, implying a contractionary fiscal impulse of 3.8 percentage points of GDP. - Staff recommend an overall spending envelope for central government around US $1.85 billion, about $50m lower than the baseline and broadly aligned with the indicative ceiling approved in the government’s June 3 Budget Strategy Statement. - Achieve savings by cutting recurrent spending: (i) shift away from transfers for subsidies (including energy consumption) toward more targeted transfers to vulnerable households; (ii) reduce the public sector wage bill, which has grown sharply since 2020. - Medium-term outlook absent reforms: - Deficits projected to remain large, risking PF depletion by end of the 2030s. - Large buffer in PF provides room for a reform scenario; staff maintain a rating of moderate risk of debt distress in the 2025 LIC-DSF. ### Staff’s recommended reform package (highlights) - Objective: reduce fiscal deficits gradually during 2026-35 and advance structural reforms to boost growth and diversify the economy; stabilize fiscal buffers within 10 years so no excess PF withdrawals from 2035 onwards. - Expenditure reforms: - Prioritize spending on human capital (health and education) and physical capital, including climate-resilient infrastructure. - Prioritize improvements to social safety nets and manage costs through better targeting to the most vulnerable. - Contain rise in the wage bill by restraining public employment. - Curb budget for goods and services by improving procurement. - Limit public transfers that do not safeguard the poor, including energy subsidies. - Implement PFM and procurement laws; strengthen top-down budgeting; upgrade public investment management framework; establish governance safeguards and transparent fiscal reporting. - Domestic revenue mobilization: - Introduce a value-added tax by January 2027. - Increase corporate income tax rates over the medium term, reaching levels more in line with regional peers by 2035. - Adopt a property tax once progress has been made in the issuance of land titles. - Gradually raise domestic revenues from estimated 12 percent of GDP in 2024 toward ASEAN average of 17 percent of GDP by 2035. - Tax administration reforms: - Modernize operations, upgrade human capacity, minimize manual procedures. - Develop a medium-term tax administration plan; institutional reforms; upgrade tax procedure code; promote e-tax filing. - Structural reforms to boost growth and diversify: - Public investment to expand connectivity and market access (e.g., airport expansion). - Improve business environment by removing legal constraints, completing land registry, adopting corporate accounting standards. - Further progress in regional integration. - Financial sector legal reform, including a new banking law and legal framework for collateralization of loans. - Boost human capital (improve education quality) and strengthen vocational education and training. - Strengthen governance and enforcement of contracts. ### Quantitative baseline and reform scenario highlights (selected exact figures from Box/Table) - Real non-oil GDP growth (in percent): - 2024: 4.1 - 2025: 3.9 - 2026: 3.3 - 2035 (reform): 5.7 - Revenue (excl. grants) (percent of non-oil GDP): - 2024: 39.0 - 2025: 38.7 - 2026: 36.0 - 2035 baseline: 13.2 - 2035 reform: 26.6 - Domestic revenue (percent of non-oil GDP): - 2024: 12.2 - 2025: 12.2 - 2026: 11.9 - 2035 baseline: 13.2 - 2035 reform: 17.0 - Expenditure (percent of non-oil GDP): - 2024: 84.1 - 2025: 90.2 - 2026: 86.1 - 2035 baseline: 71.1 - 2035 reform: 33.0 - Recurrent (percent of non-oil GDP): - 2024: 66.7 - 2025: 73.3 - 2026: 69.6 - 2035 baseline: 57.7 - 2035 reform: 20.8 - Capital (percent of non-oil GDP): - 2024: 17.4 - 2025: 16.9 - 2026: 16.5 - 2035 baseline: 13.4 - 2035 reform: 12.2 - Fiscal balance (percent of non-oil GDP): - 2024: -45.0 - 2025: -51.5 - 2026: -50.1 - 2035 baseline: -57.9 - 2035 reform: -6.5 - PF closing balance: - 2023: $18,274 million - 2024: $17,746 million - 2025: $17,054 million - 2026: $12,807 million - 2030 baseline: $4,991 million - 2035 baseline: $0 million - 2045 reform: $15,118 million - Per-capita non-oil GDP (constant 2023 $) under reform scenario: moves closer to ASEAN average of around $6600 (long-term qualitative outcome). *Source: IMF staff analysis and estimates as presented in the chapter.* ### 22. Ongoing fiscal reforms should help improve budget discipline and spending efficiency ### 22. Ongoing fiscal reforms should help improve budget discipline and spending efficiency ### Public financial management and fiscal framework - A new Public Financial Management (PFM) law promulgated in April 2025 contains elements of an indicative medium-term fiscal framework, including a requirement to include multi-year expenditure scenarios in pre-budget strategy documents. - A new procurement decree-law is expected to take effect in early 2026 and seeks to improve transparency, accountability, and flexibility. - Ongoing IMF CD projects are supporting the formulation of a medium-term debt management strategy and improving macroeconomic projection tools to contribute to a more robust fiscal framework. - Authorities plan to implement a VAT by January 2027; attendant preparatory work remains on track. - Staff recommendation: contain overall spending to preserve fiscal sustainability while improving spending efficiency, supported by full implementation of PFM reforms. ### Authorities’ fiscal strategy and commitments - The Budget Strategy Statement—adopted by the Council of Ministers in June—includes a tighter indicative budget ceiling for 2026 and signals slower expansion of public spending over the medium term. - Authorities are committed to prioritizing high-impact public investment projects aligned with the government’s long-term strategic plan, with World Bank technical assistance in PIM. - Authorities are confident that risks associated with Greater Sunrise can be prudently managed and that the project will bring substantial fiscal revenue. ### Financial sector policies and legal reforms - A new secure transactions law, developed with the IFC, will enable use of movable property as collateral and was approved by Parliament in June 2025. - A new financial system and banking activity law, developed with support from Banco de Portugal and the IMF, is expected to be approved by Parliament in 2025 and aims to align the local regulatory framework with international best practice. - An insolvency framework law, committed under the WTO accession, has been submitted to Parliament. - National corporate accounting standards are being established through a consultative process with the private sector, financial institutions, and academia. - Staff recommendation: continue prioritizing structural legal reforms and refrain from increasing the LDR regulatory floor; accelerate issuance of land titles to realize the potential of legal reforms. - Central bank commitments and actions: - Prioritize developing an instant retail payments platform (mobile-based digital transactions via standardized QR codes) and explore future fast cross-border payments. - Prioritize establishing a national digital ID system to enhance efficiency, inclusion, social transfer targeting, and tax compliance. - Continue building technical capacity through staff training with partner support and improve data collection. - Introduce timely compilation and dissemination of core FSIs for deposit takers, following up on PFTAC training concluded last April; compilation and dissemination of FSIs is expected by end-2025. - Banks have begun implementing IFRS-9. ### Land title reforms and financial development (Box 2) - Background: mapping and registering efforts (Ita Nia Rai project, National Cadastral System launched in 2014) have not yet produced comprehensive formal legal titles. - As of 2024: - The total number of valid certificates issued was unclear. - Some 55,000 parcels remained under dispute. - Firm-level constraints: - In Timor-Leste, 26 percent of firms report land access as a major or very severe constraint, which is more than four times the ASEAN median. - Estimated impacts from staff regression analysis across 156 countries: - Narrowing the share of firms facing severe land access barriers from 26 percent to 6 percent (ASEAN median) could raise Timor-Leste’s credit-to-GDP ratio by 10 percentage points and its investment-to-GDP ratio by 2 percentage points. - Authorities report progress in surveying work allowing acceleration of issuance of land titles during 2025. ### Other structural reforms for private sector development - WTO and ASEAN accession: - Accession to ASEAN is expected to lead to lower effective tariff rates on imports, improve market access for exporters, and strengthen the environment for foreign investments. - Authorities