{
  "title": "Public Information Notice: IMF Executive Board Concludes 2005 Article IV Consultation with the Democratic Republic of Timor-Leste",
  "publication": "IMF News, July 20, 2005",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/pn0592",
  "canonical": "https://www.imf.org/en/news/articles/2015/09/28/04/53/pn0592",
  "overlayPath": "/en/news/articles/2015/09/28/04/53/pn0592/index.md",
  "summary": "Each Public Information Notice contains a background section, a table of selected economic indicators, and an Executive Board assessment.",
  "publishDate": "2005-07-20",
  "sections": [
    {
      "heading": "Background and context",
      "content": "- On June 15, 2005, the Executive Board of the International Monetary Fund (IMF) concluded the 2005 Article IV consultation with Timor-Leste.\n- Post-conflict transition status: security broadly restored; macroeconomic stability re-established through adoption of the U.S. dollar and cautious fiscal management.\n- Key socioeconomic conditions:\n  - Unemployment: high (no aggregate rate given).\n  - 40 percent of the population lives below the poverty line.\n  - Human capital scarce, physical infrastructure inadequate, financing opportunities limited.\n- Major upcoming challenge/opportunity: winding down of international financial and technical support while large oil and gas revenue is coming on stream."
    },
    {
      "heading": "Recent developments and macroeconomic outcomes (2004–2005)",
      "content": "- Non-oil economic activity:\n  - Modest recovery in non-oil GDP in 2004, reflecting post-drought rebound in agriculture and expansion in banking sector activity.\n  - Real non-oil GDP growth (percentage change): 2001: 16.6; 2002: -6.7; 2003: -6.2; 2004: 1.8; 2005 (Est., Proj.): 2.5.\n- Inflation:\n  - CPI (Dili) leveled off at about 2 percent (year-over-year) since August 2004.\n  - Inflation (percentage change; end-period) series: 2000: 3.0; 2001: -0.3; 2002: 9.5; 2003: 4.2.\n- External sector:\n  - External current account surplus (including international assistance) widened sharply to 35 percent of non-oil GDP in 2004, driven by large oil/gas tax and royalty income.\n  - Net foreign assets of the Banking and Payment Authority (BPA) at end-March 2005: US$284 million (more than 15 months of projected imports for 2005).\n- Trade and prices:\n  - Measured against Indonesia and Australia, overall external price competitiveness deteriorated somewhat through March 2005 due to significant rupiah depreciation against the U.S. dollar."
    },
    {
      "heading": "Fiscal outcomes and management of oil/gas wealth",
      "content": "- FY 2004/05 fiscal outcome:\n  - Central government surplus (including grants) now expected at 68 percent of non-oil GDP, compared with the surplus of 33 percent of non-oil GDP expected in the revised FY04/05 budget.\n  - On a \"combined sources\" basis (total public sector including off-budget donor activities), the fiscal balance will move into a surplus of 29 percent of GDP in FY04/05.\n- Fiscal policy framework and institutions:\n  - Norwegian-style petroleum fund on track to be operational by July 2005.\n  - Long-term fiscal savings policy adopted: annual budget \"sustainable\" spending = non-oil revenue + estimated permanent income from oil/gas wealth.\n  - Authorities committed to transparency and accountability principles in line with the Extractive Industries Transparency Initiative (EITI).\n  - Preliminary Sector Investment Programs (SIPs) set out a public investment strategy to be financed by domestic revenue and donor funds.\n- Noted fiscal administration developments:\n  - Favorable developments in non-oil revenue.\n  - Recommendation: further strengthening of tax and customs administration and careful administration of tax incentives in new investment laws.\n  - Caution on creating a national oil company — Directors advised to weigh costs and benefits."
