IMF Executive Board Concludes 2019 Article IV Consultation with the Democratic Republic of Timor-Leste
IMF News, May 7, 2019
Source details
- Canonical URL
- IMF Executive Board Concludes 2019 Article IV Consultation with the Democratic Republic of Timor-Leste
Other formats
Bibliographic details
- Published: May 7, 2019
Economic performance (2017–2018)
- Non-oil real GDP contracted sharply in 2017 by about 5 percent as public spending fell due to political and economic uncertainty.
- With a pick-up in public spending in Q4 2018, non-oil growth is expected to recover to around zero percent in 2018.
- Inflation:
- 2017: 0.8 percent (y/y)
- Rebounded to 2.1 percent (y/y) in 2018 driven by higher prices of rice and tobacco and an increase in education fees.
Fiscal developments and the Petroleum Fund (PF)
- Overall fiscal deficit:
- Improved to 19 percent of GDP in 2017 from 35 percent in 2016.
- Expected to further improve in 2018.
- Excess withdrawals from the Petroleum Fund fell significantly as petroleum revenue and investment returns exceeded total withdrawals; PF balance increased in 2017 for the first time since 2014.
- Tighter global financial market conditions at the end of 2018 caused the PF balance to fall to US$16 billion.
External sector and exchange rate
- External current account deficit:
- Nearly halved to 10 percent of GDP in 2017 compared to the previous year, reflecting reduced imports amid weaker public spending.
- Current account deficit expected to remain broadly unchanged in 2018.
- Exports and imports:
- A bad coffee harvest led to a decline in non-oil exports, while petroleum export receipts improved as oil prices rose.
- Real effective exchange rate:
- Depreciated in 2017, followed by an appreciation in 2018 on the back of higher domestic inflation.
Outlook and medium- to long-term risks
- Growth projections:
- Non-oil GDP growth expected to rebound to 5 percent in 2019 as public spending recovers.
- Medium-term growth will broadly remain the same.
- Planned increase in petroleum production in 2019 will increase overall GDP growth in 2019, but petroleum value added will continue to decline until production ends in 2022, resulting in a sharp overall GDP contraction in 2023.
- Inflation is expected to rise, reaching 4 percent over the medium term.
- Financing and current account dynamics:
- Excess PF withdrawals will continue to finance fiscal deficits.
- The current account will largely be driven by fluctuations in investment income from the PF.
- Key risks:
- Progress on fiscal and structural reforms is critical.
- Main challenge: achieving greater economic diversification and reducing reliance on the public sector to generate more private sector jobs.
- Insufficient diversification would put added pressure on public finances, risk long-run fiscal sustainability, and further deteriorate labor market outcomes.
- Development of the Greater Sunrise fields is a significant upside risk, conditional on technical and economic viability and on taking proper safeguards to minimize funding risks.
Executive Board Assessment and policy recommendations
- Directors commended the authorities for impressive progress since independence in 2002 and noted the projected pick‑up in near‑term economic growth.
- Policy priorities emphasized by Directors:
- Ensure long‑run fiscal sustainability and protect Petroleum Fund assets by adopting a credible fiscal strategy.
- Improve expenditure control, raise spending efficiency, and improve revenue mobilization.
- Continue development of a government‑led, donor‑partnered Public Financial Management strategy and strengthen legal and institutional frameworks to combat corruption.
- Diversify the economy and enhance the business environment to facilitate private investment and business formation.
- Invest in education and health to capture the demographic dividend and support high, inclusive, and sustainable growth; improve basic education and vocational education and training to raise labor productivity and address skill shortages.
- Address gender and rural‑urban inequalities.
- Ensure a strong and effective regulatory and supervisory framework as the financial sector develops; improve financial intermediation and financial inclusion.
- Maintain low inflation and boost labor productivity to increase international competitiveness while continuing to use the U.S. dollar as legal tender.
- Improve statistical capacity and leverage technical assistance from the IMF and other development partners.
- Directors welcomed:
- Soundness of the banking system and improvements in the payment system.
- New Land Law and development of a secured transaction framework for movable property.
