{
  "title": "IMF Executive Board Concludes 2024 Article IV Consultation with Timor-Leste",
  "publication": "IMF News, December 17, 2024",
  "sourceUrl": "https://www.imf.org/en/news/articles/2024/12/17/pr-24479-timor-leste-imf-concludes-2024-article-iv-consultation",
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  "summary": "The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Timor-Leste on December 10, 2024 and endorsed the staff appraisal without a meeting on a lapse-of-time basis.",
  "publishDate": "2024-12-17",
  "sections": [
    {
      "heading": "Executive Board conclusion and context",
      "content": "- The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Timor-Leste on December 10, 2024 and endorsed the staff appraisal without a meeting on a lapse-of-time basis.\n- Press Release No. 24/479; announcement dated December 17, 2024."
    },
    {
      "heading": "Recent macroeconomic developments",
      "content": "- Non-oil GDP growth slowed to 2.4 percent in 2023 (from 4 percent in 2022) due to a drag from fiscal policy as budget execution fell in the election year.\n- Headline inflation averaged 8.4 percent in 2023 and declined to 0.6 percent (y/y) in September 2024, driven by lower global food prices and the rollback of tax hikes introduced in 2023.\n- Growth is estimated to increase to 3.4 percent in 2024, supported by fiscal expansion and strong credit growth."
    },
    {
      "heading": "Executive Board assessment and medium-term outlook",
      "content": "- Fiscal expansion and strong credit growth are expected to support economic growth in 2024.\n- Following the 2023 slowdown, growth is estimated to rise to 3.5 percent in 2024.\n- A large fiscal expansion in 2025—mainly driven by transfers with low multiplier—would deliver growth of 3.4 percent in 2025.\n- Long-run non-oil GDP growth is expected to remain modest at around 3 percent, which corresponds to about 1.5 percent in per-capita terms.\n- Inflation is expected to average 2.2 percent in 2024 and 1.5 percent in 2025 as global commodity prices moderate.\n- The external sector position in 2023 was substantially weaker than implied by fundamentals and desirable policy settings.\n- Risks to the outlook are balanced."
    },
    {
      "heading": "Key risks",
      "content": "- Near- to medium-term risks include:\n  - A sudden global recession that could reduce PF returns.\n  - Severe climate events affecting food security.\n  - An onset of political instability limiting foreign direct investment.\n- A potential upside: reaching an agreement to develop the Greater Sunrise oil field could boost long-term exports."
    },
    {
      "heading": "Fiscal position and sustainability",
      "content": "- The sizable savings in the Petroleum Fund (PF) should be used productively and prudently to deliver higher living standards.\n- In the past decade, a high share of public spending relative to the economy has delivered only modest growth and development.\n- Timor-Leste remains at moderate risk of overall and external debt distress, but large fiscal imbalances over the medium term would fully deplete the PF by the end of the 2030s.\n- Fiscal and structural reforms are needed to secure fiscal sustainability and strengthen the external sector position."
    },
    {
      "heading": "Policy recommendations",
      "content": "- Public spending:\n  - Reduce public spending gradually and further improve spending quality.\n  - Gradually unwind the surge in recurrent spending since 2020 while accommodating higher spending on human and physical capital (including in climate-resilient infrastructure) and on social safety nets to protect the vulnerable.\n- Revenue mobilization:\n  - Start domestic revenue mobilization promptly.\n  - A key reform priority is the introduction of the VAT in 2026, which requires immediate progress with legislation and strengthening tax administration.\n- Fiscal frameworks and public financial management:\n  - Advance PFM reforms and formulate a medium-term fiscal framework to underpin fiscal efforts.\n- Financial sector and private sector development:\n  - Address structural bottlenecks to lending through financial sector reforms.\n  - The authorities’ ambitious agenda of legal reforms of the financial sector is welcome.\n  - Accelerate the issuance of land titles to provide essential collateral for lending.\n- Structural and governance reforms:\n  - Combine financial sector reforms with other structural reforms to support economic diversification.\n  - Continue steps towards deeper integration in the global and regional economies.\n  - Strengthen governance reforms, notably in the domain of rule of law.\n  - Address deficiencies in the AML/CFT framework in line with the findings and recommendations in the Mutual Evaluation Report recently adopted by the Asia Pacific Group.\n  - Improve performance under dollarization by reducing fiscal imbalances and advancing reforms that address structural bottlenecks undermining competitiveness."