are preparing a Legislative Action Plan alongside their WTO Post-Accession Implementation Strategy. - Human capital and labor market: - Labor force participation lags peers due to a large informal sector, weak human capital despite elevated school enrollment, and limited opportunities for skill development. - A large share of the workforce is employed in low-productivity agriculture. - Staff recommendations: strengthen vocational training, prioritize higher-quality public spending on health and education, and improve the business climate to attract private investment and create jobs. - Governance and AML/CFT: - Progress has been made in some governance reforms (accounting standards, decree-law on public procurement), but capacity constraints hinder monitoring and enforcement. - Main governance weaknesses include rule of law domains: contract enforcement and protection of property rights. - Authorities should address AML/CFT framework deficiencies in a timely manner in line with the Asia Pacific Group’s Mutual Evaluation Report (adopted September 2024). ### Data, statistics, and prerequisites for a national currency - Data improvements under way: - Recent Living Standards Survey completed with World Bank support; authorities are working to rebase national accounts and update the CPI basket. - IMF CD activities support timely and accurate compilation of Government Finance Statistics, Balance of Payments, and Financial Soundness Indicators. - Capacity constraints continue to limit data quality and reporting frequency; additional technical staff for statistical functions are needed. - Preconditions for a potential national currency (no immediate plans): - Reducing fiscal and external imbalances and advancing reforms that address structural bottlenecks are required to improve economic performance under dollarization. - Building technical capacity at the central bank and improving regulatory and legal frameworks for the financial system are key prerequisites. ### Staff appraisal: growth, risks, and policy recommendations - Growth outlook and inflation: - A strong fiscal impulse and rapid credit growth are expected to support robust growth of 3.9 percent in 2025. - Starting in 2026, staff expect ASEAN accession to boost investment and growth modestly. - Over the medium term, growth is expected to converge to 3.2 percent, which corresponds to about 1.7 percent in per-capita terms. - Inflation has been running low since mid-2024, held down by falling food prices, but is expected to rise modestly in the second half of 2025 and into 2026. - Risks: - Balanced risks: accelerating reforms could boost private sector development and ASEAN accession benefits; escalating global trade tensions could weaken PF financial assets and lead to earlier PF depletion than in the baseline. - Sovereign Petroleum Fund (PF) and fiscal sustainability: - The sizable PF balance reflects long-run savings from a commodity boom, but large fiscal deficits have created excessive dependence on the public sector and a large external imbalance. - Without significant reforms, staff expect the PF to be fully depleted by the end of the 2030s, risking substantial hardship. - Recommended policy path: - Implement an ambitious but gradual path of fiscal consolidation over 10 years to preserve debt sustainability and strengthen the external position while boosting private sector growth through structural reforms. - Recalibrate fiscal policy to spend savings better and more prudently: - Improve composition and quality of public spending by prioritizing investment in physical and human capital. - Reduce spending on recurrent expenditure that do not contribute significantly to growth. - Proceed with domestic revenue mobilization gradually, starting with prompt implementation of VAT. - Advance structural reforms to facilitate bank lending, enhance financial inclusion, accelerate land title issuance, and develop a national digital ID scheme. - Enhance quality and frequency of macroeconomic statistics by boosting technical capacity. - Promptly address AML/CFT deficiencies per the Asia Pacific Group’s Mutual Evaluation Report recommendations. *Italic: Source — Content unit: 1tlsea2025001-source-pdf - 22. Ongoing fiscal reforms should help improve budget discipline and spending efficiency* ### 40. It is proposed that the next Article IV consultation with Timor-Leste take place on the ### It is proposed that the next Article IV consultation with Timor-Leste take place on the standard 12-month cycle. ### Real Sector Developments - Oil production has been part of total GDP since 2019, but oil production ceased in 2025. - Growth in 2024 accelerated, mainly driven by higher-than-expected public investment. - Public administration continues to play an outsized role in production. - Tourist arrivals are growing slowly but remain well below the pre-pandemic level. - Food and Alcohol/tobacco have been the primary contributor to the recent low inflation. - The declining inflation trend aligns with the experience of Timor-Leste’s main trading partners. Key visuals and measures (as reported): - Nominal GDP: Total, Oil, and Non-Oil (In Billions of US Dollars) — series include Jan-22 through Apr-25. - Real Non-Oil GDP Expenditure: Contributions to Growth (In Percent). - Real Non-Oil GDP Production: Contributions to Growth (In Percent). - Tourist Arrivals (In Thousands of People, Quarterly). - Headline CPI by Category (In Percent, y/y) — category weights shown in parentheses. - Headline CPI in Main Trade Partners (In Percent, y/y). Sources: National Institute of Statistics Timor-Leste; IMF Staff Estimates; Central Bank of Timor-Leste; CEIC Data Company Ltd; IMF Staff Calculations. ### Fiscal Sector Developments - Non-oil domestic revenue has been financing a small fraction of government spending. - Despite recent improvement, the share of capital spending remains small. - Recurrent spending moderated in recent years following a large partly Covid-related spike in 2021-22. - The execution rate for capital spending picked up in 2024. - As oil and gas production ceased, the PF balance is projected to decline. - Declining PF balance reduces government revenues from the PF’s Estimated Sustainable Income. Key visuals and measures (as reported): - Non-Oil Balance (Percent of Non-Oil GDP). - Expenditure Shares (Percent of Non-Oil GDP, Excluding Donor Projects). - Recurrent Spending (In Percent of Non-Oil GDP). - Capital Expenditure: Budget and Execution (In Millions of US Dollars, Percent) — budget and execution rate for 2023 are based on the original budget. - Petroleum Fund Balance (In Millions of US Dollars) — series include 2010–2030 projections. - Revenue Sources (In Millions of US Dollars) — components: Domestic revenue; Estimated sustainable Income; Grants. Sources: Ministry of Finance of Timor-Leste; IMF Staff Estimates. ### External Sector Developments - Dwindling oil/gas exports have led to a deterioration of the overall current account. - Large direct investment outflows subsided in 2023-24 as the Bayu-Undan natural gas field was decommissioned. - China and ASEAN countries are main trading partners, with small exposure to the US. - Indonesia and China are among the largest source of foreign direct investment inflows in Timor-Leste. - Net remittance flows increased in 2024, owing mostly to a decline in outflows. - Following a pronounced appreciation, the REER depreciated in 2025H1, driven by the weakening of the US dollar. Key visuals and measures (as reported): - Current Account Balance (In Millions of US Dollars). - Financial Account Balance (In Millions of US Dollars). - Trade Composition by Economy in 2023 (In Percent of Total). - FDI Inflows in 2023 (In Percent of Total). - Remittance Flows (In Millions of US Dollars). - Real Effective Exchange Rate: Cumulative Change (In Percent, y/y). Sources: Central Bank of Timor-Leste; National Institute of Statistics Timor-Leste; IMF Staff Calculations. ### Monetary and Financial Sector Developments - Private sector credit continues to grow at elevated rates (27 percent in 2025Q1). - Loan-to-deposit ratio increased to 50 percent in 2024Q4. - Strong private sector credit growth was supported by rising contributions of loans to businesses. - Credit outstanding represents a growing share of the assets of the banking sector. - Despite continued strong credit growth, NPLs remained low through 2024Q4. - Minimum capital requirements for commercial banks are low relative to ASEAN countries. Key visuals and measures (as reported): - Credit and Deposit Growth (In Percent, Year-on-Year). - Liquidity Ratios (In Percent). - Loans to Private Sector: Contribution to Growth (In Percent, y/y). - Banking Sector Balance Sheet (In Billions of US Dollars). - NPL Ratio (In Percent). - Minimum