國際貨幣基金組織（IMF）：東帝汶：2023年第四條磋商報

February2024

IMFCountryReportNo.24/56

DEMOCRATICREPUBLICOFTIMOR-LESTE

2023ARTICLEIVCONSULTATION—PRESSRELEASE;STAFFREPORT;ANDSTATEMENTBYTHEEXECUTIVEDIRECTORFORTHEDEMOCRATICREPUBLICOF

TIMOR-LESTE

UnderArticleIVoftheIMF’sArticlesofAgreement,theIMFholdsbilateraldiscussionswithmembers,usuallyeveryyear.Inthecontextofthe2023ArticleIVconsultationwiththe

DemocraticRepublicofTimor-Leste,thefollowingdocumentshavebeenreleasedandareincludedinthispackage:

?APressReleasesummarizingtheviewsoftheExecutiveBoardasexpressedduringitsFebruary21,2024considerationofthestaffreportthatconcludedtheArticleIV

consultationwiththeDemocraticRepublicofTimor-Leste.

?TheStaffReportpreparedbyastaffteamoftheIMFfortheExecutiveBoard’sconsiderationonFebruary21,2024,followingdiscussionsthatendedon

November27,2023,withtheofficialsoftheDemocraticRepublicofTimor-Lesteoneconomicdevelopmentsandpolicies.Basedoninformationavailableatthetimeofthesediscussions,thestaffreportwascompletedonFebruary2,2024.

?AnInformationalAnnexpreparedbytheIMFstaff.

?ADebtSustainabilityAnalysispreparedbythestaffsoftheIMFandtheWorldBank.

?AStatementbytheExecutiveDirectorfortheDemocraticRepublicofTimor-Leste.

TheIMF’stransparencypolicyallowsforthedeletionofmarket-sensitiveinformationandprematuredisclosureoftheauthorities’policyintentionsinpublishedstaffreportsand

otherdocuments.

Copiesofthisreportareavailabletothepublicfrom

InternationalMonetaryFund?PublicationServicesPOBox92780?Washington,D.C.20090

Telephone:(202)623-7430?Fax:(202)623-7201

E-mail:

publications@

Web:

InternationalMonetaryFund

Washington,D.C.

?2024InternationalMonetaryFund

PR24/59

IMFExecutiveBoardConcludes2023ArticleIVConsultationwithTimor-Leste

FORIMMEDIATERELEASE

Washington,DC–February27,2024:TheExecutiveBoardoftheInternationalMonetaryFund(IMF)concludedtheArticleIVconsultation1withTimor-Leste.

Non-oilrealGDPgrowthreached4percentin2022,drivenbythepost-pandemicre-openingandastrongfiscalexpansion.Growthisestimatedtohaveslowedto1?percentin2023asdifficultiesinexecutingthebudgetsurroundingtheelectionslastMayrestrainedpublic

spending.Inflationsurgedtoabove8percentin2023drivenbyfoodpricesandtransport

costs,butfellto4.3percent(y/y)inJanuary2024.

Growthisexpectedtorecoverto3?percentin2024,supportedbythegovernment’s

prioritizationofpubliccapitalexpenditure.Inflationisexpectedtomoderatefurtherto2?

percentbytheendofthisyeargivenprojectedeasingofglobalcommodityprices.Growthisexpectedtoremainaroundthepre-pandemicaverageof3percentinthelongterm,butpolicyactionscouldaccelerateit.

Riskstotheoutlookaretiltedtothedownside.Near-termdownsideriskstogrowthincludeanabruptonsetofaglobalrecessionandheightenedcommoditypricevolatility.Thesecould

requireafiscalresponse,posingobstaclestoexpenditurerestraintandadverselyaffectingthebalanceofthePetroleumFund.Achievingthepoliticalcommitmenttorationalizepublic

expenditurewouldreduceuncertaintysurroundingthemedium-termoutlook.DevelopingtheGreaterSunriseoilfieldpresentsalargeupsideriskinthemediumterm.