    },
    {
      "heading": "Selected economic and financial indicators (highlights from Table 1)",
      "content": "- Non-oil GDP at current prices (2023): US$1.802 billion\n- Population (2023): 1.377 million\n- Non-oil GDP per capita (2023): US$1,309\n- Quota: SDR 25.6 million\n\n- Real sector (annual percent change)\n  - Real Non-oil GDP: 2023: 2.4; 2024: 3.5; 2025: 3.4; 2026: 3.2\n  - Real Non-oil GDP per capita: 2023: 1.3; 2024: 2.1; 2025: 1.9\n  - CPI (annual average): 2023: 8.4; 2024: 2.2; 2025: 1.5; 2026: 2.0\n  - CPI (end-period): 2023: 8.7; 2024: 0.5; 2025: 1.8\n\n- Central government operations (percent of Non-oil GDP)\n  - Revenue: 2023: 51.4; 2024: 49.2; 2025: 46.1; 2026: 42.7\n  - Domestic revenue: 2023: 13.8; 2024: 11.4; 2025: 11.5\n  - Estimated Sustainable Income (ESI): 2023: 27.2; 2024: 28.3; 2025: 26.2; 2026: 23.6\n  - Grants: 2023: 10.5; 2024: 9.4; 2025: 8.5; 2026: 7.6\n  - Expenditure: 2023: 93.9; 2024: 92.5; 2025: 95.3; 2026: 91.5\n  - Recurrent: 2023: 70.6; 2024: 69.8; 2025: 73.6; 2026: 70.5\n  - Net acquisition of nonfinancial assets: 2023: 12.8; 2024: 13.3; 2025: 13.2; 2026: 13.4\n  - Net lending/borrowing: 2023: -42.5; 2024: -43.3; 2025: -49.2; 2026: -48.8\n\n- Money and credit (annual percent change)\n  - Deposits: 2023: 2.5; 2024: 6.9; 2025: 6.8\n  - Credit to the private sector: 2023: 20.6; 2024: 20.5; 2025: 15.7; 2026: 8.1\n  - Lending interest rate (percent, end of period): 2023: 11.3\n\n- Balance of payments (in millions of U.S. dollars)\n  - Current account balance: 2023: -17; 2024: -195; 2025: -515; 2026: -575\n  - (In percent of Non-oil GDP): 2023: -1; 2024: -10.1; 2025: -24.9; 2026: -26.0\n  - Trade of Goods: 2023: -149; 2024: -611; 2025: -814; 2026: -836\n  - Exports of goods: 2023: 632; 2024: 233; 2025: 142; 2026: 152\n  - Imports of goods: 2023: 781; 2024: 845; 2025: 956; 2026: 988\n  - Trade of Services: 2023: -353; 2024: -310; 2025: -309; 2026: -318\n  - Primary Income: 2023: 397; 2024: 540; 2025: 427; 2026: 406\n  - Secondary Income: 2023: 88; 2024: 186; 2025: 180; 2026: 173\n  - Overall balance: 2023: -49; 2024: 19; 2025: 77; 2026: 33\n\n- Public foreign assets (end-period) 1/: 2023: 19,072; 2024: 18,881; 2025: 18,282; 2026: 17,554\n  - (In months of imports): 2023: 190; 2024: 184; 2025: 162; 2026: 150\n\n- Memorandum items\n  - Nominal Non-oil GDP (in millions of U.S. dollars): 2023: 1,802; 2024: 1,939; 2025: 2,073; 2026: 2,215\n  - Nominal Non-oil GDP per capita (in U.S. dollars): 2023: 1,309; 2024: 1,393; 2025: 1,471; 2026: 1,551\n  - Crude oil prices (U.S. dollars per barrel, WEO) 2/: 2023: 81; 2024: 73; 2025: 70\n  - Petroleum Fund balance (in millions of U.S. dollars) 3/: 2023: 18,288; 2024: 18,078; 2025: 17,402; 2026: 16,641\n  - Public debt (in millions of U.S. dollars): 2023: 1,015; 2024: 932; 2025: 839; 2026: 751\n  - Population growth (annual percent change): 2023: 1.1\n\n1/ Includes Petroleum Fund balance and the central bank's official reserves.\n2/ Simple average of UK Brent, Dubai, and WTI crude oil prices based on October 2024 WEO assumptions.\n3/ Closing balance.\n\nIMF Executive Board press release dated December 17, 2024.\n\n---\n\n\n References\n\n- Democratic Republic of Timor-Leste and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2024/12/17/pr-24479-timor-leste-imf-concludes-2024-article-iv-consultation"
