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International Monetary Fund. Asia and Pacific Dept
This 2019 Article IV Consultation highlights that Timor-Leste remains a fragile post-conflict nation with weak human and institutional capacity and large infrastructure gaps. The main challenge facing Timor-Leste is to effectively manage its petroleum wealth to reduce public-sector dependence, diversify the non-oil economy, generate jobs for a young and rapidly-growing population, and raise living standards. Political uncertainty constrained public spending in 2017–18, resulting in a sharp contraction of non-oil GDP in 2017 and flat growth in 2018. The report discusses that risks to the outlook are closely tied to the success of fiscal and structural reforms to maintain macroeconomic stability, ensure long-run fiscal sustainability, and facilitate economic diversification. The consultation recommends that a fiscal strategy should be pursued to improve expenditure control and efficiency, mobilize domestic revenue, and commit to protecting the wealth of the Petroleum Fund. Ongoing efforts to strengthen public financial management and promote good governance are crucial to ensure public investment efficiency and enhance the quality of public services.
Ali Alichi, Mr. Ippei Shibata, and Kadir Tanyeri
Government debt in many small states has risen beyond sustainable levels and some governments are considering fiscal consolidation. This paper estimates fiscal policy multipliers for small states using two distinct models: an empirical forecast error model with data from 23 small states across the world; and a Dynamic Stochastic General Equilibrium (DSGE) model calibrated to a hypothetical small state’s economy. The results suggest that fiscal policy using government current primary spending is ineffective, but using government investment is very potent in small states in affecting the level of their GDP over the medium term. These results are robust to different model specifications and characteristics of small states. Inability to affect GDP using current primary spending could be frustrating for policymakers when an expansionary policy is needed, but encouraging at the current juncture when many governments are considering fiscal consolidation. For the short term, however, multipliers for government current primary spending are larger and affected by imports as share of GDP, level of government debt, and position of the economy in the business cycle, among other factors.
Maura Francese and Delphine Prady
This paper discusses the definition and modelling of a universal basic income (UBI). After clarifying the debate about what a UBI is and presenting the arguments in favor and against, an analytical approach for its assessment is proposed. The adoption of a UBI as a policy tool is discussed with regard to the policy objectives (shaped by social preferences) it is designed to achieve. Key design dimensions to be considered include: coverage, generosity of the program, overall progressivity of the policy, and its financing.