ExecutiveBoardAssessment2

ExecutiveDirectorsnotedthatthenear-termoutlookhasimproved,withgrowthrecovering

andinflationeasingin2024.Despiteimpressiveprogresssinceindependencein2002,

Timor-Lesteremainsafragilepost-conflictstate.Modestgrowthisexpectedoverthemediumterm,however,riskstotheoutlookaretiltedtothedownside.Directorsemphasizedtheneedtoensurefiscalsustainabilityandsupporthighergrowthanddevelopment,whilediversifyingtheeconomy.

DirectorscalledforgradualfiscalconsolidationtoavoidadepletionofthePetroleumFundandsecurefiscalsustainability.Theywelcomedtheprioritizationofcapitalexpenditureinthe2024budgetandhighlightedthatfurtherimprovingthequalityofexpenditurewouldsupporthighergrowthandprotectthevulnerable.Directorsrecommendedgradualrevenuemobilizationand

1

UnderArticleIVoftheIMF'sArticlesofAgreement,theIMFholdsbilateraldiscussionswithmembers,usuallyeveryyear.Astaff

teamvisitsthecountry,collectseconomicandfinancialinformation,anddiscusseswithofficialsthecountry'seconomicdevelopmentsandpolicies.Onreturntoheadquarters,thestaffpreparesareport,whichformsthebasisfordiscussionbytheExecutiveBoard.

2

Attheconclusionofthediscussion,theManagingDirector,asChairmanoftheBoard,summarizestheviewsofExecutiveDirectors,andthissummaryistransmittedtothecountry'sauthorities.Anexplanationofanyqualifiersusedinsummingsupcanbefoundhere:

http://www.IMF.org/external/np/sec/misc/qualifiers.htm

.

2

welcomedtheauthorities’commitmenttointroduceaVAT.Thisshouldbecomplementedbymeasurestostrengthentaxadministration.Directorsalsoencouragedtheadoptionofafiscalresponsibilitylawandtheformulationofamedium-termfiscalframeworktoputfiscalpolicyonamoresustainablepathandhelpaddressexternalimbalances.

Directorsnotedthatsystemicriskstothefinancialsystemarelow,andthatbankingsector

capitalandliquiditylevelsremainsound.Theyencouragedtheauthoritiestopromotefinancialdeepeningandinclusionbyremovingstructuralimpedimentstolendinganddevelopingdigitalfinancialservices.AdvancingtheadoptionofIFRS9andBaselIIIregulatoryprinciplesand

addressingAML/CFTdeficienciesareimportantmeasures.

Directorsemphasizedtheneedforstructuralreformstopromoteprivatesectordevelopment,diversifytheeconomy,andsupportsustainablegrowth.Measurestoaddressbottlenecksin

theagricultureandtourismsectorsandtofosterdigitalizationwouldhelptoboostgrowth.

Directorsencouragedtheauthoritiestocontinueongoingeffortstostrengthengovernanceandtheruleoflaw.Prioritizinghumancapitaldevelopment,includingbyimprovingeducation

qualityandstrengtheningvocationaleducationandtrainingwouldhelpTimor-Lestetounlockitslargedemographicdividend.NotingTimor-Leste’svulnerabilitytoclimatechangeand

naturaldisasters,Directorsencouragedinvestmentinclimate-resilientinfrastructure.

Directorswelcomedongoingcapacitydevelopmentprojectsandconcurredthatcontinued

engagementwiththeFund,inthecontextoftheCountryEngagementStrategy,wouldhelptoaddresstherootcausesoffragility.Theyalsounderscoredtheimportanceofenhancing

coordinationacrossdevelopmentpartners.

3

Table1.Timor-Leste:SelectedEconomicandFinancialIndicators,2022-25

Non-oilGDPatcurrentprices(2022):US$1.672billion

Population(2022):1.332million

Non-oilGDPpercapita(2022):US$1,256

Quota:SDR25.6million

2022

2023

2024

2025

Est.