    }
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    "Published: December 17, 2024",
    "The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Timor-Leste on December 10, 2024 and endorsed the staff appraisal without a meeting on a lapse-of-time basis.",
    "Press Release No. 24/479; announcement dated December 17, 2024.",
    "Non-oil GDP growth slowed to 2.4 percent in 2023 (from 4 percent in 2022) due to a drag from fiscal policy as budget execution fell in the election year.",
    "Headline inflation averaged 8.4 percent in 2023 and declined to 0.6 percent (y/y) in September 2024, driven by lower global food prices and the rollback of tax hikes introduced in 2023.",
    "Growth is estimated to increase to 3.4 percent in 2024, supported by fiscal expansion and strong credit growth.",
    "Fiscal expansion and strong credit growth are expected to support economic growth in 2024.",
    "Following the 2023 slowdown, growth is estimated to rise to 3.5 percent in 2024.",
    "A large fiscal expansion in 2025—mainly driven by transfers with low multiplier—would deliver growth of 3.4 percent in 2025.",
    "Long-run non-oil GDP growth is expected to remain modest at around 3 percent, which corresponds to about 1.5 percent in per-capita terms.",
    "Inflation is expected to average 2.2 percent in 2024 and 1.5 percent in 2025 as global commodity prices moderate.",
    "The external sector position in 2023 was substantially weaker than implied by fundamentals and desirable policy settings.",
    "Risks to the outlook are balanced.",
    "Near- to medium-term risks include:",
    "A potential upside: reaching an agreement to develop the Greater Sunrise oil field could boost long-term exports.",
    "The sizable savings in the Petroleum Fund (PF) should be used productively and prudently to deliver higher living standards.",
    "In the past decade, a high share of public spending relative to the economy has delivered only modest growth and development.",
    "Timor-Leste remains at moderate risk of overall and external debt distress, but large fiscal imbalances over the medium term would fully deplete the PF by the end of the 2030s.",
    "Fiscal and structural reforms are needed to secure fiscal sustainability and strengthen the external sector position.",
    "Public spending:",
    "Revenue mobilization:",
    "Fiscal frameworks and public financial management:",
    "Financial sector and private sector development:",
    "Structural and governance reforms:",
    "Non-oil GDP at current prices (2023): US$1.802 billion",
    "Population (2023): 1.377 million",
    "Non-oil GDP per capita (2023): US$1,309",
    "Quota: SDR 25.6 million",
    "Real sector (annual percent change)",
    "Central government operations (percent of Non-oil GDP)",
    "Money and credit (annual percent change)",
    "Balance of payments (in millions of U.S. dollars)",
    "Public foreign assets (end-period) 1/: 2023: 19,072; 2024: 18,881; 2025: 18,282; 2026: 17,554",
    "Memorandum items",
    "[Democratic Republic of Timor-Leste and the IMF](http://www.imf.org/external/country/TLS/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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