IMF Team: Oil Fields in Production End by 2022



 The International Monetary Fund (IMF) staff team led by Miss Yu Ching Wong visited Timor-Leste from September 25 to October 6 to hold the 4th Consultation discussion in 2017. The discussion discussed the latest developments and current economic policies, as well as medium term economic prospects. At the end of the mission, Ms Wong issued the following statement:

Non-oil GDP growth is forecast to moderate to 3 percent in 2017 due to low government spending and a slowdown in economic activity accompanying parliamentary elections. Inflationary pressure remains low, although inflation has returned to positive territory reflecting rising global food prices and fuel prices. "

Low government spending is expected to narrow the current account deficit both fiscal and external in 2017. The final balance of the Petroleum Fund for 2016 fell to US $ 15.8 billion (about 570 percent of GDP), the second year of net reductions.

The medium-term prospects for Timor Leste depend heavily on economic diversification, because oil fields in production will be exhausted around 2022. Significant strengthening of public investment poses a significant downside risk to fiscal sustainability, because the withdrawal of large Petroleum Funds is needed to finance this investment expenditure .

The risk also lies in whether this large public investment project will generate an adequate social and economic level to achieve inclusive growth which will translate into greater fiscal revenues and thereby improved fiscal sustainability.

The IMF team underlined the importance of implementing a fiscal reform strategy to ensure long-term fiscal sustainability. Repeated expenditures must also be rationalized. At the same time, health and education spending must be protected and the efficiency of public spending improved. Essentially, more can be done to ensure a “bigger fiscal cash boost”. Despite recognizing the need to close Timor Leste's large infrastructure gap, the distribution of capital expenditures must be limited and prioritized, given the country's scarce resources and capacity. obstacles.

The team emphasized that domestic revenue mobilization remains critical. In this regard, the creation of a customs authority and taxation authority, and the formulation of an action plan to improve tax compliance are welcome. Passing the VAT law and introducing VAT in 2020 which further mobilizes domestic revenue is also important.

“Concessional loans must continue to be used effectively to finance infrastructure projects, and thereby reduce the amount of Petroleum Fund withdrawals. In addition, priority should be given to projects that provide a significant transfer of knowledge in project appraisal and implementation. "

Structural policy reforms are needed to support economic diversification. These reforms are aimed at improving basic infrastructure, financial access, labor competitiveness and ease of doing business. Expanding financial inclusion is a priority and the team welcomes the implementation of the 2017-22 national financial inclusion strategy. At the same time, maintaining financial stability requires continuous vigilance through further strengthening regulatory and regulatory capacity.

 Silva, and other senior officials. The team also held discussions with development partners as well as representatives of the private sector and civil society.

The team would like to thank the Timor-Leste government for their hospitality and wish them every success in their continued efforts to promote economic growth, and reduce poverty and unemployment.

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