Proj.

Proj.

Realsector

RealNon-oilGDP

4.0

1.5

3.5

3.2

CPI(annualaverage)

7.0

8.4

3.5

2.2

CPI(end-period)

Centralgovernmentoperations

6.9

8.7

2.5

2.0

Revenue

57.3

49.1

45.8

42.0

Domesticrevenue

10.3

10.0

10.0

10.1

EstimatedSustainableIncome(ESI)

35.7

28.6

26.4

23.5

Grants

11.4

10.5

9.4

8.4

Expenditure

115.5

90.5

88.3

85.1

Recurrent

92.0

67.9

65.0

62.6

Netacquisitionofnonfinancialassets

12.1

12.1

14.0

14.1

Donorproject

11.4

10.5

9.4

8.4

Netlending/borrowing

Moneyandcredit

-58.2

-41.4

-42.6

-43.1

Deposits

8.6

9.4

8.2

7.3

Credittotheprivatesector

34.5

19.2

7.1

6.6

Lendinginterestrate(percent,endofperiod)

Balanceofpayments

11.3

11.3

11.3

11.3

Currentaccountbalance

273

-372

-832

-930

(InpercentofNon-oilGDP)

16

-20

-41.8

-43.4

TradeofGoods

-1,959

-1,234

-885

-939

Exportsofgoods

-1,054

-346

73

83

Importsofgoods

906

887

958

1,022

TradeofServices

-150

-154

-181

-207

PrimaryIncome

2,452

1,091

316

303

ofwhich:otherprimaryincome(oil/gas)1/

1,106

409

0

0

SecondaryIncome

-69

-75

-81

-87

Overallbalance

-102

-4

79

74

Publicforeignassets(end-period)2/

18,212

18,331

17,680

17,112

(Inmonthsofimports)

Exchangerates

196

198

174

156

NEER(2010=100,periodaverage)

162.9

…

…

…

REER(2010=100,periodaverage)

Memorandumitems

137.9

…

…

…

NominalNon-oilGDP(inmillionsofU.S.dollars)

1,672

1,833

1,992

2,140

NominalNon-oilGDPpercapita(inU.S.dollars)

1,256

1,357

1,454

1,540

(Annualpercentchange)

5.5

8.1

7.1

5.9

Crudeoilprices(U.S.dollarsperbarrel,WEO)3/

96

81

79

75

PetroleumFundbalance(inmillionsofU.S.dollars)4/

17,379

17,503

16,772

16,130

(InpercentofNon-oilGDP)

1,039

955

842

754

Publicdebt(inmillionsofU.S.dollars)

253

275

284

311

(InpercentofNon-oilGDP)

15.1

15.0

14.2

14.5

Populationgrowth(annualpercentchange)

1.6

1.4

1.4

1.4

Sources:Timor-Lesteauthorities;andIMFstaffestimatesandprojections.

1/Oilsectoractivitiesareconsiderednon-residentactivitiesinbalanceofpaymentsstatistics.

2/IncludesPetroleumFundbalanceandthecentralbank'sofficialreserves.

3/SimpleaverageofUKBrent,Dubai,andWTIcrudeoilpricesbasedonOctober2023WEOassumptions.

4/Closingbalance.

February2,2024

DEMOCRATICREPUBLICOF

TIMOR-LESTE

STAFFREPORTFORTHE2023ARTICLEIVCONSULTATION

KEYISSUES

Context.Timor-Lestehasmadeimpressiveprogresssinceindependencein2002but

remainsafragilepost-conflictnationwithpressingdevelopmentneeds.Withoiland

gasproductionhavingrecentlycometoahalt,progressondiversifyingtheeconomy

anddevelopingtheprivatesectorisurgentlyneeded.Fiscaldeficitsarefinancedbythecountry’sconsiderablePetroleumFundsavings,butregularlargewithdrawalsare

expectedtoleadtoitsfulldepletionbytheendofthe2030s.Anewcoalition

government—formedfollowingparliamentaryelectionsinMay2023—targetshighergrowthandachievingfiscalsustainability.

