Government Spending Drives up TL’s Economic Growth: World Bank

Government Spending Drives up TL’s Economic Growth: World Bank

A street vendor takes a break between sales at Dili's Lecidere park. (Image/Antonio Goncalves

DILI, December 12, 2019 (TATOLI) – A 16 per cent lift in government spending between 2018 and 2019 has helped bring Timor-Leste’s economic growth to 4.1 per cent, according to a report by the World Bank.

The report projects GDP growth to increase to 4.6 percent in 2020 and then to 4.9 percent in 2021 — still significantly below below the government’s growth target of 7 percent per year.

“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,” said Pedro Martins, the bank’s Senior Country Economist for Timor-Leste.

The biannual economic analysis Timor-Leste Economic Report: Unleashing the Private Sector said private investment is also likely to benefit from greater political and economic stability than the previous year, in which Timor-Leste leaders were unable to form a government. 

“The 2017-2018 political impasse likely costed the economy about $350 million in lost economic activity over the two years, while GDP will only surpass 2016 pre-recession levels in 2020,” the report said.

The report also noted that the delay in implementing the 2019 budget earlier this year can be blamed for the sluggish growth in the first quarter, before it began to accelerate. During parliamentary debates last week, Deputy FRETILIN opposition leader, Fabião de Oliveira, said the parliament’s delay in passing the 2020 general state budget (OJE) put the government’s growth targets out of reach.

“[The delay] will have big implications for economic development in this country. Now we’re encountering [a] political and economic crisis. Many projects are not being executed. Many things are not happening. It is very difficult for the government to reach 7.2 per cent [target] of economy growth by next year,” he said.

But the Interim Minister for Economic Coordination, Fidelis Manuel Leite Magalhães said the World Bank Report reflects well on the TL economy.

“It has been written that our economy has recovered from the years of 2017-2018… and [the report] also shows a 13 percent increase in loans taken by some families for small business, to support their family budgets,” Mr Magalhães said.

Timor-Leste’s economy is expected to outperform many of its neighbours, however. The International Monetary Fund (IMF) has forecast average growth across Pacific island countries and other small states — including Timor-Leste — to shrink from 4.7 per cent in 2019, to 3.8 per cent in 2020.

The report has also showed there are some factors that have hampered the growth of Timor-Leste’s economy, such as corruption, difficult of accessing credit, and trouble in land registration. Macmillan Anyanwu, the World Bank’s Country Representative for Timor-Leste, said containing public spending and careful management of the Petroleum Fund are key to secure medium-term fiscal sustainability.

“We hope with this report will there will be a discussion between the government and private sector to produce better results for next time,” Macmillan suggested.

Journalist: Robert Baird; Antónia Gusmão

Editors: Robert Baird; Maria Auxiliadora

Translation: Nelia Borges


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