Selected economic indicators (highlights from Timor-Leste: Selected Economic Indicators, 2015–24)
- Real sector (annual percent change):
- Real total GDP: 2015: 20.9; 2016: 0.8; 2017: -4.5; 2018: -8.0; 2019: 6.6; 2020: 1.3; 2021: -12.3; 2022: -19.2; 2023: -2.0; 2024: 4.8
- Real oil GDP: 2015: 46.5; 2016: -4.0; 2017: -4.4; 2018: -18.3; 2019: 9.0; 2020: -3.7; 2021: -38.3; 2022: -81.3; 2023: -100.0; 2024: -
- Real non-oil GDP: 2015: 4.0; 2016: 5.3; 2017: -4.6; 2018: 5.0
- Consumer prices:
- CPI (annual average): 2015: 0.6; 2016: -1.5; 2017: 0.5; 2018: 2.3; 2019: 2.5; 2020: 3.2; 2021: 3.7; 2022: 3.9
- CPI (end-period): 2015: -0.6; 2016: 0.0; 2017: 2.1; 2018: 2.8; 2019: 3.5; 2020: 3.8
- Central government operations (in percent of non-oil GDP, unless otherwise indicated):
- Revenue: 2015: 64.1; 2016: 54.2; 2017: 49.3; 2018: 49.7; 2019: 40.9; 2020: 34.6; 2021: 30.3; 2022: 26.3; 2023: 23.2; 2024: 21.9
- Domestic revenue: 2015: 10.6; 2016: 11.6; 2017: 11.3; 2018: 10.4; 2019: 9.8; 2020: 8.4; 2021: 7.7; 2022: 7.1; 2023: 7.4
- Estimated Sustainable Income (ESI): 2015: 39.7; 2016: 32.0; 2017: 27.8; 2018: 29.5; 2019: 23.3; 2020: 20.4; 2021: 17.5; 2022: 14.9; 2023: 12.4; 2024: 10.9
- Grants: 2015: 13.8; 2016: 10.7; 2017: 10.2; 2018: 7.8; 2019: 5.1; 2020: 4.4
- Expenditure: 2015: 96.9; 2016: 106.4; 2017: 79.3; 2018: 78.5; 2019: 75.1; 2020: 76.6; 2021: 59.2; 2022: 52.1; 2023: 43.4; 2024: 41.7
- Recurrent: 2015: 64.0; 2016: 60.4; 2017: 53.9; 2018: 47.3; 2019: 50.6; 2020: 47.0; 2021: 43.5; 2022: 39.5; 2023: 36.2; 2024: 34.5
- Net acquisition of nonfinancial assets: 2015: 19.1; 2016: 35.4; 2017: 15.2; 2018: 21.4; 2019: 16.8; 2020: 24.4; 2021: 8.9
- Net lending/borrowing: 2015: -32.8; 2016: -52.2; 2017: -30.0; 2018: -28.7; 2019: -34.3; 2020: -42.0; 2021: -28.9; 2022: -25.8; 2023: -20.2; 2024: -19.8
- Money and credit (annual percent change):
- Deposits: 2015: 76.7; 2016: 11.9; 2017: 36.1; 2018: 41.5; 2019: 29.8; 2020: 35.8; 2021: 35.7; 2022: 33.8; 2023: 35.1; 2024: 34.9
- Credit to the private sector: 2015: 10.5; 2016: -1.8; 2017: 24.8; 2018: -3.8; 2019: 13.0; 2020: 10.3; 2021: 12.8; 2022: 13.3; 2023: 9.1
- Lending interest rate (percent, end-period): 2015: 13.5; 2016: 14.0; 2017: …
- Balance of payments (in millions of U.S. dollars, unless otherwise indicated):
- Current account balance 1/: 2015: 204; 2016: -544; 2017: -284; 2018: -279; 2019: 56; 2020: -62; 2021: 15; 2022: -329; 2023: -171; 2024: -295
- Current account balance (In percent of GDP): 2015: -21.6; 2016: -10.2; 2017: -9.0; 2018: 1.8; 2019: -10.4; 2020: -4.9; 2021: -7.6
