Dili, February 13, 2025 - High government spending as a share of gross domestic product (GDP) in Timor-Leste and modest returns on investment from its Petroleum Fund could impact the country's long-term fiscal stability, according to a new World Bank report.
The report, "Timor-Leste Economic Report: Transforming Public Spending to High Growth", finds that public expenditure averaged 85 percent of GDP between 2013 and 2023, and average GDP growth has remained at 1.3 percent annually. During this same period, 42 percent of the population live below the national poverty line.
"Timor-Leste is at an important juncture. To create jobs and boost growth, the country is encouraged to improve the efficiency of spending and diversify its economy." said World Bank Country Representative for Timor-Leste, Bernard Harborne. "With the right fiscal reforms, as the government is currently undertaking, the country can transition from high spending with low returns to strategic investments that drive growth, reduce poverty, and secure its future,"
The report highlights the importance of ensuring the long-term sustainability of the Petroleum Fund, which remains the foundation of Timor-Leste's fiscal stability. Building off the ASEAN accession roadmap and recently promulgated legislation, such as the procurement and public financial management laws, the Government needs to deepen its reform agenda. Particular recommendations include:
- Enhancing Spending Efficiency: Reduce inefficient expenditures by cutting low-impact programs and shifting resources from recurrent costs, such as wages and subsidies, to high-impact sectors like infrastructure, education, and health.
- Strengthening Fiscal Sustainability: Over time to comply with the Estimated Sustainable Income rule to preserve the Petroleum Fund and diversify revenue streams through improved tax collection.
- Boosting Public Financial Management: Streamline procurement processes, strengthen public investment management, reduce project delays, and implement program-based budgeting to ensure expenditures align with measurable outcomes.
The report highlights the need to invest in infrastructure, human capital, and agricultural productivity while addressing inefficiencies in public spending so as to safeguard Timor-Leste's fiscal health and build a resilient and inclusive economy.
