Renewed Focus on Productivity Needed to Sustain Growth
DILI, November 9, 2020 – Timor-Leste’s economy is forecast to contract by 6.8 percent in 2020 – the sharpest fall since the country’s independence in 2002 – due to the impact of COVID-19 and delays in the approval of the 2020 state budget, according to a new World Bank report released today.
The Timor-Leste Economic Report: Towards a Sustained Recovery warns that a potential second wave of COVID-19 infections is one of the main risks to the outlook, while the economic recovery is expected to be gradual (3.1 percent in 2021) owing to the magnitude of the shocks. Strengthening health preparedness and continuing political stability are essential for a robust and sustained economic recovery, according to the report.
“Public health measures were crucial to contain the spread of COVID-19, and the economic response package has provided much-needed relief to households and businesses,” said Pedro Martins, the World Bank’s Senior Country Economist for Timor-Leste. “However, the impact on the economy has been significant, and will likely lead to irreversible income losses, unemployment, and firm closures, and thus increase the poverty rate. The timely approval of a 2021 state budget and the implementation of the economic recovery plan will be key to assist the economy.”
The report, the latest in a twice-yearly World Bank analysis of the country’s economy, notes that passenger arrivals at Dili airport declined by 62 percent in the first half of 2020, contributing to a 46 percent drop in exports. Public expenditure declined by 7 percent, despite strong spending by the COVID-19 Fund – mostly through a cash transfer to households. However, there are some signs of recovery, as people’s mobility has progressively increased since April.
“The World Bank commends the Government of Timor-Leste for its prompt response with health and economic measures to protect the lives of the people and support the livelihoods of vulnerable households and small businesses.” said Macmillan Anyanwu, the World Bank's Country Representative for Timor-Leste. “While the Government works to mitigate the immediate risks and impact of the COVID-19 pandemic, it is also important to invest in programs that help to build resilience in communities, strengthen the health system, and achieve robust economic recovery over the medium term.”
The Timor-Leste Economic Report includes a Special Focus with policy recommendations for enhancing economic growth while safeguarding macroeconomic stability. Despite high levels of public expenditure, economic growth has steadily declined over the past decade. A renewed economic strategy that contributes to private capital accumulation and productivity growth is needed to accelerate and sustain economic growth. Strengthening public investment management and prioritizing growth-enhancing expenditures on social infrastructure – such as education, health, and water and sanitation – can play a key role.