Recentdevelopmentsandoutlook.Growthisestimatedtohaveslowedto1?

percentin2023butisexpectedtorecoverto3?percentin2024supportedbythenewgovernment’sprioritizationofpubliccapitalexpenditure.Inflationremainshighand

averaged8.4percentin2023butisexpectedtoeaseto3?percentin2024.

ThemesoftheArticleIV.ThediscussionsfocusedonensuringthatTimor-Leste’s

substantialsavingsarebestutilizedtosupportdevelopmentobjectiveswhileachievingfiscalsustainability.Timor-LesteisoneofthelargestrecipientsofIMFCDresourcesintheregion.OngoingCDprojects,includingonrevenueadministrationandstatistics,arecriticalforstrengtheningTimor-Leste’sinstitutionalcapacityandtosupportreforms,asdiscussedintheCountryEngagementStrategy.

Policyrecommendations.Todevelopavibrantprivatesector,Timor-Lesteshould

undertakeanambitiousagendaofreforms.Publicexpenditureshouldbereducedto

alignitwiththeeconomy’sabsorptivecapacity,anditsqualityimprovedincludingby

furtherprioritizingspendingonhumanandphysicalcapital.Domesticrevenueshould

begraduallymobilized.Amedium-termfiscalframeworkshouldunderpintheseeffortsbysettingaclearroadmaptofiscalsustainability.Toboostgrowthanddiversifythe

economy,structuralreformsshouldremovebottlenecksintheagricultureandtourismsectorsandfosterdigitalizationtoboostproductivity,whileaddressinglegalconstraintsthathinderbusinessoperationsandfinancialdevelopment.

DEMOCRATICREPUBLICOFTIMOR-LESTE

2

INTERNATIONALMONETARYFUND

ApprovedBy

APD(RanilSalgado)andSPR(Fabian

Bornhorst)

DiscussionstookplaceinDiliduringNovember15–27,2023.ThestaffteamcomprisedYanCarrière-Swallow(Head),KoheiAsao,Raju

Huidrom,andDanilaSmirnov(allAPD).Theteammetwiththe

MinisterofFinance,theGovernoroftheCentralBank,theMinisterofPetroleumandMineralResources,theSecretaryofStatefor

VocationalEducationandTraining,governmentagencies,

developmentpartners,theprivatesector,andcivilsociety.Bernard

HarborneandAliefRezza(bothWorldBank)participatedinseveral

meetings.RanilSalgado(APD)andBrunoSaraiva(OED)participatedinpolicydiscussions.AbdullahAlnasserandNadineDubost(bothAPD)assistedinthepreparationofthisreport.

CONTENTS

CONTEXT

4

RECENTDEVELOPMENTS

4

OUTLOOKANDRISKS

6

POLICYDISCUSSIONS

7

A.SupportingGrowthWhileSecuringFiscalSustainability

8

B.ReformstoPromoteFinancialDeepeningandInclusion

12

C.StructuralReformsforSustainableGrowthandDiversification

14

STAFFAPPRAISAL

16

BOXES

1.TheImpactofFiscalPolicyonGrowthinTimor-Leste

6

2.Staff’sBaselineandRecommendedReformScenarios

11

FIGURES

1.RealSectorDevelopments

18

2.FiscalSectorDevelopments

19

3.ExternalSectorDevelopments

20

4.MonetaryandFinancialSectorDevelopments

21

5.BusinessEnvironmentandGovernance

22

6.ChallengestoGrowth—ComparisonwithRegionalPeers

23

7.LaborMarketIndicators

24

8.HumanCapitalIndicators

25

TABLES

1.SelectedEconomicandFinancialIndicators,2020–2826

DEMOCRATICREPUBLICOFTIMOR-LESTE

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2.SummaryOperationsoftheCentralGovernment,2020–28

