Public investment and agriculture drive East Timor’s return to two-digit growth

12 December 2011

Dili, East Timor, 12 Dec – The East Timor economy will this year see a return to two-digit growth after a downturn in 2010 which, even so, was “robust”, according to the latest forecasts from the World Bank.

Weaker performance in the agricultural sector due to bad weather, which affected rice and coffee production, led to a slowdown in growth to 8.5 percent in 2010, after two consecutive years of economic expansion of over 12 percent.

“Public sector spending has driven growth in recent years. Increased government expenditure drove growth in the construction sector which, in its turn, created opportunities for suppliers of materials and local workforce,” said the World Bank.

This year, “with public spending remaining strong and agriculture on its way to recovery, a return to two-digit growth is expected,” the World Bank said in its latest report on Asian economies.

In 2010, oil revenues rose by 25 percent and this year are continuing to rise.

But, as of 2012, oil production at fields with approved development plans will start to drop off, ending entirely by 2024, according to the World Bank.

The Infrastructure Fund, set up in 2010, is funding projects for a number of years, in a number of sectors ranging from electricity to transport and education.

In order to support diversification of the economy, the World Bank said, the Timor-Leste Investment Corporation, was set up to invest in strategic projects, such as undersea cable networks.

“Aware of the importance of ensuring quality,” of expenditure, the government also created a secretariat to evaluate large investment projects, part of a group of institutions that have seen their position boosted in order to face, “the large amount of work over the next few months,” the report said.

Despite the large size of the oil fund, in comparison with the Timorese economy, in next year’s budget for the first time the government plans to take on debt, as a way of “diversifying sources of funding.”

This funding, which accounts for around 3 percent of the 2011 budget, will be subsidised and earmarked for infrastructure projects.

For the third consecutive year, withdrawals from the Fund, valued at US$8.3 billion in the second quarter of 2011, will exceed estimated sustainable income and that situation is expected to continue over the next five years. (macauhub)