DILI, 11 october 2023 (TATOLI) – The economy is projected to grow, but only at an average of 3.4 percent, according to the World Bank’s Timor-Leste Economic Report 2023.
The economy is expected to continue recovering thanks to a pick-up in private consumption demand and more effective public spending. Over the medium term (2023 to 2025), average annual growth is projected to reach 3.4 percent.
The report said that: “Political stability would facilitate predictability required to encourage private investment and a boost in consumer confidence, leading to higher private consumption. The government’s focus on reducing bottlenecks in infrastructure spending is expected to stimulate growth by improving the execution of infrastructure projects.”
Achieving higher economic growth hinges on bolstering private sector development and enhancing competitiveness, particularly in the agriculture sector which employs nearly 38 percent of Timor-Leste’s labor force. A flourishing agricultural sector holds the potential to stimulate rural development and alleviate poverty. Yet, in the short-term, caution is required due to the unfavorable outlook related to the El Nino climate forecasts predict a reduction in rainfall in the coming wet season, said the report.
Given the end of oil production and tumultuous recent years for financial markets, the balance of the Petroleum Fund will experience faster depletion and is projected to be entirely depleted by 2034. Withdrawals from the Fund have been the key to financing persistent budget and current account deficits. The Fund is critical for ensuring a consistent US dollar supply. The depletion of the Petroleum Fund threatens long-term macroeconomic stability and the continued use of the US dollar as legal tender.
The report provided that downside risks include persistent high inflation, political instability, reversal of reforms, and natural disasters. In this context, it is now crucial for the new Government to maintain the consistency of high-level policies, particularly in areas such as fiscal sustainability, public financial management, and the diversification agenda.
The report recommended that in order for the government to advance a reform agenda, it has to consider institutionalizing fiscal consolidation through robust fiscal rules: “Both revenue mobilization and expenditure rationalization efforts should not only be maintained but also enhanced. Given that significant increases in public spending have had a limited impact on Timor-Leste’s medium-term economic growth, it is possible to sustain growth levels with a reduced budget.”
The report proposes that it is important for the government to make a serious investment in the agricultural sector in order to guarantee the prosperity of its population.
First, investing in agriculture plays a crucial role in fostering an inclusive economy that benefits a significant portion of the population. Agriculture has been consistently the largest share of the economy outside the public sector. The latest 2021 Labor Force Survey show that 38 percent of employment is still in the agriculture sector making it the largest sector of employment in Timor-Leste.
“The agriculture sector is characterized by low remuneration for farmers and low productivity levels. On average, agricultural households in the country generate a meager economic value, resulting in very low returns. Moreover, the average harvested area has significantly reduced by 35 percent during the past 20 years,” explained the report.
Second, to achieve inclusive economic development and foster broad-based employment creation, it is imperative to prioritize investment in agriculture. However, maintaining the status quo in the agricultural sector will not suffice, as the prevailing low productivity levels make it impossible to support adequate livelihoods. Without substantial improvements in productivity, income levels, and commodity mix diversification, most agricultural households will remain trapped in poverty.
In addition, efforts to enhance agricultural productivity and create sustainable economiale agriculture productivity, balancing domestic supply and demand of key food categories, transitioning focus to high-value commodities, and encouraging productivity gains through improved seed varieties, affordable technolc opportunities for farming households are vital. This includes boosting farmer incomes via increased small-scogies, and superior storage methods. The development of food processing, particularly in Micro, Small, and Medium Enterprises, should also be supported.
Journalist: José Belarmino de Sá
Editor: Filomeno Martins