27

3.MonetaryDevelopments,2020–23

28

4.BalanceofPayments,2020–28

29

5.SustainableDevelopmentGoalsMonitoring

30

ANNEXES

I.CountryEngagementStrategy

31

II.ExternalSectorAssessment

41

III.RiskAssessmentMatrix

45

IV.IntegrationofCapacityDevelopmentandSurveillance

46

V.ResponsestoPastFundAdvice

47

DEMOCRATICREPUBLICOFTIMOR-LESTE

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Qatar

Qatar

Kuwait

Timor-Leste

Bahrain

Brunei

CONTEXT

1.Despiteimpressivegainssinceindependence,Timor-Lesteremainsafragilepost-

OilRevenues

($billion)

43.5 32.5 21.5 10.50

200220042006200820102012201420162018202020222024

Sources:CentralBankofTimor-Leste;andIMFstaffestimates.(Projectionfor2024)

Timor-Leste'sNetForeignAssetsinGlobalContext

(NFA/GDP,USDGDPpercapita1/)

12

10

8

6

4

2

0

-2

-4

-6

1001,00010,000100,000

Sources:LaneandMilesi-Ferretti(2022),WorldBank;andIMFstaffcalculations.

1/Datapointrepresents10-yearaverageNetForeignAsset(NFA)positionvs

averageGPDpercapitainthesameperiod.DataspansallIMFmembercountriesupto2022andstretchesbackto1970forsomecountries.

conflictnationwithpressingdevelopmentneeds.Theeconomyishighlydependentonthepublicsector,whichhasbeenfinancedprimarilyby

proceedsfromoffshoreoilandgasproduction.A

lackofeconomicdiversificationalongwithlarge

fiscalandexternalimbalancescontributetoTimor-

Leste’sfragility,whichisexploredinstaff’sfirst

CountryEngagementStrategy(AnnexI).

2.Sizablefinancialbufferswere

accumulatedbysavingnaturalresource

revenues,butaregraduallybeingdepleted.The

nationalPetroleumFund’s(PF)balancestoodat

1,043percentofnon-oilGDPin2022,making

Timor-Leste’sNetForeignAsset(NFA)position

oneofthehighestintheworldasashareofthe

domesticeconomy,andanoutlieramong

countriesatsimilarlevelsofper-capitaincome.But

oilandgasproductionhasrecentlycometoahalt,

andregularlargewithdrawalsfromthePFto

financefiscaldeficitsareexpectedtoleadtoitsfull

depletionbytheendofthe2030s.

3.AnewcoalitiongovernmentwasformedfollowingparliamentaryelectionsinMay

2023.Despitepre-electionuncertainty,theelectionandtransferofpowerwentsmoothly.Thenew

government’sagendafocusesonboostinggrowthandemployment,reducingpoverty,andachievingfiscalsustainability.

RECENTDEVELOPMENTS

4.Afterrecoveringstronglyin2022,growthisestimatedtohaveslowedin2023duetothestrongfiscaldrag.Non-oilrealGDPgrowthreached4percentin2022,drivenbythepost-

pandemicre-openingandastrongfiscalexpansion.Growthslowedto1?percentin2023asfiscalpolicycontractedfollowingdifficultiesinexecutingthebudgetsurroundingtheelections(?6).

5.Foodpricesandtransportcostshavedrivenasurgeininflation.Afteradecreasein

globalfoodpricesprovidedsomereliefthroughmid-2023,headlineinflationprovedmorepersistentthaninotherAsianEMDEsandroseagainto8.7percent(y/y)inDecember2023.Thisprimarily

reflectspricesoffoodandnon-alcoholicbeverages,aswellasalcoholandtobacco,whichcollectively

DEMOCRATICREPUBLICOFTIMOR-LESTE

5

INTERNATIONALMONETARYFUND

accountforapproximately90percentofthepeakinflationrate.

