Press Release No. 06/55

Press Release: Statement by IMF Staff at the Conclusion of the 2006 Article IV Consultation Discussions with the Democratic Republic of Timor-Leste

March 15, 2006

The following statement was issued today by an International Monetary Fund (IMF) staff mission in Dili at the conclusion of the 2006 Article IV consultation discussions:

"An IMF mission led by Ms. Susan Creane, Deputy Division Chief in the Asia Pacific Department, visited Dili during March 1-14, 2006, to conduct the Article IV consultation discussions with the Timor-Leste authorities. The team met with a wide range of people from the government, private sector, and civil society, to exchange views on recent economic developments and the medium-term economic outlook.

"The mission estimates that growth in the non-oil sector has turned moderately positive over 2004 and 2005, reversing the contractionary impact of the downsized UN presence. Consumer price inflation remained low in 2005, indicating that economic policies continue to support macroeconomic stability. Despite good progress in establishing the basis for a stable and healthy economy, administrative capacity remains low and economic growth remains below the level needed to reduce poverty and strengthen human development.

"The discussions considered the policies needed to move growth to a higher sustainable path. The mission supports the authorities' development strategy for achieving these objectives and the focus on the following core policies: a) adherence to the long-term petroleum revenue saving policy supported by the Petroleum Fund; b) an increase in prioritized development spending under the sector investment programs; c) the maintenance of a monetary and exchange rate regime that preserves macroeconomic stability; and d) the rapid establishment of the environment needed to promote private sector investment and activity. Important movement on this plan has been made to date.

"The mission estimates that annual economic growth rates of 7 percent or more are needed to significantly reduce poverty. Reaching this growth rate will require more forceful advancement of the government's development strategy. Specifically, in the near term, well-targeted public investment (in infrastructure and human capital) should be stepped up by easing budget execution constraints and further strengthening of administrative capacity under the government's Planning Financial Management Capacity Building program. Over the longer-term, growth and job creation will need to come from the private sector. To that end, more rapid movement on the government's plans to create a business-friendly environment is needed, including getting the necessary legal structure in place and reducing red tape. Finally, as preservation of the country's petroleum resources remains key to Timor-Leste's future, speedy completion of the Petroleum Fund's institutional arrangements is encouraged.

"The IMF mission wishes the government and the people of Timor-Leste every success in their efforts to build a strong economy in support of poverty reduction and rapid human development."