By Judith Ugwumadu | 24 October 2014
The government of Timor-Leste must further strengthen its public financial management in order to smooth spending over the long term to avoid a ‘fiscal cliff’, the International Monetary Fund has said.
It also urged the Southeast Asian country to develop its agriculture, tourism and energy sectors to increase employment opportunities and expand the tax base.
Economic developments in the country have been good since it regained independence in 2002, the IMF said, with growth expected to reach 6.6% this year and accelerate to 6.8% in 2015. But Timor-Leste remains one of the most oil-dependent countries, with oil accounting for around 95% of government revenues and 80% of Gross Domestic Product.
Oil revenues have been saved through the Petroleum Fund and has now amassed assets over $16bn, approximately four times the country’s GDP, the IMF said.
But the country is now at risk of depleting the Petroleum Fund through excessive spending because of declining oil production and has been urged to find new revenue sources.
Timor-Leste was encouraged to safeguard sound public finances by scaling back public expenditure to a more sustainable level. The IMF said spending on critical infrastructure, human capital, and well-targeted social programs remains a priority.
The fund said: ‘The country should broaden the non-oil tax base with a view to limiting excessive withdrawals from the Petroleum Fund.
‘More broadly, [there is] a need for further improvements in public financial management, including the public sector’s balance sheet, and a closer alignment of expenditure allocations with implementation capacity to help contain fiscal risks. Deeper structural reforms are needed to support sustainable growth and poverty reduction.’