- Trade balance (in millions of U.S. dollars): 2015: -635; 2016: -546; 2017: -615; 2018: -626; 2019: -652; 2020: -714; 2021: -694; 2022: -734; 2023: -717; 2024: -760
- Exports 2/: 2015: 18; 2016: 20; 2017: 17; 2018: 22; 2019: 26; 2020: 30; 2021: 36; 2022: 43; 2023: 50; 2024: 60
- Imports: 2015: 653; 2016: 567; 2017: 631; 2018: 648; 2019: 678; 2020: 744; 2021: 730; 2022: 777; 2023: 768; 2024: 820
- Services (net): 2015: -583; 2016: -569; 2017: -344; 2018: -398; 2019: -291; 2020: -397; 2021: -311; 2022: -389; 2023: -299; 2024: -271
- Petroleum revenue: 2015: 1,281; 2016: 872; 2017: 2,034; 2018: 672; 2019: 899; 2020: 938; 2021: 890; 2022: 647; 2023: 677; 2024: 559
- Overall balance: 2015: 220; 2016: -157; 2017: 263; 2018: 103; 2019: 79; 2020: 41; 2021: 51
- Public foreign assets (end-period) 3/: 2015: 16,655; 2016: 16,125; 2017: 17,344; 2018: 16,374; 2019: 16,262; 2020: 15,865; 2021: 15,667; 2022: 15,194; 2023: 14,870; 2024: 14,396
- Public foreign assets (In months of imports): 2015: 153; 2016: 160; 2017: 195; 2018: 172; 2019: 182; 2020: 151; 2021: 159; 2022: 138; 2023: 144; 2024: 130
- Exchange rates:
- NEER (2010=100, period average): 2015: 120.2; 2016: 120.1; 2017: 119.7; 2018: 119.9
- REER (2010=100, period average): 2015: 150.3; 2016: 146.2; 2017: 143.6; 2018: 146.3
- Memorandum items (in millions of U.S. dollars):
- GDP at current prices: 2015: 3,104; 2016: 2,521; 2017: 2,778; 2018: 3,090; 2019: 3,145; 2020: 3,413; 2021: 3,333; 2022: 3,166; 2023: 3,498; 2024: 3,886
- Non-oil GDP: 2015: 1,609; 2016: 1,702; 2017: 1,730; 2018: 1,863; 2019: 2,086; 2020: 2,342; 2021: 2,643; 2022: 3,035
- Oil GDP: 2015: 1,496; 2016: 1,048; 2017: 1,228; 2018: 1,060; 2019: 1,071; 2020: 689; 2021: 131; 2022: 0
- GDP per capita: 2015: 2,620; 2016: 2,080; 2017: 2,240; 2018: 2,435; 2019: 2,422; 2020: 2,569; 2021: 2,453; 2022: 2,279; 2023: 2,463; 2024: 2,677
- Crude oil prices (U.S. dollars per barrel, WEO) 4/: 2015: 53; 2016: 68; 2017: 54; 2018: 55; 2019: 57; 2020: 58
- Petroleum Fund balance (in millions of U.S. dollars) 5/: 2015: 16,218; 2016: 15,844; 2017: 16,799; 2018: 15,803; 2019: 15,588; 2020: 15,112; 2021: 14,834; 2022: 14,343; 2023: 13,979; 2024: 13,453
- Petroleum Fund balance (In percent of non-oil GDP): 2015: 1,008; 2016: 931; 2017: 971; 2018: 848; 2019: 747; 2020: 645; 2021: 561; 2022: 473; 2023: 400; 2024: 346
- Public debt (in millions of U.S. dollars): 2015: 46; 2016: 77; 2017: 107; 2018: 168; 2019: 255; 2020: 303; 2021: 361; 2022: 457; 2023: 666
- Public debt (In percent): 2015: 2.9; 2016: 4.5; 2017: 6.2; 2018: 12.2; 2019: 12.9; 2020: 13.6; 2021: 15.1; 2022: 16.0; 2023: 17.1
- Population growth (annual percent change): 2015: 2.4; 2016: 2.2
IMF press release, May 7, 2019.