    },
    {
      "heading": "Financial sector and monetary framework",
      "content": "- Financial intermediation:\n  - Bank lending to the private sector increased rapidly during 2004; credit as share of non-oil GDP tripled to 21 percent at end 2004.\n  - Financial intermediation remains concentrated in Dili; rural access limited to a few cooperatives and microcredit institutions.\n- Banking and Payments Authority (BPA):\n  - Net foreign assets rose sharply due to government deposits from oil/gas revenue.\n  - Capacity building progressed; central bank law, payment system and anti-money laundering legislation in final stages of preparation.\n  - Financial intelligence unit planned for the BPA by the end of the year.\n  - Directors encouraged vigilance over bank portfolios and early approval of legislation.\n  - Authorities encouraged to support expansion of financial institutions to rural areas.\n- Monetary and exchange rate policy:\n  - Directors endorsed maintaining the current monetary and exchange rate regime (U.S. dollar legal tender) as a credible nominal anchor.\n  - View that stronger institutional capacity and a well-developed foreign exchange market are preconditions for introducing a national currency.\n  - Continued cautious fiscal and wage policies highlighted as key to preserving external competitiveness."
    },
    {
      "heading": "Structural reforms, private sector, and capacity building",
      "content": "- Progress and remaining gaps:\n  - Good progress in recent months: key land legislation, insurance law, and domestic and foreign investment laws approved or submitted to Parliament.\n  - Overall legal framework still incomplete; complex regulations, ineffective administration, and weak judiciary discourage private activity.\n  - Administrative skill levels improving slowly, but local capacity remains thin.\n- Policy priorities urged by Directors:\n  - Accelerate efforts to establish an environment conducive to private investment and non-oil private sector activity.\n  - Maintain liberal trade and investment regime.\n  - Early enactment of pending economic legislation and issuance of regulations that are transparent and simple to administer.\n  - Finalize bankruptcy legislation, develop a strong and independent judiciary, and establish a comprehensive land-titling system.\n  - Prompt implementation of the new planning and capacity building program; close coordination with donor community and continued technical assistance.\n  - Strengthen macroeconomic data compilation capacity, particularly national accounts and balance of payments statistics."
    },
    {
      "heading": "Executive Board assessment — main conclusions and recommendations",
      "content": "- Directors welcomed progress toward a stable and healthy economy and commended prudent macroeconomic policies during transition.\n- Key messages:\n  - Effective management of oil/gas wealth and creation of an environment for private investment in the non-oil economy are critical for pace and quality of development.\n  - The authorities' long-term strategy (fiscal sustainability policy, SIPs, petroleum fund) provides a solid basis to address challenges and progress toward the Millennium Development Goals.\n- Fiscal stance and spending:\n  - Support for moving quickly toward sustainable spending level without creating inflationary pressures or non-priority expenditure.\n  - The proposed spending increase for fiscal year 2005/06 considered ambitious given limited administrative and absorptive capacity; Directors suggested considering spreading spending commitments over a somewhat longer period.\n  - Encouraged shift of spending toward human capital and basic infrastructure; welcomed intention to maintain restraint on the wage bill.\n  - Called for early additional steps to eliminate bottlenecks, particularly for capital spending; welcomed Fund technical assistance.\n- Governance and transparency:\n  - Commended progress in legislative framework for petroleum fund; welcomed investment advisory board and consultative council and commitment to operate the fund consistent with EITI.\n  - Encouraged transparency and accountability and cautioned on national oil company creation.\n- Data and capacity:\n  - Encouraged authorities to seek additional assistance to strengthen domestic capacity for macroeconomic data compilation."
