## IMF Executive Board Concludes 2024 Article IV Consultation with Timor-Leste _IMF News, December 17, 2024_ ## Source details **Canonical URL:** [IMF Executive Board Concludes 2024 Article IV Consultation with Timor-Leste](https://www.imf.org/en/news/articles/2024/12/17/pr-24479-timor-leste-imf-concludes-2024-article-iv-consultation) ## Other formats - [Markdown version](/en/news/articles/2024/12/17/pr-24479-timor-leste-imf-concludes-2024-article-iv-consultation/index.md) - [Structured JSON version](/en/news/articles/2024/12/17/pr-24479-timor-leste-imf-concludes-2024-article-iv-consultation/index.json) - [Bundle manifest](/en/news/articles/2024/12/17/pr-24479-timor-leste-imf-concludes-2024-article-iv-consultation/bundle-manifest.json) ## Bibliographic details - Published: December 17, 2024 --- ### Executive Board conclusion and context - 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. ### Recent macroeconomic developments - 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. ### Executive Board assessment and medium-term outlook - 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. ### Key risks - Near- to medium-term risks include: - A sudden global recession that could reduce PF returns. - Severe climate events affecting food security. - An onset of political instability limiting foreign direct investment. - A potential upside: reaching an agreement to develop the Greater Sunrise oil field could boost long-term exports. ### Fiscal position and sustainability - 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. ### Policy recommendations - Public spending: - Reduce public spending gradually and further improve spending quality. - 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. - Revenue mobilization: - Start domestic revenue mobilization promptly. - A key reform priority is the introduction of the VAT in 2026, which requires immediate progress with legislation and strengthening tax administration. - Fiscal frameworks and public financial management: - Advance PFM reforms and formulate a medium-term fiscal framework to underpin fiscal efforts. - Financial sector and private sector development: - Address structural bottlenecks to lending through financial sector reforms. - The authorities’ ambitious agenda of legal reforms of the financial sector is welcome. - Accelerate the issuance of land titles to provide essential collateral for lending. - Structural and governance reforms: - Combine financial sector reforms with other structural reforms to support economic diversification. - Continue steps towards deeper integration in the global and regional economies. - Strengthen governance reforms, notably in the domain of rule of law. - 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. - Improve performance under dollarization by reducing fiscal imbalances and advancing reforms that address structural bottlenecks undermining competitiveness. ### Selected economic and financial indicators (highlights from Table 1) - 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) - Real Non-oil GDP: 2023: 2.4; 2024: 3.5; 2025: 3.4; 2026: 3.2 - Real Non-oil GDP per capita: 2023: 1.3; 2024: 2.1; 2025: 1.9 - CPI (annual average): 2023: 8.4; 2024: 2.2; 2025: 1.5; 2026: 2.0 - CPI (end-period): 2023: 8.7; 2024: 0.5; 2025: 1.8 - Central government operations (percent of Non-oil GDP) - Revenue: 2023: 51.4; 2024: 49.2; 2025: 46.1; 2026: 42.7 - Domestic revenue: 2023: 13.8; 2024: 11.4; 2025: 11.5 - Estimated Sustainable Income (ESI): 2023: 27.2; 2024: 28.3; 2025: 26.2; 2026: 23.6 - Grants: 2023: 10.5; 2024: 9.4; 2025: 8.5; 2026: 7.6 - Expenditure: 2023: 93.9; 2024: 92.5; 2025: 95.3; 2026: 91.5 - Recurrent: 2023: 70.6; 2024: 69.8; 2025: 73.6; 2026: 70.5 - Net acquisition of nonfinancial assets: 2023: 12.8; 2024: 13.3; 2025: 13.2; 2026: 13.4 - Net lending/borrowing: 2023: -42.5; 2024: -43.3; 2025: -49.2; 2026: -48.8 - Money and credit (annual percent change) - Deposits: 2023: 2.5; 2024: 6.9; 2025: 6.8 - Credit to the private sector: 2023: 20.6; 2024: 20.5; 2025: 15.7; 2026: 8.1 - Lending interest rate (percent, end of period): 2023: 11.3 - Balance of payments (in millions of U.S. dollars) - Current account balance: 2023: -17; 2024: -195; 2025: -515; 2026: -575 - (In percent of Non-oil GDP): 2023: -1; 2024: -10.1; 2025: -24.9; 2026: -26.0 - Trade of Goods: 2023: -149; 2024: -611; 2025: -814; 2026: -836 - Exports of goods: 2023: 632; 2024: 233; 2025: 142; 2026: 152 - Imports of goods: 2023: 781; 2024: 845; 2025: 956; 2026: 988 - Trade of Services: 2023: -353; 2024: -310; 2025: -309; 2026: -318 - Primary Income: 2023: 397; 2024: 540; 2025: 427; 2026: 406 - Secondary Income: 2023: 88; 2024: 186; 2025: 180; 2026: 173 - Overall balance: 2023: -49; 2024: 19; 2025: 77; 2026: 33 - Public foreign assets (end-period) 1/: 2023: 19,072; 2024: 18,881; 2025: 18,282; 2026: 17,554 - (In months of imports): 2023: 190; 2024: 184; 2025: 162; 2026: 150 - Memorandum items - Nominal Non-oil GDP (in millions of U.S. dollars): 2023: 1,802; 2024: 1,939; 2025: 2,073; 2026: 2,215 - Nominal Non-oil GDP per capita (in U.S. dollars): 2023: 1,309; 2024: 1,393; 2025: 1,471; 2026: 1,551 - Crude oil prices (U.S. dollars per barrel, WEO) 2/: 2023: 81; 2024: 73; 2025: 70 - Petroleum Fund balance (in millions of U.S. dollars) 3/: 2023: 18,288; 2024: 18,078; 2025: 17,402; 2026: 16,641 - Public debt (in millions of U.S. dollars): 2023: 1,015; 2024: 932; 2025: 839; 2026: 751 - Population growth (annual percent change): 2023: 1.1 1/ Includes Petroleum Fund balance and the central bank's official reserves. 2/ Simple average of UK Brent, Dubai, and WTI crude oil prices based on October 2024 WEO assumptions. 3/ Closing balance. *IMF Executive Board press release dated December 17, 2024.* --- ## References - [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) _Source: https://www.imf.org/en/news/articles/2024/12/17/pr-24479-timor-leste-imf-concludes-2024-article-iv-consultation_