IMF Executive Board Concludes 2023 Article IV Consultation with Timor-Leste

IMF News, February 27, 2024

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IMF Executive Board Concludes 2023 Article IV Consultation with Timor-Leste

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Bibliographic details

• Published: February 27, 2024

Overview

• The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Timor-Leste.
• Press Release No. 24/59. Date: February 27, 2024.

Recent economic developments

• Non-oil real GDP growth reached 4 percent in 2022, driven by the post-pandemic re-opening and a strong fiscal expansion.
• Growth is estimated to have slowed to 1½ percent in 2023 as difficulties in executing the budget surrounding the elections last May restrained public spending.
• Inflation surged to above 8 percent in 2023 driven by food prices and transport costs, but fell to 4.3 percent (y/y) in January 2024.

Outlook and risks

• Growth is expected to recover to 3½ percent in 2024, supported by the government’s prioritization of public capital expenditure.
• Inflation is expected to moderate further to 2½ percent by the end of this year given projected easing of global commodity prices.
• Long-term growth is expected to remain around the pre-pandemic average of 3 percent, but policy actions could accelerate it.
• Risks to the outlook are tilted to the downside:
  • Near-term downside risks: an abrupt onset of a global recession and heightened commodity price volatility.
  • Fiscal risks: such shocks could require a fiscal response, posing obstacles to expenditure restraint and adversely affecting the balance of the Petroleum Fund.
  • Political and structural risks: uncertainty from public expenditure decisions; developing the Greater Sunrise oil field presents a large upside risk in the medium term.

Executive Board assessment and recommendations

• Directors noted the near‑term outlook has improved, with growth recovering and inflation easing in 2024.
• Directors emphasized the need to ensure fiscal sustainability and support higher growth and development, while diversifying the economy.
• Fiscal policy recommendations:
  • Gradual fiscal consolidation to avoid a depletion of the Petroleum Fund and secure fiscal sustainability.
  • Welcome prioritization of capital expenditure in the 2024 budget; further improving the quality of expenditure would support higher growth and protect the vulnerable.
  • Gradual revenue mobilization; welcomed authorities’ commitment to introduce a VAT, to be complemented by measures to strengthen tax administration.
  • Encourage adoption of a fiscal responsibility law and formulation of a medium‑term fiscal framework to put fiscal policy on a more sustainable path and help address external imbalances.
• Financial sector recommendations:
  • Directors noted systemic risks to the financial system are low; banking sector capital and liquidity levels remain sound.
  • Encourage promoting financial deepening and inclusion by removing structural impediments to lending and developing digital financial services.
  • Advance adoption of IFRS 9 and Basel III regulatory principles and address AML/CFT deficiencies.
• Structural and social policy recommendations:
  • Structural reforms to promote private sector development, diversify the economy, and support sustainable growth.
  • Address bottlenecks in the agriculture and tourism sectors and foster digitalization.
  • Continue efforts to strengthen governance and the rule of law.
  • Prioritize human capital development, including improving education quality and strengthening vocational education and training to unlock the demographic dividend.
  • Invest in climate‑resilient infrastructure given vulnerability to climate change and natural disasters.
• Engagement and capacity development:
  • Directors welcomed ongoing capacity development projects and concurred that continued engagement with the Fund, in the context of the Country Engagement Strategy, would help address root causes of fragility.
  • Underscored importance of enhancing coordination across development partners.

Key statistics and projections (selected)

• Non-oil GDP at current prices (2022): US$1.672 billion
• Population (2022): 1.332 million
• Non-oil GDP per capita (2022): US$1,256
• Quota: SDR 25.6 million

Table: Selected indicators (2022–2025)