    },
    {
      "heading": "Selected economic indicators (highlights from Timor-Leste: Selected Economic Indicators, 2000–2005)",
      "content": "- Non-oil GDP (levels): 2000: 316; 2001: 368; 2002: 343; 2003: 336; 2004: 339; 2005 (Est./Proj.): 349.\n- Real non-oil GDP growth (percentage change): 2000: 15.4; 2001: 16.6; 2002: -6.7; 2003: -6.2; 2004: 1.8; 2005: 2.5.\n- Central government revenues (percent of non-oil GDP): 2000: 17; 2001: 15; 2002: 24; 2003: 90; 2004: 57; 2005: (unstated in table but earlier text notes large oil/gas revenues).\n- Central government overall balance (percent of non-oil GDP): FY04/05 expected central government surplus (including grants) of 68 percent of non-oil GDP.\n- Combined sources fiscal operations (percent of GDP): FY04/05 combined sources surplus of 29 percent of GDP.\n- Net foreign assets of the BPA (millions of U.S. dollars): end-March 2005: US$284 million.\n- Credit to private sector (share of non-oil GDP): end 2004: 21 percent.\n- External current account incl. international assistance (millions of U.S. dollars): selected series show wide surpluses; table entries include 2004 and 2005 figures discussed in text (external current account surplus widened to 35 percent of non-oil GDP in 2004).\n- Notes on table methodology and data:\n  - Non-oil GDP and national accounts data for 2000–2003 based on estimates prepared by BIDE consultants in October 2004.\n  - Fiscal year basis is July–June.\n  - Combined sources include fiscal and quasi-fiscal donor and IFI activities outside central government budget.\n  - In 2005 merchandise imports include transfer of assets from UNMISET valued at approximately US$12 million.\n\nPublic Information Notice: IMF Executive Board Concludes 2005 Article IV Consultation with the Democratic Republic of Timor-Leste (July 20, 2005).\n\n---\n\n\n References\n\n- Democratic Republic of Timor-Leste and the IMF\n- Public Information Notices\n- Article IV\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/pn0592"
    }
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    "Published: July 20, 2005",
    "On June 15, 2005, the Executive Board of the International Monetary Fund (IMF) concluded the 2005 Article IV consultation with Timor-Leste.",
    "Post-conflict transition status: security broadly restored; macroeconomic stability re-established through adoption of the U.S. dollar and cautious fiscal management.",
    "Key socioeconomic conditions:",
    "Major upcoming challenge/opportunity: winding down of international financial and technical support while large oil and gas revenue is coming on stream.",
    "Non-oil economic activity:",
    "Inflation:",
    "External sector:",
    "Trade and prices:",
    "FY 2004/05 fiscal outcome:",
    "Fiscal policy framework and institutions:",
    "Noted fiscal administration developments:",
    "Financial intermediation:",
    "Banking and Payments Authority (BPA):",
    "Monetary and exchange rate policy:",
    "Progress and remaining gaps:",
    "Policy priorities urged by Directors:",
    "Directors welcomed progress toward a stable and healthy economy and commended prudent macroeconomic policies during transition.",
    "Key messages:",
    "Fiscal stance and spending:",
    "Governance and transparency:",
    "Data and capacity:",
    "Non-oil GDP (levels): 2000: 316; 2001: 368; 2002: 343; 2003: 336; 2004: 339; 2005 (Est./Proj.): 349.",
    "Real non-oil GDP growth (percentage change): 2000: 15.4; 2001: 16.6; 2002: -6.7; 2003: -6.2; 2004: 1.8; 2005: 2.5.",
    "Central government revenues (percent of non-oil GDP): 2000: 17; 2001: 15; 2002: 24; 2003: 90; 2004: 57; 2005: (unstated in table but earlier text notes large oil/gas revenues).",
    "Central government overall balance (percent of non-oil GDP): FY04/05 expected central government surplus (including grants) of 68 percent of non-oil GDP.",
    "Combined sources fiscal operations (percent of GDP): FY04/05 combined sources surplus of 29 percent of GDP.",
    "Net foreign assets of the BPA (millions of U.S. dollars): end-March 2005: US$284 million.",
    "Credit to private sector (share of non-oil GDP): end 2004: 21 percent.",
    "External current account incl. international assistance (millions of U.S. dollars): selected series show wide surpluses; table entries include 2004 and 2005 figures discussed in text (external current account surplus widened to 35 percent of non-oil GDP in 2004).",
    "Notes on table methodology and data:",
    "[Democratic Republic of Timor-Leste and the IMF](http://www.imf.org/external/country/TLS/index.htm)",
    "[Public Information Notices](https://www.imf.org/en/news/searchnews)",
    "[Article IV](https://www.imf.org/external/pubs/ft/aa/aa04.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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