IMF Staff Completes 2023 Article IV Mission to Timor-Leste

IMF News, November 29, 2023

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Growth is expected to slow to 1.5 percent in 2023.
Growth is expected to recover to 3.5 percent in 2024, supported by the new government’s prioritization of public capital expenditure.
Inflation will average 8 percent in 2023.
Inflation is expected to ease to 2.5 percent in 2024.
Visit dates for the Article IV discussions: November 15-27.
Press Release No. 23/411; publication date: November 29, 2023.

Principal near-term downside risks to growth:
- The abrupt onset of a global recession.
- Heightened commodity price volatility.
Potential fiscal consequences of adverse shocks:
- Could require a fiscal response, posing obstacles to expenditure restraint.
- Could adversely affect the Petroleum Fund’s balance.
Political commitment to rationalize public expenditure would reduce uncertainty surrounding the medium-term outlook.

Central fiscal message:
- Excessive and poor-quality public spending risks depleting the wealth saved in the Petroleum Fund.
- Public expenditure should be reduced and its quality improved.
- Further prioritize spending on human and physical capital.
- Shift the composition of spending to support growth and protect the vulnerable.
Revenue and fiscal framework:
- Domestic revenues should be gradually mobilized from a low base.
- A medium-term fiscal framework should underpin efforts by setting a clear roadmap to fiscal sustainability.
Specific 2024 budget observation:
- The draft 2024 budget includes a welcome expansion of capital spending.

Recommended reform priorities:
- Remove bottlenecks in the agriculture and tourism sectors.
- Foster digitalization to boost productivity.
- Address legal constraints that hinder business operations and financial development.
Objective:
- Develop a vibrant private sector to achieve sustained improvements in living standards.

The central bank’s focus:
- Developing the financial sector, including through the provision of digital financial services.
Complementary actions needed:
- Improvements to the legal and regulatory framework to boost prudent lending to the private sector.

IMF team lead: Mr. Yan Carrière-Swallow.
Statement highlights:
- The IMF stands ready to provide capacity development and other support to assist the government’s reform efforts.
Stakeholder consultations during the mission included:
- Minister of Finance Santina Viegas Cardoso.
- Central Bank Governor Hélder Lopes.
- Minister of Petroleum and Mineral Resources Francisco da Costa Monteiro.
- Secretary of State for Vocational Education and Training Rogério Araújo Mendonça.
- Other senior officials, development partners, the private sector, civil society.
- Staff from the World Bank also joined the discussions.

Press Release No. 23/411, November 29, 2023 — IMF Staff Completes 2023 Article IV Mission to Timor-Leste