IMF Executive Board Concludes 2022 Article IV Consultation with Timor-Leste

IMF News, September 22, 2022

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IMF Executive Board Concludes 2022 Article IV Consultation with Timor-Leste

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• Published: September 22, 2022

Macro outlook and recent developments

• Timor-Leste is slowly emerging from several waves of COVID-19 outbreaks and from severe floods following cyclone Seroja in April 2021.
• Steady progress with vaccination allowed the authorities to lift strict containment and travel restrictions.
• After a sharp contraction in growth in 2020, there was a moderate rebound in 2021.
• Inflation has been rising steadily since early 2021 driven by higher food and oil prices while non-tradable inflation remains muted.
• Real non-oil GDP growth in 2022 is projected at 3.3 percent, underpinned by strong government support, a rebound in private consumption, and the reopening of borders.
• Inflation is projected to pick up, reflecting the increase in food and energy prices.
• A gradual recovery of private consumption and investment will underpin GDP growth at around 3 percent in the medium term.

Executive Board assessment — key findings

• The Executive Board concluded the Article IV consultation on August 24, 2022 and endorsed the staff appraisal without a meeting on a lapse-of-time basis.
• Non-oil real GDP is projected to grow at 3.3 percent in 2022, after an estimated growth of 1.5 percent in 2021, supported by public spending and rebounding private consumption.
• Large downside risks remain:
  • Re-intensification of a health crisis.
  • Ongoing geopolitical tensions raising and prolonging high oil and food prices.
  • Domestic political instability that could stall reforms.
  • Natural disasters that could further slow the recovery.
• The external sector position in 2021 was substantially weaker than implied by fundamentals and desirable policy settings.
• Active oil fields are drying up, with oil revenues expected to cease in 2023.
• The 2022 budget envisages large fiscal imbalances in the medium term that would deplete the Petroleum Fund in the long term, leading to a fiscal cliff.

Fiscal and public financial management (PFM) recommendations

• Fiscal consolidation and structural reforms are needed to:
  • Secure fiscal sustainability.
  • Strengthen the external sector position.
  • Support a smoother transition to a private sector-led economy.
• Domestic revenue mobilization and government expenditure rationalization are needed in future budgets to underpin fiscal consolidation.
• Government spending should prioritize:
  • Investment projects to enhance the productive capacity of the economy.
  • Programs to protect the poor.
• Addressing PFM weaknesses is essential to strengthen fiscal management and improve the quality of government spending.
• High priority PFM reform areas:
  • Budget credibility.
  • Public investment management.
  • Procurement performance and monitoring.
  • Fragmentation caused by the proliferation of autonomous agencies.
• The authorities have adopted some PFM reforms and are committed to continuing reform efforts with technical support from the Fund and other development partners.
• The introduction of a Fiscal Responsibility Law (FRL) can help improve fiscal discipline by requiring a monitorable fiscal policy objective and a strategy to achieve it.

Structural reform priorities

• Lift structural barriers to facilitate diversification and generate inclusive and resilient growth:
  • Transform predominantly subsistence-oriented agriculture into a commercially viable sector.
  • Raise productivity and enhance food security.
  • Improve the business environment.
  • Strengthen AML/CFT and anti-corruption effectiveness to foster private investment.
• Progress in private sector development and job creation has been tepid; reforms have been slow and limited.
• Invest in climate-resilient infrastructure to build resilience to natural disasters.
• Key challenges: integration of adaptation plans into budgetary planning, coordination among public stakeholders, and capacity constraints to access external grant-financing.

Key statistics and indicators (selected)

• Non-oil GDP at current prices (2020): US$1.595 billion
• Population (2020): 1.318 million
• Non-oil GDP per capita (2020): US$1,210
• Quota: SDR 25.6 million

Real sector (Annual percent change)

• Real Non-oil GDP: 2018: -0.7; 2019: 2.1; 2020: -8.6; 2021: 1.5; 2022 (Proj.): 3.3; 2023 (Proj.): 4.2
• CPI (annual average): 2018: 2.3; 2019: 0.9; 2020: 0.5; 2021: 3.8; 2022 (Proj.): 7.0; 2023 (Proj.): 4.0
• CPI (end-period): 2018: 0.3; 2019: 1.2; 2020: 5.3