• Real Non-oil GDP: 2022: 4.0; 2023 Est.: 1.5; 2024 Proj.: 3.5; 2025 Proj.: 3.2
• CPI (annual average): 2022: 7.0; 2023 Est.: 8.4; 2024 Proj.: 2.2
• CPI (end-period): 2022: 6.9; 2023 Est.: 8.7; 2024 Proj.: 2.5; 2025 Proj.: 2.0
• Central government revenue (percent of Non-oil GDP): 2022: 57.3; 2023: 49.1; 2024: 45.8; 2025: 42.0
• Domestic revenue (percent of Non-oil GDP): 2022: 10.3; 2023: 10.0; 2024: 10.1
• Estimated Sustainable Income (ESI) (percent of Non-oil GDP): 2022: 35.7; 2023: 28.6; 2024: 26.4; 2025: 23.5
• Expenditure (percent of Non-oil GDP): 2022: 115.5; 2023: 90.5; 2024: 88.3; 2025: 85.1
  • Recurrent: 2022: 92.0; 2023: 67.9; 2024: 65.0; 2025: 62.6
  • Net acquisition of nonfinancial assets: 2022: 12.1; 2023: 14.0; 2024: 14.1
• Net lending/borrowing (percent of Non-oil GDP): 2022: -58.2; 2023: -41.4; 2024: -42.6; 2025: -43.1
• Deposits (annual percent change): 2022: 8.6; 2023: 8.2; 2024: 7.3
• Credit to the private sector (annual percent change): 2022: 34.5; 2023: 19.2; 2024: 7.1; 2025: 6.6
• Lending interest rate (percent, end of period): 2022: 11.3
• Current account balance (in millions of U.S. dollars): 2022: 273; 2023: -372; 2024: -832; 2025: -930
  • (In percent of Non-oil GDP): 2022: 16; 2023: -20; 2024: -41.8; 2025: -43.4
• Trade of Goods (in millions of U.S. dollars): 2022: -1,959; 2023: -1,234; 2024: -885; 2025: -939
  • Exports of goods: 2022: -1,054; 2023: -346; 2024: 73; 2025: 83
  • Imports of goods: 2022: 906; 2023: 887; 2024: 958; 2025: 1,022
• Trade of Services (in millions of U.S. dollars): 2022: -150; 2023: -154; 2024: -181; 2025: -207
• Primary Income (in millions of U.S. dollars): 2022: 2,452; 2023: 1,091; 2024: 316; 2025: 303
  • of which: other primary income (oil/gas) 1/: 2022: 1,106; 2023: 409; 2024: 0; 2025: 0
• Secondary Income (in millions of U.S. dollars): 2022: -69; 2023: -75; 2024: -81; 2025: -87
• Overall balance (in millions of U.S. dollars): 2022: -102; 2023: -4; 2024: 79; 2025: 74
• Public foreign assets (end-period) (in millions of U.S. dollars) 2/: 2022: 18,212; 2023: 18,331; 2024: 17,680; 2025: 17,112
  • (In months of imports): 2022: 196; 2023: 198; 2024: 174; 2025: 156
• Nominal Non-oil GDP (in millions of U.S. dollars): 2022: 1,672; 2023: 1,833; 2024: 1,992; 2025: 2,140
• Nominal Non-oil GDP per capita (in U.S. dollars): 2022: 1,256; 2023: 1,357; 2024: 1,454; 2025: 1,540
  • (Annual percent change): 2022: 5.5; 2023: 8.1; 2024: 5.9
• Crude oil prices (U.S. dollars per barrel, WEO) 3/: 2022: 96; 2023: 81; 2024: 75
• Petroleum Fund balance (in millions of U.S. dollars) 4/: 2022: 17,379; 2023: 17,503; 2024: 16,772; 2025: 16,130
• Public debt (in millions of U.S. dollars): 2022: 1,039; 2023: 955; 2024: 842; 2025: 754
  • (Public debt in percent of Non-oil GDP): 2022: 15.1; 2023: 15.0; 2024: 14.2; 2025: 14.5
• Population growth (annual percent change): 2022: 1.6; 2023: 1.4

Notes:

• 1/ Oil sector activities are considered non-resident activities in balance of payments statistics.
• 2/ Includes Petroleum Fund balance and the central bank's official reserves.
• 3/ Simple average of UK Brent, Dubai, and WTI crude oil prices based on October 2023 WEO assumptions.
• 4/ Closing balance.

International Monetary Fund. Executive Board conclusion: Article IV consultation with Timor-Leste (Press Release No. 24/59), February 27, 2024.

References

• Democratic Republic of Timor-Leste and the IMF
• IMF Policy Advice -- A Factsheet
• Press Releases
• PRESS CENTER
• http://www.IMF.org/external/np/sec/misc/qualifiers.htm
• https://www.imf.org/en/home