Paid-In Capital (In Millions of US Dollars) — note: Minimum paid-in capital requirement for domestic commercial banks; ASEAN median includes Singapore (not shown). Source: Central Bank of Timor-Leste; IMF Staff Calculations. ### Business Environment and Governance - Corruption is perceived to be less of a concern compared with other ASEAN economies. - Governance of the public sector is improving, but vital areas of weakness still exist. - The regulatory framework for the business environment lags behind peer countries. - Timor-Leste’s human development had improved steadily until mid-2010s but has stagnated for the past decade. - Low educational attainment compared to peers contributes to stagnation in human development. - Labor force participation is the lowest among peers, with participation among women lower than men. Key visuals and measures (as reported): - Corruption Perception Index (Lower Scores Indicate Weaker Governance, 2024). - Governance Indicators (Index Rescaled: 0 = Worst, 5 = Best). - Business Environment, by Pillar (In Scores of 100, 2024) — B-READY dataset. - Human Development Index (HDI) and HDI Components (Index Rescaled; 0 = Worst, 1 = Best; 2024). - Labor Force Participation (In Percent, 15+ Years Old). Sources: Transparency International; Worldwide Governance Indicators; World Bank B-READY Dataset; United Nations Human Development Report; International Labour Organization. ### Challenges to Growth - Access to electricity is nearly universal and aligned with Asian EMDEs, but losses due to electrical outages are high. - Access to the internet is low; broadband connection remains limited. - Poverty is thought to be among the highest in the region, with under-nourishment particularly high. Key visuals and measures (as reported): - Access to Electricity (Percent of Population, 2022). - Value of Loss due to Electrical Outage (Percent of Sales of Affected Firms, 2021) — note: 2021 data for Timor-Leste; other country years vary. - Individuals Using the Internet (Percent of Population, 2022). - Mobile Broadband Connections per 100 Inhabitants (Latest Available in 2025). - Global Multidimensional Poverty Index (2024). - Prevalence of Undernourishment (Percent of Total Population, 2022). Sources: World Development Indicators, World Bank; DigitalDevelopment.org; UNDP; OPHI; World Bank. ### Sustainable Development Goals and Social Indicators (selected from Table 5) - Poverty and nutrition: - Income share held by lowest 20%: 9.4 (year shown in table header context). - Poverty headcount ratio at $1.90 a day (2011 PPP) (% of population): 24.4. - Poverty headcount ratio at national poverty lines (% of population): 41.8. - Prevalence of undernourishment (% of population) series includes values up to 15.9 in 2024. - Health and education: - Mortality rate, under-5 (per 1,000 live births): series includes 50.0 (latest in table). - School enrollment, primary (%, gross): series includes 123.3. - School enrollment, tertiary (%, gross): 30.8. - Infrastructure and services: - Access to electricity (% of population): series indicates 100.0 for recent years and earlier values showing improvement. - People using at least basic drinking water services (% of population): series includes 87.0. - Individuals using the Internet (% of population): series includes 34.0 for 2024. Sources: IMF Staff Calculations; World Bank; United Nations Human Development Report; UNDP; OPHI. ### Risk Assessment Matrix — Key Risks, Likelihood, Impact, and Policy Responses - External Risks - Deepening geoeconomic fragmentation. - Likelihood: High. - Impact: Medium. Weaker financial markets could reduce returns on the PF and constrain fiscal policy; slowdown of trading partners can lower exports (limited trade channel impact). - Policy response: - Mobilize domestic revenue to reduce the reliance on the PF to finance government spending. - Promote private sector development to enhance domestic demand and position Timor-Leste for benefits from possible trade diversification. - Commodity price volatility. - Likelihood: Medium. - Impact: Medium. Volatility creates upside and downside risks to inflation; higher food prices worsen food security; higher oil prices increase inflation and worsen the current account. - Policy response: - Support vulnerable households with targeted transfers. - Improve agricultural productivity with higher investment in human capital and infrastructure. - Global growth acceleration. - Likelihood: Low. - Impact: Medium. ASEAN and WTO accession could increase economic impact over time; reduced uncertainty could improve PF returns and support higher public spending. - Policy response: - Advance structural reform agenda leveraging ASEAN and WTO accession. - Develop medium-term fiscal framework to maintain countercyclical fiscal policies. - Domestic Risks - Development of major oil projects, including Greater Sunrise. - Likelihood: Medium. - Impact: Large. Development could boost long-term export receipts and public revenue; financing could pose fiscal risks. - Policy response: - Carefully manage risks associated with Greater Sunrise. - Initiate fiscal adjustment plans through implementation of staff’s recommended reform scenario to mitigate fiscal risks. - Extreme climate and weather shocks. - Likelihood: Medium. - Impact: Medium. Drought and climate events could lower agricultural production, worsen food insecurity (food accounts for 54 percent of the CPI basket), and be exacerbated by limited climate resilience of infrastructure. - Policy response: - Develop a pipeline of projects to build climate-proof infrastructure. - Accommodate spending within a prudent fiscal envelope such as the proposed reform scenario and finance investments with concessional resources where possible. - Higher-than-expected growth in private sectors. - Likelihood: Medium. - Impact: Medium. Addressing structural impediments would increase potential growth; credit growth and remittances could support stronger growth. - Policy response: - Prioritize reforms to support inclusive growth, improve the business environment, diversify the economy, and achieve fiscal sustainability, coordinated with developing partners. *Source: IMF staff report content as provided in the supplied PDF excerpt.* ### Annex II. External Sector Assessment ### Annex II. External Sector Assessment ### Overall assessment and potential policy responses - Overall Assessment: The external position of Timor-Leste in 2024 was substantially weaker than the level implied by fundamentals and desirable policies. This weak external sector position reflects large fiscal imbalances and the underdevelopment of the non-oil economy. - Potential Policy Responses: - Fiscal consolidation. - Improving the quality of expenditure. - Implementing structural and governance reforms to promote private sector development and strengthen budget discipline — these measures are critical for narrowing the current account gap. ### Foreign assets and liabilities: position and trajectory - At end-2024, Timor-Leste’s net international investment position improved by $1.5 billion from end-2023. - Total external assets and liabilities (end-2024): - Total external assets: $20.8 billion (1,068 percent of non-oil GDP). - Total external liabilities: $0.8 billion (39 percent of non-oil GDP). - External asset composition (end-2024): - Petroleum Fund portfolio investment: $18.3 billion (939 percent of non-oil GDP). - Central bank reserves (foreign currency deposits): $0.7 billion (38 percent of non-oil GDP). - Liabilities composition (end-2024): - Foreign direct investment liabilities: $232 million (11.9 percent of non-oil GDP). - Loans: $357 million (18 percent of non-oil GDP). - Petroleum Fund asset allocations (end-2024): - 3 percent in stocks. - 14 percent in cash and cash equivalents. - 54 percent in debt instruments. - Assessment: Under current policies, the net international investment position is projected to gradually deteriorate in 2025 and over the medium term, as sustained large current account deficits continue to weigh on the external balance. ### Key balance-sheet indicators (end-2024; percent of non-oil GDP) - NIIP: 1,029 - Gross Assets: 1,068 - Debt Assets: 629 - Gross Liab.: 39 - Debt Liab.: 18 ### Current account - Background: - The current account balance deteriorated from 109 percent of non-oil GDP in 2021 to -29 percent in 2024, primarily reflecting a sharp decline in oil exports. - The non-oil current account balance averaged -36 percent of non-oil GDP in 2019-23. - Oil revenues are expected to cease by 2026; the current account is anticipated to remain persistently in deficits. - Annuity-based assessment and adjusted/current norms (2024): - Estimated net foreign assets (end-2024): $20 billion. - Present value of future oil proceeds in 