This DSA has been prepared jointly by IMF and World Bank staffs, using the debt sustainability framework for low-income countries approved by the Boards of both institutions.
The DSA presented in this document is based on the standard low-income countries (LIC) DSA framework. See “Debt Sustainability in Low-Income Countries: Proposal for an Operational Framework and Policy implications” (http://www.imf.org/external/np/pdr/sustain/2004/020304.htm) and “Debt Sustainability in Low-Income Countries: Further Considerations on an Operational Framework, Policy Implications” (http://www.imf.org/external/np/pdr/sustain/2004/091004.htm).
“Democratic Republic of Timor-Leste: Joint World Bank/IMF 2010 Debt Sustainability Analysis” in Democratic Republic of Timor-Leste: 2010 Article IV Consultation—Staff Report, IMF Country Report No. 11/65.
GNI is non-oil GDP plus oil-related income recorded in the balance of payments. Unless otherwise indicated, GDP in the paper (including tables and figures) refers to GNI.
According to the Asian Development Bank, there are two types of loans available for Timor-Leste: the Asia Development Fund (ADF) loans, which are highly concessional, and the Ordinary Capital Resources (OCR) loans, which are non-concessional. The ADF loans are similar to the IDA loans, and the OCR loans are similar to the IBRD loans. Loans with grant elements less than 35 percent are considered non-concessional.
The Greater Sunrise oil field might be put into production over the DSA projection period. In that case, both the fiscal and current account balances will be improved substantially.
The indicative external debt burden thresholds for Timor-Leste are shown in Figure 1. They are based on Timor-Leste’s classification as a “weak” performer given its (three-year average) score of 2.90 on the World Bank’s Country Policy and Institutional Assessment index (CPIA). The CPIA measures the quality of policies and institutions; weak performers score below 3.25, strong performers above 3.75.
Donor assistance to Timor-Leste is mainly composed of grants from multinational and bilateral donors such as the United Nations, the World Bank, the Asian Development Bank, Australia, and Japan. Historical experience indicates that their commitments are not subject to unexpected, big changes. Moreover, if donor assistance decreases, imports of goods and services for the related projects will decline accordingly. It is also highly unlikely that official transfers will turn negative suddenly, which means Timor-Leste as a poor country begins to provide large grants abroad.
With declines in official transfers, imports are assumed to decline by 70 percent, which are lower than about 80 percent import components of donor assistance in Timor-Leste.