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International Monetary Fund

Timor-Leste has made substantial progress toward restoring stability and rebuilding the country after emerging from a long struggle for independence and internal conflicts between 1999 and 2006. The government has launched its Strategic Development Plan to step up development. A well-managed Petroleum Fund is in place, and new institutions have been established to manage large public investment programs. The authorities need to further strengthen institutional capacities and develop human resources. Developing the financial sector and strengthening the credit culture are crucial for sustained growth in the private sector.

International Monetary Fund. Asia and Pacific Dept

2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Democratic Republic of Timor-Leste

International Monetary Fund

This Selected Issues paper provides an overview of past growth performance and an assessment of the outlook for growth in Timor-Leste. It identifies impediments to growth and discusses policies that would contribute to the accelerated rates of growth needed to reduce poverty and unemployment and the other objectives of the National Development Plan. The paper reviews the macroeconomic challenges commonly faced by oil/gas exporters. It discusses Timor-Leste’s oil/gas revenue outlook, and plans for managing the oil/gas wealth through a natural resource (petroleum) fund and a saving policy.

International Monetary Fund. Asia and Pacific Dept

This paper discusses recent economic developments, economic outlook, and risks in Timor-Leste. Growth has moderated while inflation has fallen sharply. Owing to a sharp fall in oil revenues and large development needs, Timor-Leste is facing difficult policy challenges. According to industry estimates, unless new oil reserves are developed, oil production is expected to decline further and cease by 2023. Prioritization of government expenditures to facilitate high-return infrastructure investments is key in tandem with structural reforms that catalyze nonoil private sector growth. The 2016 budget outlined a significant scaling up of the public investment in 2017-19, which will strain fiscal sustainability.

Mr. Mauricio Villafuerte, Mr. Rolando Ossowski, Mr. Theo Thomas, and Mr. Paulo A Medas

Abstract

Oil-producing countries have benefited from rising oil prices in recent years, with important implications for their external and fiscal balances. The average price of oil tripled from US$18 a barrel in 1999 to US$53 a barrel in 2005, and rose further in 2006–07. The associated increase in oil exports and fiscal oil revenues had major macroeconomic and fiscal implications for oil-producing countries heavily dependent on oil revenues. External current accounts and fiscal balances have strengthened in many oil-producing countries. Moreover, policymakers conducted fiscal policy in a context where markets and observers increasingly came to expect a significant portion of the rise in oil prices to be long-lasting.

Mr. Mauricio Villafuerte, Mr. Rolando Ossowski, Mr. Theo Thomas, and Mr. Paulo A Medas

Abstract

This section provides an overview of the fiscal policy responses of oil-producing countries to the oil boom through 2005.1 Although the analysis focuses on broad trends, the significant diversity of the oil-producing countries in the sample should be borne in mind. In particular, country-specific factors that show great differentiation among oil-producing countries include level of development, institutional capacity, macroeconomic situation, fiscal dependence on oil revenue, public debt and liquidity positions, and the stock and expected duration of oil reserves in the ground. Box 1 compares developments under the recent oil boom with the oil shocks in the 1970s.

Mr. Mauricio Villafuerte, Mr. Rolando Ossowski, Mr. Theo Thomas, and Mr. Paulo A Medas

Abstract

Many oil-producing countries have had difficulties in addressing the challenges posed by dependence on oil revenues. Countries with large oil resources can benefit substantially from oil revenue, but some characteristics of this revenue—its volatility and uncertainty, exhaustibility, and the fact that it largely originates from abroad—have posed challenges to policymakers. In particular, many oil-producing countries have found it difficult to smooth government expenditure and decouple it from the short-term volatility of oil revenues, which has sometimes led to boom-and-bust cycles. Against this background, a number of oil-producing countries have established SFIs aimed at enhancing fiscal management. SFIs include oil funds, fiscal rules and fiscal responsibility legislation (FRL), and budgetary oil prices.

International Monetary Fund. Asia and Pacific Dept

This paper discusses recent economic developments, economic outlook, and risks in Timor-Leste. Growth has moderated while inflation has fallen sharply. Owing to a sharp fall in oil revenues and large development needs, Timor-Leste is facing difficult policy challenges. According to industry estimates, unless new oil reserves are developed, oil production is expected to decline further and cease by 2023. Prioritization of government expenditures to facilitate high-return infrastructure investments is key in tandem with structural reforms that catalyze nonoil private sector growth. The 2016 budget outlined a significant scaling up of the public investment in 2017-19, which will strain fiscal sustainability.

International Monetary Fund
Petroleum is now by far Timor-Leste’s largest source of income. If well harnessed, Timor-Leste’s petroleum wealth offers the potential for a more prosperous future. This Selected Issues paper provides an overview of how Timor-Leste’s Petroleum Fund functions. It considers the extent of the country’s petroleum wealth, discusses the developmental challenges, and outlines key challenges ahead. The paper depicts the origins of the fund and details its operating mechanisms. It also assesses how the fund has performed to date.