IMF Executive Board Concludes 2021 Article IV Consultation with Timor-Leste

IMF News, July 14, 2021

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Published: July 14, 2021

Macroeconomic outlook and near-term assessment

Timor-Leste has been severely affected by the pandemic and by recent floods.
Despite early success in containing the propagation of COVID-19, the recent surge in cases combined with the floods in early April will result only in a modest economic recovery in 2021.
Real non-oil GDP growth in 2021 is projected at 1.8 percent, driven by higher government spending, rebounding private consumption, and the vaccination rollout that began in April.
The current account deficit will continue to increase as oil revenues decline.
Inflation is projected to pick up, reflecting the increase in government spending and in energy prices.
Real non-oil GDP growth is projected to stabilize at around 3 percent in the medium term, as structural constraints weigh on growth potential.

Executive Board assessment

Directors welcomed the authorities’ response to mitigate the impact of the shocks from the COVID-19 pandemic and floods.
Directors noted that while a modest recovery is expected, significant challenges prevail, including the uncertainty from the pandemic.
Immediate focus: accelerating the ongoing vaccine rollout and supporting the most vulnerable.
Medium and long term priorities: support fiscal sustainability, develop the non-oil private sector economy, and generate jobs.
Directors welcomed the strong fiscal package to mitigate the adverse impact of the pandemic and floods and emphasized the need to report government spending in a transparent manner.
Once the pandemic abates, priority should be given to putting the fiscal position on a more solid footing.
Given the drying up of active oil fields, fiscal consolidation should be underpinned by revenue mobilization and expenditure rationalization to reduce excess withdrawals from the Petroleum Fund and secure fiscal sustainability.
Directors encouraged that a medium-term fiscal reform strategy should be laid out in the 2022 budget.
Recommended strengthening public financial management to improve the quality of spending and enhance the fiscal framework; public investment projects should focus on high-return projects subject to thorough cost-benefit analysis, including the Greater Sunrise project.
Public financial management law should be aligned with international best practices.
Structural reforms urged to promote economic diversification, develop the private sector, and create jobs: improve the business environment, strengthen governance, raise labor productivity, increase financial deepening, and harness digitalization.
Strengthening disaster risk management is crucial to mitigate the impact of climate shocks.
Improving data quality is vital to support policy making.
Directors agreed that continued technical assistance by the Fund will be helpful.

Policy recommendations (prioritized)

Accelerate vaccine rollout and provide relief to the most vulnerable in the near term.
Once the pandemic is contained, regain a more solid fiscal footing:
- Expenditure rationalization.
- Revenue mobilization.
- Lay out a medium-term fiscal reform strategy in the 2022 budget.
Strengthen public financial management and align basic public financial management law with international best practices.
Make public investment projects subject to thorough cost-benefit analysis (including the Greater Sunrise project).
Implement structural reforms to:
- Improve the business environment.
- Strengthen governance.
- Raise labor productivity.
- Increase financial deepening, including through harnessing digitalization.
Strengthen disaster risk management and preparedness.
Improve data quality to support policymaking.
Continue to seek IMF technical assistance.

Key statistics and projections (as presented)

Non-oil GDP at current prices (2019): US$1,674 billion
Population (2019): 1.293 million
Non-oil GDP per capita (2019): US$1, 295
Quota: SDR 25.6 mllion

Real sector (annual percent change)

Real Non-oil GDP: 2016: 3.4; 2017: -4.1; 2018: -1.1; 2019: 1.8; 2020: -7.6; 2021 Est.: 3.8; 2022 Proj.: (table layout indicates projections through 2022)
CPI (annual average): 2016: -1.5; 2017: 0.5; 2018: 2.3; 2019: 0.9; 2020: 1.6; 2021: 2.5
CPI (end-period): 2016: 0.0; 2017: 0.6; 2018: 2.1; 2019: 0.3; 2020: 1.2; 2021: 2.0; 2022: 3.0

Central government operations (In percent of Non-oil GDP, unless otherwise indicated)

