Timor-Leste: Strong 2013 Growth But Downside Risks Loom

Timor-Leste to Post Strong 2013 Growth But Downside Risks Loom - ADB Report

DILI, TIMOR LESTE (27 June 2013) – Timor-Leste is on track to post growth of 9.5% in 2013 the strongest rate in the Pacific region but some downside risks for the economy loom, says the latest Pacific Economic Monitor, released today by the Asian Development Bank (ADB).

“Growth is set to remain robust this year, with the private sector doing well, but there are some potential storm clouds ahead with a slowdown in government and capital spending in the first quarter and some oil price weakness,” said Shane Rosenthal, Resident Representative of ADB’s Timor Leste office. “Inflation is also running above projection although concerns about price pressures are partially tempered by an expected slowdown in infrastructure spending.”

The latest gross domestic product growth projection is slightly below an April ADB forecast of 10.0%. However, for 2014, ADB expects the oil-rich economy to see growth tick up again to 10.0%.The Pacific region as a whole is expected to grow 5.0% this year, rising to 5.5% in 2014, as the region benefits from a stronger global economy.

Government spending fell by over 60% year-on-year in the first quarter of this year. Capital expenditure slumped by an even more dramatic 90%, following high levels of spending on the national electrification project in 2012. The modest level of capital spending in the quarter accounted for less than 2% of the total earmarked for 2013, raising doubts about the rollout of the government’s proposed infrastructure program this year. Scaling up government capacity to implement its ambitious infrastructure development plans has been an issue in recent years as annual appropriations for capital projects have risen very rapidly.

At the same time, the country’s Petroleum Fund continued to grow, expanding $1.2 billion in the first quarter to $13 billion, on the back of inflows from royalties, taxes and strong investment returns. A number of proposals have been put forward to ensure the ongoing sustainability of the fund.

Inflationary pressures remain a concern with ADB forecasting consumer price inflation of 9.0% for 2013, well above other projected rates in the region. In the first quarter, food and transport costs rose 15.5% year-on-year and housing prices gained 8.2%, largely as a result of internal supply chain bottlenecks. Moving forward, however, prices may get some relief from further declines in international commodity prices, a rising US dollar, and the completion of the national electrification project in 2012, which is expected to ease capacity constraints.

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth and regional integration. Established in 1966, it is owned by 67 members – 48 from the region. In 2012, ADB assistance totaled $21.6 billion, including cofinancing of $8.3 billion.

ENDS

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