Statement by the IMF Staff Representative on Timor-Leste: October 23, 2013

This 2013 Article IV Consultation highlights that the non-oil economy of the Democratic Republic of Timor-Leste has grown rapidly in recent years with growth averaging close to 12 percent from 2008 to 2011, allowing the average per capita income to steadily increase. The growth was driven by a rapid increase in government spending, which boosted the public administration and construction sectors. So far, the contributions from agriculture and manufacturing have been modest. Despite falling from the peak of more than 15 percent in 2011, the inflation rate is still in double digits. Executive Directors have welcomed the revised budgetary framework that anticipates a stabilization of government expenditures and revenue diversification.

Abstract

This 2013 Article IV Consultation highlights that the non-oil economy of the Democratic Republic of Timor-Leste has grown rapidly in recent years with growth averaging close to 12 percent from 2008 to 2011, allowing the average per capita income to steadily increase. The growth was driven by a rapid increase in government spending, which boosted the public administration and construction sectors. So far, the contributions from agriculture and manufacturing have been modest. Despite falling from the peak of more than 15 percent in 2011, the inflation rate is still in double digits. Executive Directors have welcomed the revised budgetary framework that anticipates a stabilization of government expenditures and revenue diversification.

This statement contains information that has become available since the staff report was circulated to the Executive Board. This information does not alter the thrust of the staff appraisal.

1. Following the revision of the discount rate approved by the IMF and World Bank Boards on October 11, 2013, staff has recalculated the debt sustainability assessment for Timor-Leste using the new five percent discount rate. This results in a slightly more favorable outlook for the calculated net present value of debt in relation to GDP and exports. The overall assessment of risk of debt distress and debt vulnerabilities discussed in the staff report and DSA remains unchanged.

2. The budget for 2014 remains under preparation but discussions with the authorities indicate that actual expenditures are planned to be stable in line with the framework agreed with Fund staff in June 2013. This is important not only for fiscal sustainability but for lowering inflation that remains above 10 percent, despite the recent appreciation of the U.S. dollar against regional currencies.