2025-26 (discounted at 3 percent): $0.1 billion. - Assumed implicit return on total wealth: 3 percent. - Resulting annuity value: -31 percent of non-oil GDP in 2024. - Estimated CA norm in 2024 (non-oil CA set to zero in equilibrium): $0.12 billion (6.2 percent of non-oil GDP). - Realized Petroleum Fund interest income in 2024: 26.6 percent of non-oil GDP. - Cyclical influence correction (difference between annuity 31 percent and realized interest income 26.6 percent): 4.3 percent of non-oil GDP. - Adjusted CA (correcting for cyclical influences): -24.6% of non-oil GDP. - CA gap (adjusted CA minus CA norm): -30.8 percent of non-oil GDP in 2024. - Interpretation: The CA gap of -30.8 percent of non-oil GDP indicates the external sector position was substantially weaker than implied by fundamentals and desirable settings, largely due to persistent fiscal imbalances and the limited development of the non-oil economy. - Note: EBA-Lite CA and REER models, while not the main basis for this assessment, similarly suggest the external sector position was substantially weaker than implied by fundamentals and desirable policies. ### Real exchange rate - Background: - REER and NEER were relatively stable over 2019-21. - During 2021-24, REER appreciated by 17.1 percent and NEER by 12.1 percent, reflecting global strengthening of the U.S. dollar and higher domestic inflation relative to trading partners. - Assessment: - Applying a trade elasticity of -0.3, the estimated current account gap of -30.8 percent of non-oil GDP implies a REER gap of 103.1 percent. ### Capital and financial accounts: flows and vulnerabilities - Background: - Portfolio inflows are the main source of financing current account deficits; they primarily consist of withdrawals from the Petroleum Fund. - FDI dynamics: - FDI averaged net outflow of 22 percent of non-oil GDP from 2019 to 2022 (driven by repatriation of profits by foreign oil companies). - FDI shifted to an average net inflow of 9.5 percent of non-oil GDP between 2023 and 2024 (increase in non-oil FDI inflows). - Assessment: No major vulnerabilities exist related to capital flows in the short and medium term, given the large size of the Petroleum Fund. ### FX intervention and reserves level - Gross international reserves (end-2024): $0.7 billion. - Reserve metrics (end-2024): - 7.1 months of imports of goods and services. - 55 percent of broad money. - 276 percent of external debt. - 38 percent of non-oil GDP. - Assessment: - Reserves are much higher than the traditional metric of 3 months of imports for credit constrained economies (LICs). - The government also has a sovereign wealth fund (the “Petroleum Fund”) worth 176 months of imports. While the Petroleum Fund is not readily usable by the central bank for balance of payments needs, it constitutes an important fiscal and external financing source and thus provides a substantial buffer against shocks. *Source: Annex II. External Sector Assessment (Timor-Leste). International Monetary Fund.* ### Annex V. Response to Past Fund Advice ### Annex V. Response to Past Fund Advice ### Fiscal Policy - Fund recommendation: Fiscal consolidation and gradual elimination of PF excess withdrawals. - Update: - "The fiscal balance is expected to deteriorate in 2025." - "Strong market returns have kept the PF balance from falling." - The Budget Strategy Statement for 2026 includes a tighter indicative budget ceiling for 2026 and signals slower expansion of public spending over the medium term. - Fund recommendation: Revenue mobilization and expenditure rationalization. - Authorities committed to VAT implementation by January 2027. - Introduction of a hiring freeze and mandatory retirement age in May 2025 to help contain the wage bill. - Fund recommendation: Fully implement upgraded PFM and procurement laws and develop medium-term fiscal framework. - A new PFM law was promulgated in April 2025. - A new procurement decree law is expected to take effect in early 2026. - Training CD missions on the medium-term projection tool finalized in May 2025; the tool was used to prepare the 2026 Budget Strategy Statement. ### Financial and Monetary Policies - Fund recommendation: Upgrade the financial sector regulatory and supervisory framework. - The secure transactions law was approved by Parliament in June 2025. - A new banking law and the draft insolvency framework are expected to be considered by Parliament this year. - Efforts underway to establish a national accounting standard through a consultative process with the private sector. - "There has been no further increase in the LDR floor." - Fund recommendation: Financial deepening and inclusion, including strengthening digital financial services. - Authorities are prioritizing implementation of a retail fast-payment network that will allow for mobile-based transactions via QR code. - Fund recommendation: Address imbalances and advance structural reforms to improve competitiveness under dollarization. - "A tighter fiscal stance has been signaled for 2026, but fiscal and external imbalances are expected to remain large." - Reform agenda is progressing, supported by trade integration. - "The depreciation of the US dollar with respect to Timor-Leste’s trading partners has depreciated the REER to some extent." ### Structural Reforms - Fund recommendation: Investment in human capital, and build a supportive business environment including simplified licensing requirements and land registration, stronger governance, better enforcement of contracts, investment in digital infrastructure. - Authorities are advancing financial sector reforms which would also help improve the business environment. - On AML/CFT, the Asia-Pacific Group adopted the Mutual Evaluation Report in September 2024, and the recommendations are planned to be implemented. - "Other reform areas lack progress." ### Statistics - Fund recommendation: Improve the quality of data for informed policy making. - PFTAC has been working on rebasing the national accounts in collaboration with the Australian statistical authorities, as well as updating the CPI basket. - STA is providing CD to improve key statistics (GFS, BOP, and FSI) on regular basis. - "However, progress remains slow in part due to limited staffing." --- ### Annex VI. Land Title Reforms for Timor-Leste: Unlocking Private-Sector Growth ### Context and Scope - Property rights remain underdeveloped due to conflict-related displacement and dispossession. - Ownership and registration statistics: - "Fewer than one quarter of the country’s land parcels were formally registered at the end of the 1999 conflict." - Customary tenure governs roughly "90 percent of land." - Household surveys: "only 54 percent of residents in Dili and just 16-18 percent in rural districts report holding a legal title." - Implication: "more than four-fifths of rural households remain outside of the formal system." - Past programs and gaps: - USAID Ita Nia Rai project (2008–2012) mapped more than 50,000 urban land parcels. - National Cadaster System (SNC) launched in 2014 with target to register roughly "326,000 parcels nationwide by 2019." - Issuance of legally enforceable titles lagged until Parliament approved the Land Law in 2017. - "Roughly 55,000 parcels under dispute" and "no clear data on the total number of valid certificates outstanding." ### Channels from Land Rights to Finance and Investment - Formal property rights impact credit and investment via: - Asset collateralization (land used as collateral). - Legal enforcement and reduced information asymmetry. - Increased tenure security encouraging long-term private investment. - Country examples cited: - Vietnam: rollout of Land-Use-Rights Certificates (LURCs) in the 1990s boosted rural borrowing by "about 30 percent" and increased agricultural investment. - Rwanda: land tenure regularization doubled land-conservation investments. ### Quantitative Cross-Country Evidence - Regression result (156 countries, 2013–2023): - "One percentage point reduction in the share of firms identifying land access as a major or very severe constraint is associated with a 0.5 percentage point increase in credit-to-GDP and a 0.1 percentage point increase in investment-to-GDP, controlling for per-capita income." - Timor-Leste-specific magnitudes: - "26 percent of firms report severe land access constraints—significantly above the ASEAN median of 6 percent." - Reducing land access constraints to the ASEAN median could potentially raise Timor-Leste’s credit-to-GDP ratio by "10 percentage points" and its investment-to-GDP ratio by "roughly 2 percentage points." ### Empirical Table Highlights (Annex VI. Table 1) - Regression coefficients (standard errors in parentheses): - Land Access Constrained (% firms): Credit-to-GDP coefficient -0.514 ** (0.202); Investment-to-GDP coefficient -0.119 ** (0.046). - Financing Access Constrained: coefficient 0.580 *** (0.087). - Unfavorable Collateral: coefficient 0.271 *** (0.079). - Log GDP per capita: Credit-to-GDP 18.045 *** (2.029); Investment-to-GDP -1.010 ** (0.460); Financing Access Constrained -4.072 *** (0.864); Unfavorable Collateral -7.419 *** (0.785). - Number of observations: - Credit-to-GDP: "156" - Investment-to-GDP: "143" - Financing Access Constrained: "159" - Unfavorable Collateral: "159" - R-squared values: - Credit-to-GDP: "0.46" - Investment-to-GDP: "0.06" - Financing Access Constrained: "0.43" - Unfavorable Collateral: "0.50" ### International Lessons and Policy-Relevant Themes - Three themes from international experience: 1. Local community participation in government-led land surveys can accelerate coverage (example: Rwanda’s use of para-surveyors and local adjudication committees). 