Dili, December 12, 2019 – Economic growth in Timor-Leste is expected to recover to 4.1 percent in 2019 and accelerate to 4.9 percent by 2021, according to a new World Bank report released today.
The Timor-Leste Economic Report: Unleashing the Private Sector notes that public expenditure in the first half of the year was 16 percent higher than in the same period of 2018. This has contributed to higher consumer confidence, while private investment is also expected to benefit from greater political and economic stability.
The report, the latest in a twice-yearly World Bank analysis of the country’s economy, presents evidence that economic activity is recovering from the 2017-2018 contraction, as data suggests that both public spending and household consumption are increasing. However, medium-term growth prospects remain hampered by a weak private sector.
“Timor-Leste is making a welcome return to GDP growth, but key reforms are needed to unleash the potential of the private sector and meet the Government’s policy targets – which include an average economic growth rate above 7 percent and the creation of at least 60,000 new jobs per year.” said Pedro Martins, Senior Country Economist for Timor-Leste.
The macroeconomic environment remains broadly stable. Consumer price inflation is low and appreciation pressures on the real exchange rate have eased accordingly. Credit to the private sector grew by 13 percent, mainly due to higher demand from households. However, both fiscal and current account balances are expected to deteriorate, owing to growing public spending that is expected to stimulate imports of goods and services. Containing public spending coupled with a prudent management of the Petroleum Fund are key to secure medium-term fiscal sustainability.
“The World Bank Group’s new five-year strategy for Timor-Leste is focused on strengthening the foundations for private sector led growth, while improving human capital and connective infrastructure. We look forward to working closely with the government and the private sector to overcome existing business constraints and help unleash their potential for job creation.” said Macmillan Anyanwu, Country Representative for Timor-Leste.
The Timor-Leste Economic Report includes a special focus on enhancing private sector development. Improving the competitiveness and performance of local businesses is identified as a key ingredient to accelerating growth and raising living standards. Lack of access to finance, cumbersome import and business regulations, and low workforce skills have all been associated with weaker firm performance – among others. Policy priorities for enhancing business performance include increasing access to finance, skills and affordable inputs, as well as reducing regulatory uncertainty.
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