January 19, 2011
1. This statement provides information that has become available since the Staff Report was circulated to the Executive Board on December 3, 2010. The information does not alter the thrust of the staff appraisal.
2. Timor-Leste’s economic growth picked up in the second half of 2010. Preliminary data provided by the authorities indicate that GDP growth in 2010 is likely to be higher than the estimate in the Staff Report of 6 percent and closer to the government’s estimate of 9½ percent:
Bad weather conditions in 2010 appear to have had a more limited impact on agricultural output than expected. Preliminary estimates indicate that, despite unseasonally high rainfalls, total agricultural production grew by ½ percent in 2010, rather than declined by 5 percent as estimated by staff.
Preliminary government estimates of activity in industry and services also show stronger-than-expected growth of 16 percent in 2010. Activity was particularly strong in the transport and communication, financial services, and the small manufacturing sectors.
3. Government revenue from petroleum was higher than budgeted, because of higher-than-projected oil prices: US$ 2.2 billion was collected in petroleum revenue for 2010, 30 percent above the mid-year 2010 budget estimate. If higher oil prices persist, sustainable income (ESI) from petroleum could be revised up by 3 to 5 percent when the annual recalculation is made in April.
4. The Ministry of Finance has revised upwards its estimate of government cash spending in 2010 to US$729 million, about 20 percent higher than in 2009. Spending remained below the sum of expected 2010 domestic revenue and the estimated sustainable income (ESI) from petroleum by about US$100 million.
5. The Banking and Payments Authority (BPA) reported an increase in CPI inflation for Dili to 9.1 percent year-on-year in November 2010. The rate increased from the 7.5 percent reported in the Staff Report for September.
6. As noted in the staff appraisal, a higher ESI creates room for additional spending. Staff supports government investment in public infrastructure, health and education, and their efforts to reduce administrative and absorptive capacity constraints. Meanwhile, spending at a more measured pace would stand a better chance of realizing high quality investment, crowding in private investment, and thereby achieving balanced and sustainable growth. The higher-than-expected inflation also underlines the need for fiscal restraint.