1

PricesinotherproductcategorieshavedeclinedonaveragesinceMay2023,withsubsidizedenergypricessubdued.TheREER

appreciatedamidsttheglobalstrengthoftheUSdollar,contributingtoeasinginflation.

RealNon-OilGDP

(Annualpercentagechange)

6

4

2

0

-2

-4

-6

-8

4.0

3.5

3.4

3.2

Projections

2.1

1.6

1.5

-0.7

-3.1

-7.2

2016201720182019202020212022202320242025

Sources:GeneralDirectorateofStatistics;andIMFstaffestimates.

Inflation,byCategory

(Inpercent,y/y,2018M1-2023M12)

16

14

12

10

8

6

4

2

0

-2

2018M1

2019M1

2020M1

2021M1

2022M1

2023M1

Headline

Food,non-alcoholicbeverage,alcoholandtobacco

Others

Source:GeneralDirectorateofStatistics.

6.Thefiscalpositionimprovedsignificantlyin2023.Difficultiesinexecutingthebudget

surroundingtheelectionsandpowertransferrestrainedexpenditure.Ontherevenueside,oil

receiptsof$410million(throughSeptember2023)exceededthebudgeted$115million,whilethe

reductionofimportdutiesandsugarexcisestoalleviatecostoflivingpressuresledtoasmalllossofrevenue(around?percentofGDP).Thefiscaldeficitisestimatedtohavedeclinedto41percentofnon-oilGDPin2023from58percentin2022.Thisimpliesacontractionaryfiscalimpulseof17

percentagepointsofGDPin2023thatweighedongrowth,thoughthefiscalmultiplieristhoughttobelowbecauseofthelowqualityandhighimportcontentofpublicexpenditure(Box1).

7.Theexternalsectorpositionin2023remainedsubstantiallyweakerthanimpliedby

fundamentalsanddesirablepolicies.Thecurrentaccountdeficit(excludingoilrevenues)remainedlargein2023(around43percentofnon-oilGDP),reflectingthelargefiscalimbalancesand

underdevelopmentoftheprivatesector.Undercurrentpolicies,thecurrentaccountdeficitis

expectedtopersistoverthemediumandlongterm.Consequently,thenetInternationalInvestmentPosition(IIP)isprojectedtodecline,erodedbypersistentdeficits.Reducingpublicexpendituresanddevelopingthenon-oileconomywouldsubstantiallyreducethecurrentaccountimbalanceovertime(AnnexII).

1ThecigarettetaxandimportdutiesdoubledinJanuary2023,whichalsoboostedthe2023CPIonay/ybasis.ThesemeasureswererevertedinAugust2023aspartofthe2023rectificationbudget.

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Box1.TheImpactofFiscalPolicyonGrowthinTimor-Leste

Ingeneral,thesizeofthefiscalmultiplierdependsoncountry-specificfeatures,fiscalcomposition,

andmacroeconomicconditions.Thefiscalmultiplier—thechangeinoutputduetoadollarincreasein

governmentspending—isagaugeoftheimpactoffiscalpolicyonactivity.Thesizeofthefiscalmultiplierissmallerineconomieswith:(i)largerimportintensity,duetolargerleakagesintoimportdemand;and(ii)

lowerfiscalspaceduetolargercrowding-outeffects

(Ilzetzki,Mendoza,andVégh2013;

Huidromandothers

2020)

.Italsodependsonthecompositionofexpenditure:publicinvestmenttendstohavelargermultipliersthanpublicconsumptionindevelopingeconomies

(Ilzetzki,Mendoza,andVégh2013)

.Theefficiencyof

publicinvestmentisalsoanimportantdeterminant:themultiplierissmallerifprojectselectionand

executionarepoorandonlyafractionoftheamountinvestedisconvertedintoproductivepubliccapitalstock

(IMF2014;

IMF2020)

.Finally,themultiplierdependsonthebusinesscycle,beinglargerduring

recessionsthanexpansions

(AuerbachandGorodnichenko2012)

.

