Timor-Leste’s non-oil economy expected to stagnate in 2018, IMF says

9 May 2019

Timor-Leste’s non-oil economy is expected to have virtually stagnated in 2018, with a growth rate close to 0.8%, after contracting by 4.5% in 2017 due to political and economic uncertainties, the International Monetary Fund (IMF) has said.

The improvement was due to the resumption of public expenditure in the fourth quarter of 2018, with the inflation rate changing from an annual average of 0.8% in 2017 to 2.1% in 2018 due to the increase in the prices of rice and tobacco as well as school fees.

Overall, the country’s economy is expected to have contracted by 8.0% in 2018, which is significantly worse than the minus 4.5% recorded in 2017.

For this year, the IMF expects the non-oil economy of Timor-Leste to grow at a rate of 5.0%, also as a result of the increase in public spending, alongside an increase in the inflation rate, which is expected to be around 4.0%.

The statement, released following an Article IV consultation by a team that visited Timor-Leste at the end of March, said that the budget deficit in 2018 is expected to have been lower than in 2017 when it reached 19.0% of GDP, an improvement compared to 35% of GDP in 2016.

The reduction of the budget deficit meant that withdrawals from the Oil Fund were significantly reduced, with the balance increasing in 2017 for the first time since 2014, although by the end of 2018 it had fallen to around US$16 billion due to tougher conditions in the financial markets.

The document mentions the Greater Sunrise project, whose development “poses a significant long-term risk,” for Timor-Leste, requiring appropriate measures to minimise funding risks, but notes that the key issue facing Timor-Leste is economic diversification.

“Little progress in reducing public sector dependence and creating more jobs in the private sector will put more pressure on public finance, long-term fiscal sustainability and deteriorating labour market conditions,” the document said. (Macauhub)