Democratic Republic of Timor-Leste: Selected Issues
IMF Staff Country Reports, December 17, 2024
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- Democratic Republic of Timor-Leste: Selected Issues
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Bibliographic details
- Published: December 17, 2024
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798400294938.002
Overview
- This Selected Issues paper analyzes Timor-Leste’s historical economic performance and structure under dollarization.
- It examines several dimensions that determine the benefits and costs of the regime, and assesses implications for competitiveness and macroeconomic stability.
Key analytical dimensions considered
- (1) growth and inflation performance
- (2) business and financial cycle synchronization
- (3) adjustment to external shocks
- (4) competitiveness
Main findings
- Dollarization has helped Timor-Leste achieve relatively low and stable inflation in the context of post conflict fragility.
- Dollarization may be contributing to weakening competitiveness.
- There is a severe overvaluation of the real effective exchange rate following a series of external shocks in the past 10 years; this overvaluation may be a contributing factor to weakened competitiveness.
- Structural bottlenecks that constrain the development of the private sector are additional contributing factors to weakened competitiveness.
Policy recommendations and reform priorities
- Progress at addressing the identified competitiveness and structural challenges is important to strengthen the economy’s performance under dollarization.
- Build technical capacity at the central bank.
- Improve the regulatory and legal framework for the financial system.
- Treat the above reforms as pre-requisites before consideration is given to the introduction of a national currency.
- Note: The choice of currency regime lies with the authorities.
Democratic Republic of Timor-Leste: Selected Issues — IMF Staff Country Reports, December 17, 2024.
Content in this bundle
- How Has Dollarization Served Timor-Leste So Far?