2. Legal recognition of customary land is necessary but not sufficient; overlaps with concessions can generate disputes (example: Liberia’s Land Rights Act of 2018 and overlaps with mining/logging/agriculture concessions). 3. Transferability and mortgageability of land rights are important to unlock economic value (example: Vietnam’s LURC framework allowing lease, transfer, and mortgage). - Case study outcomes: - Rwanda LTRP (2007–2013): registered ~10 million parcels, issued over 7 million titles; cost "US$ 5–7 per title"; doubled on-farm investment in soil conservation. - Liberia: overlapping concessions cover approximately " percent of Liberia’s land area" (figure noted as in source), generating implementation complications. - Vietnam: systematic registration increased rural household participation in formal credit markets by "almost 30 percent." - Cambodia: by 2014 over 3.5 million titles, covering roughly half the country's landowning households; noted biases and evictions underscore need for transparent adjudication and grievance mechanisms. ### Policy Implications (drawn from analysis) - Prioritize comprehensive land titling reforms that: - Recognize customary land with coherent governance and spatial planning to avoid costly overlaps with concessions. - Include community-based mapping and adjudication to reduce costs and accelerate coverage. - Ensure legal provisions for transfer, lease, and mortgage to maximize the credit and investment effects of titles. - Strengthen institutional capacity, grievance mechanisms, and safeguards to ensure equitable distribution of benefits. *Source: Annex V and Annex VI from the Staff Report for the 2025 Article IV Consultation (Timor-Leste), prepared by the Asia and Pacific Department and associated departments, August 25, 2025.* ### 3. Timor-Leste’s net public asset position is currently strong due to savings accumulated ### 3. Timor-Leste’s net public asset position is currently strong due to savings accumulated ### Petroleum Fund (PF) and net public assets - PF balance at end-2024: $18.3 billion (939 percent of non-oil GDP), covering 183 months of prospective goods and services imports. - PF balance change drivers in 2024: - Favorable market revaluations: $0.7 billion (3.7 percent). - Interest and dividend income: $0.5 billion. - Petroleum receipts: $0.1 billion. - Withdrawals to finance the budget: $1.3 billion (of which $0.8 billion was excess withdrawal). - Average nominal return on PF assets during 2020–24: 4.4 percent. - The PF constitutes the main financing source for the budget. - Estimated Sustainable Income (ESI): 3 percent of total petroleum wealth (sum of the PF balance and the net present value of expected future petroleum revenue). The revenue rule limits withdrawals up to the ESI; withdrawals exceeding the ESI require Parliament approval. - Assumed PF investment returns in projections: - Around 4.5 percent annual nominal return during 2025–30 (in line with average returns over 2005–24). - 4 percent thereafter as the PF shifts into more liquid investments as the balance falls. ### Public external debt and debt service - Outstanding public external debt at end-2024: $269 million, corresponding to 13.8 percent of non-oil GDP (down from 14.4 percent in 2023). - Composition and creditors: - All external debt signed since 2012 are concessional loans from the Asian Development Bank, the World Bank Group, and the Japan International Cooperation Agency. - Asian Development Bank comprises nearly 75 percent of total external debt at end-2024. - World Bank: 18 percent; JICA: 8 percent (shares of PPG external debt, 2024). - Loan terms and service: - Average maturity of existing loans: 25.5 years. - Grace periods: ranging from 5 to 10 years. - Debt service payments on existing debt average $28 million annually (close to 1.1 percent of GDP) in the medium term. - The PF Law’s debt rule: sets a ceiling on the cost of external borrowing at 3 percent and requires benchmarking costs of external borrowing with the PF’s average rate of investment returns. ### Baseline macroeconomic projections (key points) - Real non-oil GDP growth: - 2024 (estimate): 4.1 percent. - 2025 (projection): 3.9 percent. - 2026 (projection): 3.3 percent. - Medium-term convergence: 3.2 percent. - Note: Growth in 2025 reflects a large expansionary fiscal impulse; additional spending mainly in transfers with a low fiscal multiplier. - Inflation (CPI): - 2023 average: 8.4 percent. - 2024 average: 2.1 percent. - May 2025 (y/y): -0.2 percent. - 2025 average: 0.9 percent. - 2026: 1.8 percent. - Medium term: converges to 2 percent. - GDP deflator growth revised down to 2¾ percent (medium to long term) from previous 3½ percent. - Fiscal deficits: - 2024: 45 percent of non-oil GDP. - 2025 (projection): 51½ percent of non-oil GDP (driven by large permanent increases in transfers to veterans and pensioners approved in the 2025 budget). - 2026 (projection): 50 percent of GDP (moderation due to measures such as mandatory retirement age and civil service hiring freeze). - By 2030: projected to reach 52 percent of GDP. - Government revenue and spending trajectories: - Government revenues (including ESI) projected to decline from 39 percent of non-oil GDP in 2024 to about 27 percent in 2030, and about 13 percent by 2045. - Domestic revenue ratio assumed to rise by around 1 percentage point by 2035. - Recurrent spending: after slowing in 2026, projected to increase by 3.5 percent each year until around the end of the 2030s; then grow faster as interest payments rise. - Capital spending: projected average annual increase around 5 percent over the medium to long term. - Petroleum Fund trajectory: - PF balance falls to $12¾ billion by 2030. - PF fully depleted by 2038 (unchanged from previous DSA). - Once PF depletes, government assumed to rely on external debt to finance fiscal deficits. - Public and external debt paths: - Outstanding external debt as a share of GDP projected to average 14½ percent over the medium term. - Under the baseline, stock of external debt rises to around 365 percent of GDP by 2045 after PF depletion and continued borrowing. - Current account: - Expected to remain around 31 percent of non-oil GDP in 2025 and deteriorate moderately thereafter due to fiscal path, dwindling oil revenues, strong imports, and limited exports. - External financing assumptions: - Concessional borrowing in 2025 estimated around 2.2 percent of non-oil GDP; declines modestly thereafter in line with updated borrowing plans. - Technical assumption: remaining financing gap after concessional borrowing and PF depletion is closed by external non-concessional loans. - Terms assumed for external non-concessional loans: 5 percent interest rate, 20-year grace period, and 40-year maturity. - No private external borrowing assumed; no domestic financing assumed in the baseline. - Grant element of loans assumed to decline moderately in the medium term. - Baseline incorporates access to IDA Shorter Maturity Loans (SMLs) during 2023–25 (SMLs have a 12-year final maturity, a 6-year grace period, and zero interest or service charge). - Memorandum and fiscal execution: - Recurrent spending execution in 2025 assumed around 94 percent of the budgeted amount. - Capital expenditure execution assumed around 79 percent in 2025 (higher than 62 percent assumed in previous DSA) and rising gradually over the medium term. ### Risks, assumptions, and contextual factors - Development challenges and vulnerabilities: - Timor-Leste remains a fragile post-conflict state with weak human and institutional capacity, large infrastructure gaps, and high dependence on PF revenues. - GNI per capita in current USD (Atlas method) was $1,560 in 2024 (World Bank classification: lower middle-income; below the $4,496 threshold for upper-middle income). - Poverty: national poverty rate declined from 50.4 