Timor-Leste's Economic Outlook: A Call for Fiscal Reforms and Strategic Investments

Timor-Leste Faces Fiscal Challenges Amid High Government Spending and Petroleum Fund Constraints.

A recent World Bank report, titled Timor-Leste Economic Report: Transforming Public Spending to High Growth, raises concerns about the country's long-term fiscal stability due to high government spending and modest returns on investment from its Petroleum Fund. The report underscores the need for strategic financial management to ensure sustainable economic growth. Key Findings of the Report:

• Public expenditure averaged 85% of GDP between 2013 and 2023.
• Average GDP growth has remained at a modest 1.3% annually.
• 42% of the population lives below the national poverty line.

Challenges and Recommendations:

1. Enhancing Spending Efficiency: The report calls for reducing inefficient expenditures by eliminating low-impact programs and redirecting resources to critical sectors such as infrastructure, education, and healthcare. These sectors have the potential to provide long-term economic benefits and improve quality of life for citizens.

2. Strengthening Fiscal Sustainability: Timor-Leste is urged to gradually adhere to the Estimated Sustainable Income (ESI) rule to safeguard the Petroleum Fund. Additionally, efforts should be made to diversify revenue sources through enhanced tax collection and economic diversification.

3. Boosting Public Financial Management: The report emphasizes the need to streamline procurement processes, strengthen public investment management, reduce project delays, and implement program-based budgeting to align expenditures with measurable economic outcomes.

The Path Forward: A Resilient and Inclusive Economy

Timor-Leste is at a pivotal moment in its economic trajectory. By aligning with the ASEAN accession roadmap and implementing recently enacted legislation on procurement and public financial management, the government can deepen fiscal reforms and promote long-term financial stability.

Investment in infrastructure, human capital, and agricultural productivity will be key in sustaining economic growth. Strategic policy adjustments will not only reduce poverty but also ensure the country moves towards a resilient, inclusive, and self-sufficient economy.