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

• Revenue: 2018: 57.6; 2019: 51.6; 2020: 57.0; 2021: 54.1; 2022 (Proj.): 51.9; 2023 (Proj.): 46.9
• Domestic revenue: 2018: 12.0; 2019: 11.0; 2020: 11.4; 2021: 9.6
• Estimated Sustainable Income (ESI): 2018: 34.8; 2019: 31.0; 2020: 34.1; 2021: 33.0; 2022 (Proj.): 30.8; 2023 (Proj.): 25.8
• Grants: 2018: 10.8; 2019: 9.5; 2020: 11.5
• Expenditure: 2018: 84.0; 2019: 81.9; 2020: 82.6; 2021: 97.2; 2022 (Proj.): 106.8; 2023 (Proj.): 114.4
  • Recurrent: 2018: 51.8; 2019: 54.0; 2020: 61.1; 2021: 77.5; 2022 (Proj.): 79.0; 2023 (Proj.): 62.4
  • Net acquisition of nonfinancial assets: 2018: 21.4; 2019: 18.4; 2020: 10.0; 2021: 8.3; 2022 (Proj.): 16.3; 2023 (Proj.): 40.6
• Net lending/borrowing: 2018: -26.4; 2019: -30.3; 2020: -25.6; 2021: -43.2; 2022 (Proj.): -54.9; 2023 (Proj.): -67.6

Money and credit (Annual percent change)

• Deposits: 2018: 2.8; 2019: -7.5; 2020: 10.1; 2021: 29.3; 2022 (Proj.): 10.5; 2023 (Proj.): 9.9
• Credit to the private sector: 2018: -3.8; 2019: 5.5; 2020: 4.6; 2021: 8.9; 2022 (Proj.): 5.8

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

• Current account balance: 2018: -191; 2019: 133; 2020: -308; 2021: 43; 2022 (Proj.): -284; 2023 (Proj.): -821
• Current account balance (In percent of Non-oil GDP): 2018: -12; 2019: 8; 2020: -19; 2021: 3; 2022 (Proj.): -15; 2023 (Proj.): -40
• Trade of Goods: 2018: -589; 2019: -566; 2020: -510; 2021: -569; 2022 (Proj.): -647; 2023 (Proj.): -726
  • Exports of goods: 2018: 25; 2019: 26; 2020: 17; 2021: 32; 2022 (Proj.): 35; 2023 (Proj.): 39
  • Imports of goods: 2018: 613; 2019: 592; 2020: 527; 2021: 601; 2022 (Proj.): 682; 2023 (Proj.): 765
• Trade of Services: 2018: -349; 2019: -357; 2020: -275; 2021: -244; 2022 (Proj.): -279; 2023 (Proj.): -316
• Primary Income: 2018: 843; 2019: 1,126; 2020: 620; 2021: 925; 2022 (Proj.): 718; 2023 (Proj.): 305
  • of which: other primary income (oil/gas) 1/: 2018: 510; 2019: 756; 2020: 324; 2021: 720; 2022 (Proj.): 634; 2023 (Proj.): 46
• Secondary Income: 2018: -96; 2019: -70; 2020: -143; 2021: -77; 2022 (Proj.): -84
• Overall balance: 2018: 129; 2019: -18; 2020: 0.2; 2021: 278; 2022 (Proj.): 62; 2023 (Proj.): 153
• Public foreign assets (end-period) 2/: 2018: 16,477; 2019: 18,348; 2020: 18,946; 2021: 19,884; 2022 (Proj.): 18,442; 2023 (Proj.): 17,654
  • (In months of imports): 2018: 187; 2019: 212; 2020: 270; 2021: 275; 2022 (Proj.): 218; 2023 (Proj.): 181

Exchange rates

• NEER (2010=100, period average): 2018: 130.9; 2019: 134.1; 2020: 135.8; 2021: 131.9
• REER (2010=100, period average): 2018: 142.0; 2019: 143.8; 2020: 137.8

Memorandum items

• Nominal Non-oil GDP (in millions of U.S. dollars): 2018: 1,584; 2019: 1,704; 2020: 1,595; 2021: 1,681; 2022 (Proj.): 1,858; 2023 (Proj.): 2,043
• Nominal Non-oil GDP per capita (in U.S. dollars): 2018: 1,249; 2019: 1,318; 2020: 1,210; 2021: 1,251; 2022 (Proj.): 1,357; 2023 (Proj.): 1,464
• Crude oil prices (U.S. dollars per barrel, WEO) 3/: 2018: 68; 2019: 61; 2020: 41; 2021: 69; 2022 (WEO assumption): 106; 2023 (WEO assumption): 95
• Petroleum Fund balance (in millions of U.S. dollars) 4/: 2018: 15,803; 2019: 17,692; 2020: 18,289; 2021: 18,949; 2022 (Proj.): 17,446; 2023 (Proj.): 16,504
• Public debt (in millions of U.S. dollars): 2018: 998; 2019: 1,038; 2020: 1,146; 2021: 1,127; 2022 (Proj.): 939; 2023 (Proj.): 808
• Population growth (annual percent change): 2018: 2.0; 2019: 1.9; 2020: (value not provided)

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

IMF Communications Department, Press Release No. 22/317 (September 22, 2022).

References

• Democratic Republic of Timor-Leste and the IMF
• IMF Policy Advice -- A Factsheet
• Press Releases
• PRESS CENTER
• https://www.imf.org/en/home