percent in 2007 to 41.8 percent in 2014; acute food insecurity affects a quarter of the population (World Food Program 2024). - Vulnerability to natural disasters (14 natural disasters since 2001, EM-DAT); increased frequency and severity expected with climate change. - Timor-Leste joined the WTO in August 2024 and accepted to join ASEAN as a full member in October 2025. - Downside and upside factors influencing projections: - Downside: large expansionary fiscal measures with low multipliers (transfers spent on imports), US tariffs and reduced USAID spending, natural disasters, and climate change. - Upside: ASEAN accession (modest boost via FDI and non-oil exports), potential investment diversion amid geoeconomic fragmentation, and development of Greater Sunrise (not incorporated in baseline). - Other technical and model assumptions: - Baseline assumes medium-to-long-term growth of 3.2 percent, consistent with past performance and assuming similar frequency/intensity of natural disasters as recent past. - No off-budget debt accumulation assumed, including by state-owned enterprises. - No exceptional financing (e.g., accumulation of arrears) assumed. - Oil production ceased in May 2025; baseline excludes development of Greater Sunrise fields (development plans not yet approved). *Source: IMF staff estimates and Timor-Leste authorities as presented in the 2025 Article IV consultation chapter.* ### 9. Under staff’s reform scenario—which is broadly consistent with the scenario that has ### 9. Under staff’s reform scenario—which is broadly consistent with the scenario that has ### Reform scenario overview - Objective: Achieve a sustainable fiscal position by 2035 and preserve the Petroleum Fund (PF) from 2036 onwards, generating a permanent flow of investment income to support government expenditures. - Consolidation: More moderate levels of spending coupled with higher domestic revenue gradually unwind fiscal imbalances and align withdrawals from the PF with its sustainable income. Consolidation is more evenly spread over the 10-year horizon relative to the previous DSA. - Medium-term fiscal deficit outcome: Fiscal deficits in the medium-term (2030) would be around 27 percent of GDP, compared to 51 percent under the baseline. ### Domestic revenue mobilization - Key policy: Urgent implementation of VAT by January 2027 (in line with the government’s timeline). - Expected additional revenues: about 2½ percentage points of GDP by 2035. - Assumption: a 10 percent VAT rate applied to a tax base corresponding to 10 percent of household consumption in 2027; tax base gradually rises to 45 percent of household consumption subject to the 10 percent VAT rate by the mid-2030s. - Other tax measures and administration reforms: - Strengthening of tax compliance and further tax policy measures (e.g., increase corporate income tax rates, adopting a property tax) would yield an additional 2½ percentage points of revenues over the medium term. - Structural reforms contribution: - Structural reforms (¶10) are estimated to yield additional revenue growth of about 3½ percent (annualized average) during 2026-45 relative to the baseline. - Combined revenue target: Domestic revenue would increase to the ASEAN average of 17 percent of GDP by 2035. ### Expenditure moderation and composition - Recurrent spending: - Declines gradually to around pre-pandemic levels by 2035. - Focus on improving quality by allocating more spending towards human capital development and a strengthened social safety net. - Capital expenditure: - Grows at an average annual rate of around 4 percent (considering the absorptive capacity of the economy). - Growth dividend boosted through rigorous cost-benefit analysis. - Public external borrowing: - Increased use of concessional loans to finance public investment in infrastructure and to preserve the PF balance. - With improved fiscal position and stabilized PF by 2035, baseline’s increase in external borrowing over 2038–45 does not materialize. ### Structural reforms (scope and intent) - Reforms aimed at improving business environment, productivity, and private sector development: - (i) Advance land titling and adopt corporate accounting standards. - (ii) Financial sector reforms: new banking law, insolvency regime, and framework for collateralization of loans using movable property. - (iii) Further progress in regional integration. - (iv) Boost human capital by improving education quality and strengthening vocational education and training. - (v) Strengthen governance and enforcement of contracts. ### Macroeconomic outlook and quantitative projections (Baseline vs Reform; selected series from Text Table 4) - Real non-oil GDP growth (in percent) - Baseline: 2024: 4.1; 2025: 3.9; 2026: 3.3; 2030: 3.2; 2035: 3.2; 2045: 3.2 - Reform: 2026: 3.5; 2030: 4.5; 2035: 5.7; 2045: 6.1 - Revenue (excl. grants) (percent of non-oil GDP) - Baseline: 2024: 39.0; 2025: 38.7; 2026: 36.0; 2030: 27.3; 2035: 18.3; 2045: 13.2 - Reform: 2026: 36.4; 2030: 31.1; 2035: 26.6; 2045: 21.5 - Domestic revenue (percent of non-oil GDP) - Baseline: 2024: 12.2; 2025: 12.2; 2026: 11.9; 2030: 12.3; 2035: 12.9; 2045: 13.2 - Reform: 2026: 12.3; 2030: 15.4; 2035: 17.0; 2045: 17.0 - Estimated Sustainable Income (percent of non-oil GDP) - Baseline: 2024: 26.8; 2025: 26.5; 2026: 24.1; 2030: 15.0; 2035: 5.4; 2045: 0.0 - Reform: 2026: 24.1; 2030: 15.6; 2035: 9.6; 2045: 4.5 - Expenditure (percent of non-oil GDP) - Baseline: 2024: 84.1; 2025: 90.2; 2026: 86.1; 2030: 79.1; 2035: 70.9; 2045: 71.1 - Reform: 2026: 83.6; 2030: 57.9; 2035: 33.0; 2045: 24.4 - Recurrent (percent of non-oil GDP) - Baseline: 2024: 66.7; 2025: 73.3; 2026: 69.6; 2030: 63.0; 2035: 55.7; 2045: 57.7 - Reform: 2026: 67.1; 2030: 43.1; 2035: 20.8; 2045: 16.1 - Capital (percent of non-oil GDP) - Baseline: 2024: 17.4; 2025: 16.9; 2026: 16.5; 2030: 16.1; 2035: 15.1; 2045: 13.4 - Reform: 2026: 16.5; 2030: 14.8; 2035: 12.2; 2045: 8.3 - Fiscal balance (percent of non-oil GDP) - Baseline: 2024: -45.0; 2025: -51.5; 2026: -50.1; 2030: -51.8; 2035: -52.5; 2045: -57.9 - Reform: 2026: -47.2; 2030: -26.8; 2035: -6.5; 2045: -2.9 - PF excess withdrawals (percent of non-oil GDP) - Baseline: 2024: 40.0; 2025: 40.6; 2026: 44.3; 2030: 51.0; 2035: 50.6; 2045: 0.0 - Reform: 2026: 41.4; 2030: 25.0; 2035: 0.0; 2045: 0.0 - PF closing balance ($ million) - Baseline: 2024: 18,274; 2025: 17,746; 2026: 17,054; 2030: 12,807; 2035: 4,991; 2045: 0 - Reform: 2026: 17,116; 2030: 14,407; 2035: 13,687; 2045: 15,118 - Current account balance (percent of non-oil GDP) - Baseline: 2024: -29.0; 2025: -31.8; 2026: -32.3; 2030: -33.9; 2035: -31.9; 2045: -34.0 - Reform: 2026: -30.5; 2030: -21.0; 2035: -5.3; 2045: 0.0 ### Debt carrying capacity, stress tests, and vulnerabilities - Debt-carrying capacity upgraded to "Medium" (Composite Indicator (CI) index of 2.73, above the 2.69 threshold across two consecutive vintages). - Applicable DSA thresholds: - Present value of external debt-to-GDP ratio: 40 percent - Present value of external debt-to-exports ratio: 180 percent - External debt service-to-exports ratio: 15 percent - External debt service-to-revenue ratio: 18 percent - Present value of public debt-to-GDP ratio: 55 percent - Customizations to stress tests: - FDI shocks calibrated using 2014–24 average excluding 2019-22 to avoid inflating FDI-to-GDP ratio due to Timor Gap’s transactions. - Export stress test customized to reflect a non-fuel export structure due to stalling petroleum production. - Tailored natural disaster stress test: assumes a natural disaster in 2026; new debt contracted increases public debt-to-GDP ratio by 14 percent in 2025 (equivalent to estimated damages from April 2021 cyclone and floods); real GDP and exports growth decline by 3 percent and 4 percent in 2025, respectively, relative to the baseline. - Stress test findings: - Under the baseline, the debt service to exports ratio breaches the 15 percent indicative threshold during 2027-30 due to front-loaded debt service per authorities’ debt management plans. - Standardized stress tests show shocks to non-debt flows (FDI and current transfers) are the most extreme, causing breaches in debt service-to-exports and PV debt-to-exports thresholds. - Debt dynamics are vulnerable to natural disaster shocks and to non-debt flow shocks; limited vulnerabilities from contingent liabilities. ### Assessment, risk rating, and policy implications - Baseline risk: Mechanical DSA rating is "high risk of debt distress" because PV debt service to exports breaches benchmark over 2027-29. - Judgmental adjustment: Rating upgraded to "moderate" risk of debt distress, reflecting the mitigating role of large, liquid, and accessible net foreign assets in the PF, which allow Timor-Leste to carry and service debt until PF depletion. - Present