IMF Staff Completes 2021 Article IV Mission to Timor-Leste

IMF News, May 18, 2021

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Press Release No. 21134; May 17, 2021.
An International Monetary Fund (IMF) team led by Mr. Pablo Lopez Murphy conducted virtual discussions for the 2021 Article IV consultation with Timor-Leste during May 4-18, 2021.
The team held discussions with the Minister of Finance Rui Gomes, the Governor of the Central Bank Abraao de Vasconcelos, the Minister of Tourism, Trade and Industry Jose Lucas do Carmo da Silva, Minister of Petroleum and Minerals Victor da Conceicao Soares, other senior officials, development partners, civil society and private sector representatives. Staff from the World Bank also joined the discussions.

The economy has been severely affected by the pandemic and by recent floods.
A modest recovery is expected in 2021 underpinned by strong fiscal support, a rebound in private consumption, and the vaccination rollout that began in April.
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.

“The uncertainty around the outlook is exceptionally high.”
An intensification of the pandemic or delays in the vaccination program could derail recovery in the near term.
A sustained increase in the number of COVID-19 cases would hurt economic activity, as the planned resumption of infrastructure projects and activity in the services sector are further delayed.
The inability to reach political consensus to implement the structural reforms needed to promote private sector development and economic diversification could undermine growth prospects over the medium term.
Recent floods in early April amplified near-term adverse effects.

Near-term priorities:
- Vaccinate the adult population as soon as possible.
- Provide financial relief to the most vulnerable people affected by the pandemic and the recent floods.
Medium-term fiscal strategy:
- With vanishing oil revenues, put the fiscal position on a more solid footing to preserve fiscal and external sustainability.
- Expenditure rationalization and revenue mobilization should underpin fiscal reforms.
Structural and institutional reforms:
- Improve the business environment, strengthen governance, raise labor productivity, and increase financial inclusion to promote private sector development, create jobs, diversify the economy, improve competitiveness and support the external position.
- Strengthen disaster risk management, given the country’s vulnerability to weather-related shocks.
- Improve data quality to support policy making.

The government adopted a strong support package to mitigate the impact of the pandemic and revitalize the economy, aiming to protect people, save jobs, sustain consumption, and catalyze private sector activity.
Recovery is expected to be modest in 2021; medium-term stabilization of non-oil growth around 3 percent is contingent on addressing structural constraints and political consensus on reforms.

Source: Press Release No. 21134