IMF Staff Complete 2026 Article IV Mission to Timor-Leste

IMF News, August 28, 2026

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Timor-Leste “stands at a pivotal stage in its development journey” with “impressive progress in building institutions and accumulating substantial savings through the Petroleum Fund.”
Growth is expected to remain resilient in the near term despite a more challenging external environment.
Inflation remains low but is expected to rise moderately in the remainder of 2026.
Under staff’s current policy baseline, and without further reforms, fiscal deficits are projected to remain large and persistent, with limited private sector development, leading to the depletion of the Petroleum Fund in the late 2030s.

Growth: 4.0 percent in 2026; moderating to 3.8 percent in 2027.
Inflation: 2.1 percent in 2026; 2.0 percent in 2027.
Risks: “Tilted to the downside amid heightened global uncertainty.”
Near-term support: Continued public spending including recent policy support measures is expected to support growth; policy support measures cushion the passthrough of higher global energy prices.

Recommendation: The 2027 budget should underpin a decisive shift toward fiscal sustainability while protecting growth-enhancing investments and support for economic diversification.
Policy measures advised:
- Stronger restraint in recurrent spending, including improved targeting of electricity subsidies and social transfers.
- Efforts to improve public sector efficiency.
- Accelerate preparations for the implementation of a broad-based Value Added Tax.
- Advance tax administration reforms to strengthen domestic revenue mobilization.
Consequence of inaction: Depletion of the Petroleum Fund in the late 2030s under current policy baseline.

Recommended reform agenda: Expenditure moderation; stronger revenue mobilization; deeper public financial management reforms; measures to improve the business climate.
Financial sector progress welcomed:
- Recent advances in new banking legislation and insolvency framework.
- Launch of the movable-collateral registry.
Additional priorities to deepen financial intermediation and support private sector development:
- Accelerate issuance of land titles.
- Advance national corporate accounting standards.
- Modernize payment systems.
Broader priorities: Strengthen governance, invest in human capital, and improve the business environment to support economic diversification and sustainable long-term growth.

Mission timing: IMF team led by Ms. Sumiko Ogawa visited Dili from August 17-28, 2026, for the 2026 Article IV consultation.
Discussions were held with Minister of Finance Santina Cardoso, Central Bank Governor Hélder Lopes, other senior officials, the private sector, civil society, and development partners.
IMF support: The IMF stands ready to continue providing capacity development to support the authorities’ reform agenda and policy priorities.

Press Release No. 26/279 — IMF Communications Department, August 28, 2026.