Revenue: 2016: 56.1; 2017: 53.0; 2018: 58.5; 2019: 52.5; 2020: 58.2; 2021: 58.8
Domestic revenue: 2016: 12.1; 2017: 11.9; 2018: 12.2; 2019: 11.2; 2020: 11.6; 2021: 11.7
Estimated Sustainable Income (ESI): 2016: 33.0; 2017: 30.1; 2018: 35.3; 2019: 31.6; 2020: 34.8; 2021: 35.4; 2022: 32.7
Grants: 2016: 11.0; 2017: 9.7; 2018: 11.8
Expenditure: 2016: 111.5; 2017: 86.6; 2018: 86.7; 2019: 83.4; 2020: 84.3; 2021: 104.9; 2022: 110.0
Recurrent: 2016: 64.0; 2017: 59.2; 2018: 53.1; 2019: 54.9; 2020: 62.3; 2021: 74.6; 2022: 60.5
Net acquisition of nonfinancial assets: 2016: 36.5; 2017: 16.3; 2018: 22.6; 2019: 18.8; 2020: 10.2; 2021: 18.6; 2022: 37.8
Net lending/borrowing: 2016: -55.4; 2017: -33.6; 2018: -28.2; 2019: -30.9; 2020: -26.1; 2021: -46.1; 2022: -53.9

Money and credit (Annual percent change, unless otherwise indicated)

Deposits: 2016: 14.1; 2017: 12.3; 2018: 2.8; 2019: -7.5; 2020: 10.1; 2021: 6.9
Credit to the private sector: 2016: -1.8; 2017: 24.8; 2018: -3.8; 2019: 5.5; 2020: 6.6
Lending interest rate (percent, end of period): 2016: 14.5; 2017: 12.5; 2018: 11.3; 2019: …

Balance of payments (In millions of U.S. dollars, unless otherwise indicated)

Current account balance 1/: 2016: -544; 2017: -284; 2018: -191; 2019: 133; 2020: -302; 2021: -513; 2022: -719
Current account balance (In percent of Non-oil GDP): 2016: -33; 2017: -18; 2018: -12; 2019: 8; 2020: -19; 2021: -32; 2022: -41
Trade balance (In millions of U.S. dollars): 2016: -546; 2017: -615; 2018: -589; 2019: -566; 2020: -510; 2021: -558; 2022: -657
Exports 2/: 2016: 20; 2017: 17; 2018: 25; 2019: 26; 2020: 29; 2021: 33
Imports: 2016: 567; 2017: 631; 2018: 613; 2019: 592; 2020: 527; 2021: 587; 2022: 691
Services (net): 2016: -569; 2017: -343; 2018: -349; 2019: -357; 2020: -269; 2021: -318; 2022: -370
Primary Income: 2016: 544; 2017: 735; 2018: 843; 2019: 1,126; 2020: 620; 2021: 328; 2022: 320
Secondary Income: 2016: -61; 2017: -96; 2018: -70; 2019: -143; 2020: -74; 2021: -79
Overall balance: 2016: -157; 2017: 263; 2018: 129; 2019: 0.2; 2020: -177; 2021: 144

Public foreign assets (end-period) 3/ (In millions of U.S. dollars)

2016: 16,125; 2017: 17,343; 2018: 16,477; 2019: 18,348; 2020: 19,647; 2021: 19,265; 2022: 18,964

Public foreign assets (In months of imports)

2016: 160; 2017: 195; 2018: 187; 2019: 212; 2020: 280; 2021: 241; 2022: 198

Exchange rates

NEER (2010=100, period average): 2016: 130.0; 2017: 129.7; 2018: 130.9; 2019: 134.1; 2020: 135.8
REER (2010=100, period average): 2016: 143.5; 2017: 140.7; 2018: 141.7; 2019: 143.4; 2020: 143.3

Memorandum items

Nominal Non-oil GDP (in millions of U.S. dollars): 2016: 1,651; 2017: 1,599; 2018: 1,560; 2019: 1,674; 2020: 1,565; 2021: 1,625; 2022: 1,738
Nominal Non-oil GDP per capita (in U.S. dollars): 2016: 1,354; 2017: 1,286; 2018: 1,230; 2019: 1,295; 2020: 1,187; 2021: 1,210; 2022: 1,269
Crude oil prices (U.S. dollars per barrel, WEO) 4/: 2016: 43; 2017: 53; 2018: 68; 2019: 61; 2020: 41; 2021: 59; 2022: 55
Petroleum Fund balance (in millions of U.S. dollars) 5/: 2016: 15,844; 2017: 16,799; 2018: 15,803; 2019: 17,692; 2020: 18,991; 2021: 18,785; 2022: 18,340
Public debt (in millions of U.S. dollars): 2016: 960; 2017: 1,050; 2018: 1,013; 2019: 1,057; 2020: 1,213; 2021: 1,156; 2022: 1,055
Public debt (in percent): 2016: 77; 2017: 106; 2018: 145; 2019: 193; 2020: 218; 2021: 279; 2022: 330
Population growth (annual percent change): 2016: 4.7; 2017: 9.3; 2018: 11.5; 2019: 13.9; 2020: 17.2; 2021: 19.0

Sources: Timor-Leste authorities; and IMF staff estimates and projections.