value of debt remains under 20 percent of projected PF value until 2036 under the baseline. - Under the extreme shock to non-debt flows, PV debt-to-PF assets is less than 40 percent by 2036. - Time horizon and sensitivity: - PF projected depletion by 2038 under current policies; with a lower nominal investment return of 2.5 percent, depletion would occur by 2036. - Without policy change, PF depletion leads to breaches of all debt thresholds beyond 2038 and a substantial jump in external borrowing. ### Policy recommendations and resilience measures - Fiscal strategy: - Gradual fiscal consolidation to achieve sustainability by 2035: expenditure rationalization and domestic revenue mobilization to reduce PF withdrawals and preserve PF capital. - Political consensus is crucial to sustain reforms. - Structural reforms: Implement measures to expand private sector, boost productivity, and diversify exports as outlined above. - Climate and disaster resilience: - Prioritize climate adaptation investment and climate-proof infrastructure within the fiscal envelope. - Develop a pipeline of projects; finance with concessional resources given limited fiscal space. - Institutional and technical support: - Full implementation of the PFM law (promulgated in April 2025) and the new procurement decree law (expected early 2026) to improve budget planning, execution, and project selection. - Ongoing IMF and World Bank technical assistance: public financial management reforms (IMF Fiscal Affairs Department), revenue administration (IMF Pacific Financial Technical Assistance Center), and support from the World Bank and IFC to improve financial sector and private sector development. - Transparency: Build on increased fiscal transparency in the 2025 budget with more granular reporting on recurrent spending, transfers, and public sector wage bill; improve reporting by line ministries and establish government accounting standards. *Source: IMF staff estimates.* ### 23. While there is some progress, public debt management needs to be strengthened. In ### While there is some progress, public debt management needs to be strengthened. ### Recent reporting progress - In February 2024, with TA support from the IMF Statistics Department, the authorities for the first time began reporting Public Sector Debt Statistics (PSDS) data to the joint IMF-World Bank Quarterly Public Sector Debt statistics (QPSD) database. - This represents an initial step toward improved transparency and standardized public debt reporting. ### Areas needing strengthening - External borrowing should be embedded in the debt management framework. - Debt management should be supported by best practice debt management policies and procedures. - The monitoring and reporting of fiscal risks should be improved, specifically for contingent liabilities related to: - credit guarantees, - pensions, - public corporations, - public-private partnerships. ### Policy recommendations (implicit in assessment) - Integrate external borrowing explicitly within the national debt management framework. - Adopt and implement best practice debt management policies and procedures to guide borrowing, issuance, and risk management. - Enhance systems for monitoring and reporting fiscal risks, with particular attention to contingent liabilities arising from credit guarantees, pensions, public corporations, and public-private partnerships. ### Authorities' views - AUTHORITIES' VIEWS *Source: 1tlsea2025001-source-pdf - 23. While there is some progress, public debt management needs to be strengthened.* ### 24. The authorities broadly agreed with staff’s debt sustainability analysis and ### 24. The authorities broadly agreed with staff’s debt sustainability analysis and underscored their commitment towards long-term sustainability ### Authorities' assessment and policy commitments - Agreed with staff’s debt sustainability analysis and underscored commitment to long-term sustainability. - Under tighter spending plans proposed in the Budget Strategy for 2026, they estimated the Petroleum Fund to be fully depleted by 2038. - Identified scope to reduce recurrent spending; recent measures introduced: - mandatory retirement age - civil service hiring freeze - Contemplated measures: - reduced public transfers to SOEs with healthy cash balance positions - better targeting of transfers through a digital ID - Fiscal strategy priorities: - executing high-impact investment projects - improving budget execution - strengthening private sector participation - Committed to full implementation of ongoing fiscal reforms in procurement and PFM. - Committed to implementing a VAT by January 2027. - Authorities are confident that risks associated with Greater Sunrise can be prudently managed, allowing for timely development that will bring broad benefits including substantial fiscal revenue. ### Key external debt and balance sheet projections (selected items from Table 1) - External debt (nominal), in percent of non-oil GDP: - 2022: 15.1 - 2023: 14.4 - 2024: 13.8 - 2025: 14.2 - 2026: 14.7 - 2027: 14.7 - 2028: 14.6 - 2029: 14.6 - 2030: 14.7 - 2035: 19.9 - 2045: 364.5 - 2045 (alternate column): 10.7 and 16.1 (as reported) - Change in external debt: - 2022: 0.0 - 2023: -0.8 - 2024: -0.6 - 2025: 0.4 - 2026: 0.4 - 2027: 0.0 - 2028: -0.1 - 2029: 0.0 - 2030: 0.0 - 2035: 0.9 - 2045: 39.2 - Identified net debt-creating flows: - 2022: -8.2 - 2023: 1.5 - 2024: 16.3 - 2025: 49.4 - 2026: 28.6 - 2027: 29.0 - 2028: 29.6 - 2029: 29.9 - 2030: 30.1 - 2035: 27.9 - 2045: 20.2 - Non-interest current account deficit: - 2022: -24.6 - 2023: 9.4 - 2024: 28.6 - 2025: 53.3 - 2026: 32.4 - 2027: 32.9 - 2028: 33.5 - 2029: 33.8 - 2030: 34.1 - 2035: 32.1 - 2045: 19.4 - Exports (percent of non-oil GDP): - 2022: 110.9 - 2023: 39.0 - 2024: 14.3 - 2025: 9.0 - 2026: 8.2 - 2027: 7.9 - 2028: 8.6 - 2029: 9.3 - 2030: 10.1 - 2035: 15.6 - 2045: 33.8 - Imports (percent of non-oil GDP): - 2022: 62.1 - 2023: 46.8 - 2024: 44.6 - 2025: 48.8 - 2026: 53.0 - 2027: 52.5 - 2028: 50.6 - 2029: 47.8 - 2030: 48.3 - 2035: 47.4 - 2045: 0.0 - Net FDI (negative = inflow), percent of non-oil GDP: - 2022: 17.1 - 2023: -7.3 - 2024: -11.7 - 2025: -3.8 - 2026: -3.8 - 2027: -3.8 - 2028: -3.8 - 2029: -3.8 - 2030: -3.8 - 2035: -3.9 - 2045: -3.8 - Endogenous debt dynamics contribution: - 2022: -0.8 - 2023: -0.6 - 2024: -0.6 - 2025: -0.1 - 2026: 0.0 - 2027: -0.1 - 2028: -0.1 - 2029: -0.1 - 2030: -0.1 - 2035: -0.3 - 2045: 4.8 ### Key sustainability indicators (selected) - PV of PPG external debt-to-GDP ratio (selected projected values): - 2025: 9.0 - 2026: 8.9 - 2027: 8.9 - 2028: 8.5 - 2029: 8.0 - 2030: 7.6 - 2035: 11.7 - 2045: 356.2 - PV of PPG external debt-to-exports ratio (selected): - 2025: 62.8 - 2026: 99.2 - 2027: 108.9 - 2028: 107.6 - 2029: 93.6 - 2030: 82.0 - 2035: 72.4 - 2045: 1053.3 - PPG debt service-to-exports ratio (selected): - 2025: 0.6 - 2026: 3.0 - 2027: 7.9 - 2028: 14.0 - 2029: 15.3 - 2030: 20.4 - 2035: 19.6 - 2045: 17.5 - Gross external financing need (Million of U.S. dollars) (selected): - 2022: -114.4 - 2023: 58.4 - 2024: 350.8 - 2025: 1,056.2 - 2026: 659.8 - 2027: 718.3 - 2028: 779.1 - 2029: 834.5 - 2030: 890.5 - 2035: 1,080.7 - 2045: 2,083.9 ### Key macroeconomic assumptions (Table 1, selected) - Real GDP growth (in percent): - 2022: 4.0 - 2023: 2.4 - 2024: 4.1 - 2025: 3.9 - 2026: 3.3 - 2027: 3.2 - 2028: 3.2 - 2029: 3.2 - 2030: 3.2 - 2035: 3.2 - 2045: 0.9 (and alternate 3.3 in another column) - GDP deflator in US dollar terms (change in percent): - 2022: 3.2 - 2023: 5.0 - 2024: 3.8 - 2025: 2.8 - 2026: 2.8 - 2027: 2.8 - 2028: 2.8 - 2029: 2.8 - 2030: 2.8 - 2035: 2.2 - 2045: 2.8 - Effective interest rate (percent) 4/: - 2022: 1.9 - 2023: 3.5 - 2024: 3.3 - 2025: 3.2 - 2026: 3.0 - 2027: 2.7 - 2028: 2.6 - 2029: 2.5 - 2030: 2.4 - 2035: 1.4 - 2045: 4.8 - Growth of exports of G&S (US dollar terms, in percent): - 2022: -34.4 - 2023: -62.2 - 2024: -60.4 - 2025: -32.6 - 2026: -3.6 - 2027: 2.6 - 2028: 15.3 - 2029: 15.0 - 2030: 14.8 - 2035: 15.8 - 2045: 14.8 - Growth of imports of G&S (US dollar terms, in percent): - 2022: -1.9 - 2023: -19.0 - 2024: 3.2 - 2025: 16.8 - 2026: 15.4 - 2027: 4.9 - 2028: 2.4 - 2029: 0.1 - 2030: 7.2 - 2035: 5.7 - 2045: -100.0 and alternate -3.4 in another column - Government revenues (excluding grants, in percent of GDP) (selected series): - 2022: 45.1 - 2023: 40.3 - 2024: 39.0 - 2025: 38.7 - 2026: 36.0 - 2027: 33.8 - 2028: 31.5 - 2029: 29.4 - 2030: 27.3 - 2035: 18.3 - 2045: 13.2 (and alternates 44.5 and 27.8 reported) - Aid flows (in Million of US dollars) 5/ (selected): - 2022: 221.0 - 2023: 186.8 - 2024: 192.4 - 2025: 149.6 - 2026: 152.1 - 2027: 145.5 - 2028: 139.5 - 2029: 134.0 - 2030: 128.9 - 2035: 108.4 - 2045: 86.7 - Nominal GDP (Million of US dollars) (selected): - 2022: 1,676 - 2023: 