ForTimor-Leste,thesizeofthefiscalmultiplieristhoughttobelowbecauseofthelowqualityand

highimportcontentofpublicexpenditure.Inrecentyears,recurrentspendinghascomprisedupto90

percentoftotalexpenditure,whilesubsidyschemesarepoorlytargeted.Thebudgetexecutionrateofcapitalexpenditurehasbeenbelow50percentforthepastthreeyears.Theeconomyishighlydependentonpublicspending,butalargeshareoffinaldemand(notablyfood,fuel,automobiles,andmachinery)ismetvia

imports.Giventhesefactors,thesizeofthemultiplierinTimor-Lesteisthoughttobelow,withestimatesofaround0.1

(2022ArticleIVstaffreport)

and0.2

(WorldBank2021)

.Thisfallsintheestimatedrange

of-0.3–0.8reportedinsurveysforlow-income

countries

(WorldBank2015)

,whichislowerthan

recentpanelestimatesforadvancedeconomies

(Guajardo,Leigh,andPescatori2014)

andemergingmarketeconomies

(Carrière-Swallow,David,and

Leigh2021)

.Whileestimationofmultipliersrequiresacausalidentificationoffiscalactions,thehistorical

correlationbetweenthefiscalimpulse(changeinthefiscalbalance)andrealGDPgrowthinTimor-Leste

suggeststhatthefiscalmultiplierispositivebutsmall.

RealGDPGrowth

RealGrowthvsFiscalImpulse(2002-22)

(Percent,percentagepoints)

0

5

15

10

-5

y=-0.14x+2.37R2=0.20

10

-

-50-40-30-20-10010203040

FiscalImpulse(Negative=Expansion)

Source:IMFstaffcalculations.

Improvingthequalityandefficiencyofspendingcouldmakefiscalpolicymoreeffective.Public

spendingshouldprioritizeinvestmentinphysicalandhumancapital.Additionally,theefficiencyofspendingshouldbeimprovedviabetterprojectselectionandexecution,aspartofbroaderpublicfinancial

management(PFM)reformswithtechnicalsupportfromtheIMF(?18).

OUTLOOKANDRISKS

8.Growthisprojectedtorecoverto3?percentin2024.Growthwillbesupportedby

higherexecutionofpublicspending,whichisexpectedtoprioritizecapitalexpendituremorethaninpreviousyears.RobustgrowthinTimor-Leste’smainexportpartners(e.g.,Indonesia)willcontinuetosupportnon-oilexports,albeitfromaverylowbase.

DEMOCRATICREPUBLICOFTIMOR-LESTE

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9.Inflationisexpectedtoeasein2024.Giventhelargeshareofimportedfood,tobacco,andbeveragesintheCPIbasket,theprojectedeasingofglobalcommoditypricesisexpectedtolower

inflationinTimor-Leste.Lowerinflationintradepartnersandthenewgovernment’sdecisionto

reversetheincreaseintaxesonimports,cigarettes,andsugarwillalsohelplowerinflationto3?percentin2024.However,iftheElNi?ophenomenonpersists,itcouldweighonfoodproduction,leadingtopersistentinflationarypressures.Adversecommoditypricedevelopmentsfueledby

geopoliticaleventscouldalsocontributetoelevatedinflation.

10.Growthisexpectedtoremainatthepre-pandemicaverageof3percentinthelong

term,butpolicyactionscouldaccelerateit.ReachinganagreementontheGreaterSunrisenaturalgasfieldwouldserveasafiscallifeline,allowingTimor-Lestetodelayadestabilizingfiscalcliffforanextendedperiod.Thenewgovernmentdemonstratesastrongcommitmenttodevelopingthe

project.Intheshorttomediumterm,fastergrowthcouldbedrivenbyreformsintheagricultureand

tourismsectors.Overthelongerterm,raisingtheeconomy'spotentialgrowthraterequ