1,802 - 2024: 1,947 - 2025: 2,079 - 2026: 2,208 - 2027: 2,343 - 2028: 2,485 - 2029: 2,637 - 2030: 2,797 - 2035: 3,759 - 2045: 6,789 - Nominal dollar GDP growth (selected): - 2022: 7.3 - 2023: 7.5 - 2024: 8.1 - 2025: 6.8 - 2026: 6.2 - 2027: 6.1 - 2028: 6.1 - 2029: 6.1 - 2030: 6.1 - 2035: 6.1 - 2045: 3.2 and alternate 6.2 in another column ### Public sector debt and fiscal table highlights (Table 2, selected) - Public sector debt (percent of non-oil GDP): - 2022: 15.1 - 2023: 14.4 - 2024: 13.8 - 2025: 14.2 - 2026: 14.7 - 2027: 14.7 - 2028: 14.6 - 2029: 14.6 - 2030: 14.7 - 2035: 19.9 - 2045: 364.5 - Additional reported columns: 10.7 and 16.1 - Change in public sector debt: - 2022: 0.0 - 2023: -0.8 - 2024: -0.6 - 2025: 0.4 - 2026: 0.4 - 2027: 0.0 - 2028: -0.1 - 2029: 0.0 - 2030: 0.0 - 2035: 0.9 - 2045: 39.2 - Identified debt-creating flows (percent of non-oil GDP): - 2022: 55.1 - 2023: 39.1 - 2024: 44.0 - 2025: 50.7 - 2026: 49.3 - 2027: 49.8 - 2028: 50.4 - 2029: 50.7 - 2030: 51.0 - 2035: 51.4 - 2045: 39.3 - Primary deficit (percent of non-oil GDP): - 2022: 55.9 - 2023: 39.6 - 2024: 44.6 - 2025: 51.1 - 2026: 49.7 - 2027: 50.2 - 2028: 50.9 - 2029: 51.2 - 2030: 51.5 - 2035: 52.3 - 2045: 43.4 and 39.2 and 51.4 reported - Revenue and grants (percent of non-oil GDP): - 2022: 58.3 - 2023: 50.7 - 2024: 48.9 - 2025: 45.4 - 2026: 42.4 - 2027: 39.5 - 2028: 36.6 - 2029: 33.9 - 2030: 31.4 - 2035: 20.7 - 2045: 13.9 and 56.1 and 32.1 in alternate columns - Grants (percent of non-oil GDP): - 2022: 13.2 - 2023: 10.4 - 2024: 9.9 - 2025: 6.7 - 2026: 6.4 - 2027: 5.7 - 2028: 5.1 - 2029: 4.6 - 2030: 4.1 - 2035: 2.4 - 2045: 0.8 - Primary (noninterest) expenditure (percent of non-oil GDP): - 2022: 114.2 - 2023: 90.3 - 2024: 93.6 - 2025: 96.5 - 2026: 92.1 - 2027: 89.7 - 2028: 87.5 - 2029: 85.2 - 2030: 82.9 - 2035: 73.0 - 2045: 57.3 and 95.4 and 83.5 reported - Automatic debt dynamics (selected): - 2022: -0.8 - 2023: -0.6 - 2024: -0.6 - 2025: -0.5 - 2026: -0.4 - 2027: -0.5 - 2028: -0.5 - 2029: -0.5 - 2030: -0.5 - 2035: -0.8 - 2045: -4.1 - Debt service-to-revenue and grants ratio 4/ (selected): - 2022: 1.1 - 2023: 2.3 - 2024: 2.3 - 2025: 2.8 - 2026: 3.0 - 2027: 4.1 - 2028: 4.6 - 2029: 4.8 - 2030: 5.1 - 2035: 2.5 - 2045: 109.1 - Gross financing need 5/ (percent of non-oil GDP): - 2022: 56.3 - 2023: 40.3 - 2024: 45.8 - 2025: 52.4 - 2026: 51.0 - 2027: 51.8 - 2028: 52.5 - 2029: 52.9 - 2030: 53.1 - 2035: 52.8 - 2045: 58.6 ### Sensitivity and stress-test highlights (selected from Tables 3–4 and Figures) - Numerous stress tests and sensitivity analyses were run for public and publicly guaranteed external debt and public debt, including: - Alternative scenarios (e.g., key variables at historical averages) - Bound tests (B1–B6, including shocks to Real GDP growth, Primary balance, Exports, Other flows, Depreciation, Combination) - Tailored tests (C1 Combined contingent liabilities, C2 Natural disaster, C3 Commodity price, C4 Market Financing) - Selected stress-test outcomes (examples from Table 3): - Baseline trajectories and multiple scenarios show breaches of thresholds in several projections (bold values indicate breach of threshold). - Debt service-to-exports, debt service-to-revenue, PV of debt-to-exports, and PV of debt-to-GDP display highly elevated values under extreme shocks in later years (e.g., PV of debt-to-GDP reaching values in the hundreds under some scenarios). - Figures illustrate drivers of debt dynamics (Figure 3) and realism tools for investment and growth interactions (Figure 4), with decompositions including: - contributions from nominal interest rate, real GDP growth, price and exchange rate changes, primary deficit, and residuals financed through excess Petroleum Fund withdrawals. *Sources: Country authorities; and staff estimates and projections.* ### 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the ### Statement by Mr. Roncaglia, Executive Director for the Democratic Republic of Timor-Leste, and Mr. Costa Filho, Advisor to Executive Director — September 19, 2025 ### Outlook and recent economic developments - Growth - Authorities project growth of around 4.3 percent in 2025. - Staff forecast growth of 3.9 percent in 2025. - Growth projected to moderate to 2.7 percent in 2026, conditional on reduced fiscal impulse. - Growth remains heavily dependent on public spending. - Public investment and credit - Execution of public investment improved in 2024 and is projected to strengthen further in 2025. - Credit growth has remained strong, with rapid expansion of lending to the private sector, particularly in the construction sector. - Fiscal stance and Petroleum Fund - Fiscal deficits continue to require excess withdrawals from the Petroleum Fund. - Adoption of the 2026 Budget Strategy— with a lower expenditure envelope— signals a turn toward consolidation. - External sector and inflation - Current account is supported by Petroleum Fund investment income; the economy runs a non-oil current account deficit owing to high import dependence. - Inflation fell from 8.4 percent in 2023 to 2.1 percent in 2024. - Inflation fell to 0.3 percent year-on-year in July 2025. - Inflation is expected to remain around 2 percent in 2026 as global food and shipping costs stabilize. - Exchange rate and currency plans - There are no immediate plans to introduce a national currency; the central bank continues to study its long-term feasibility. ### Balance of risks - Downside risks - A sustained downturn in global asset prices could adversely affect Petroleum Fund returns. - Commodity price volatility could heighten inflation, worsen the current account, and increase fiscal pressures. - Climate shocks could impact food security and infrastructure given import dependence and limited climate resilience. - Upside risks - Stronger execution of capital spending and accelerated reforms in fiscal, financial, and structural areas could boost investor confidence and private sector development. - Prudent management of the Petroleum Fund’s foreign asset portfolio provides a substantial buffer against external shocks. ### Medium-term development prospects and fiscal strategy - Fiscal consolidation and budget credibility - Authorities proposed a 13 percent reduction in the consolidated budget ceiling for 2026 as part of their Budget Strategy Statement. - Measures to contain recurrent spending include a mandatory retirement age and a freeze on new civil service hiring. - Better targeting of social transfers through rollout of a digital ID system to create fiscal space for priority spending. - Continued implementation of legislative reforms to procurement and Public Financial Management (PFM) to strengthen fiscal discipline and transparency. - Petroleum Fund depletion risk - Under current spending plans, the Petroleum Fund is projected to be fully depleted by around 2038. - Urgency of a gradual and orderly adjustment emphasized to avoid a sharp fiscal correction. - Potential revenue and projects - Development of the Greater Sunrise gas field is seen as a potential fiscal lifeline; reserves are described as far larger than Bayu-Undan. - Revenue mobilization - Authorities remain committed to introducing VAT by January 2027, with preparatory work well underway. - Efforts to modernize tax and customs administration, strengthen tax compliance, and broaden the revenue base are ongoing. ### Reform agenda and structural priorities - Structural reforms to boost private sector development and integration - ASEAN and WTO accession are catalysts for legislative reforms improving the business environment and competitiveness. - Human capital priorities include increased allocations for education in the 2026 budget, vocational training, agricultural modernization, and digital skills. - Institutional and governance reforms - Rollout of e-procurement systems to enhance transparency. - Improvements to the AML/CFT framework, including a national risk assessment and strategic plan to meet international standards. - Financial sector reforms - Progress on the secure transactions law, a new banking law, and development of national accounting standards. - Acceleration of land titling to expand financial collateral. - Digitalization efforts include development of fast payment systems to enhance financial inclusion. - Strengthening supervision: banks implementing IFRS-9 and compilation of FSIs expected by end-2025. - Capacity building - Limited technical resources and staffing remain challenges; sustained support from the IMF and other international partners is viewed as essential. - IMF support in improving the quality and timeliness of macroeconomic statistics is highly valued. *Sources: Country authorities; and staff estimates and projections.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1tlsea2025001-source-pdf.pdf_