SOCIO-ECONOMIC DEVELOPMENT OF TIMOR-LESTE
Timor-Leste Statistical Profile:
Economic activity gained momentum in Timor-Leste in 2008 and it promoted economic growth and social stabilization. According to the recent estimates of the Government of Timor-Leste, economic growth recorded an impressive 12.8 % in 2008 against the backdrop of the global financial crisis. This growth was the result of an increase in budget expenditure which also helped the social stabilization process. However, this positive outlook for the key economic aggregates masks the poverty in the country.
The inflation rate which averaged 8.9 % in 2007 came down to 7.6% in 2008. Inflation is expected to decline in 2009 due mainly to fall in commodity prices. Another factor behind the projected decline in inflation is the appreciation of the US dollar relative to the currencies of the Timor-Leste trading partners.
The State Budget for 2009 was approved by the Parliament for US$ 680.8 million with total non-oil revenues at US$ 91.1 million. The tax deficit is thus US$ 589.8 million which comes from the Petroleum Fund. The sustainable income is estimated US$ 407.8 million. The Government proposes to withdraw an amount exceeding the Sustainable Income of the Petroleum Fund by US$ 181.2 million, in order to meet the tax deficit.
Petroleum revenue rose sharply in 2008 but the sudden global slowdown and financial crisis brought about a sharp decline in oil prices. As petroleum revenue is the major source of income for the country, it will have an impact on the economy. Petroleum revenue is projected to decline to US$ 1.3 billion in 2009 from US$ 2.6 billion in 2008. At the same time, the Government have hopes of new and potential discovery of petroleum resources in the Joint Petroleum Development Area (JPDA) and Exclusive Timor-Leste Offshore Area which may bring additional revenue to the country.
The petroleum revenue from Timor-Leste goes into a Petroleum Fund in New York. The Fund has made good gains despite the volatile markets and global financial crisis. According to the Bank and Payments Authority (BPA) of Timor-Leste , the Fund has increased from below US$ 1 billion in 2005 to US$ 4.9 billion in 2009 (end June 2009).
Sources of Growth
The source of growth came mainly from huge monetary injections by the Government into the economy. It provided strong stimulus needed for economic recovery and development. The cash transfers of about US$ 100 million were given as subsidies to elderly, vulnerable people, pensions for former public office holders and ex-combatants. Due to the crisis in 2006, about 10% of the population became displaced- otherwise known as internally displaced persons (IDPs). The government provided IDPs with financial resources to return to their villages from temporary shelters. However, these government measures should be considered only as short term measures.
By end of 2008, Timor-Leste recovered from negative economic growth (-5.6%). Since the beginning of 2009, the country has moved into the transition phase from recovery to development. The future of Timor-Leste depends on building a sustainable economic base. In this context, resources should be directed for investment in the productive sectors to spur non-oil based economic growth.
The agriculture sector which accounts for about 85 % of employment recovered in 2008 after bad weather conditions in 2007. The Government also doubled its investment in agriculture in 2008 which helped in its recovery. Agriculture production is estimated to have grown by 14% as a result of good harvest. Coffee production and exports also saw a rise in 2008. Rice production increased by 21% and it met about 40% of annual requirements (1000, 000 metric tons). The main factor behind the increase is the investments in rice production through increased integrated systems application, mechanization and seeds.
Sharp rise in domestic demand lead to a large rise in imports. Merchandise imports rose from US$ 176 million in 2007 to US$ 353 million in 2008 and is projected to increase to US$ 440 million in 2009. Since the crisis began, the US Dollar has strengthened against the trading partners of Timor-Leste and this has benefitted the economy by lower import prices.
Continued global financial crisis and economic downturn in the medium-term may have an impact on the Timorese economy. IMF has recently projected Timor-Leste’s real non-oil GDP growth to be 7.2 % and 7.9 % for 2009 and 2010 respectively. Coming years, Timor-Leste needs to invest more resources for non-oil based development as well as spread the wealth to rural areas for sustainable growth.
Many challenges remain for the country to emerge from the fragile situation. A key challenge for the Government is to translate oil revenues into sustainable development. The majority of the population continues to live on subsistence farming. Unemployment is high, particularly among youth. Human and institutional capacities are still weak. Infrastructure which is vital for national development continues to hamper development efforts.
According to UNDP’s Human Development Report of 2008, the Human Development Index (HDI) ranks Timor-Leste as 141 out of 179 countries. The 2006 crisis has adversely impacted some of the indicators, including education indicators- registering a decline in the net enrolment ratio in primary education; child malnutrition –prevalence of underweight children under 5 years of age has increased; half of the population still does not have access to safe drinking water; two-thirds lack adequate sanitation and about three-fourths lack electricity.
As per the latest Timor-Leste Living Standards Survey conducted throughout 2007, poverty in the country increased from 36.3 % in 2001 to 49.9 % in 2007- one out of every two Timorese persons was poor in 2007. Poverty increased both in the rural and urban areas but disproportionately faster in the urban areas. Children (below 15 years of age) and rural people are the most affected by poverty: (i) while children account for about 43% of the population, they represent 49% of the poor; and (ii) rural people account for 74% of the country’s population but 76%of the country’s poor. Rural productivity and education are to be at the core of priorities to address poverty in the medium and long term.
Progress toward the achievement of Millennium Development Goals (MDGs) has been very limited. Timor-Leste still lags behind the Asia-Pacific region in achieving the Millennium Development Goals (MDGs). The second MDG Report launched by the Prime Minister on 3 April 2009 stated that the country is not on track to achieve the MDGs by 2015. However, the Government has reiterated its commitment to achieve the MDGs.
The Prime Minister’s Office is preparing the “National Strategic Development Framework: 2010 – 2015” (NSDF), for the country that will determine the priorities for the medium and long term. This framework will guide the alignment of the annual budgets and sector programmes and will determine the annual priorities for each area, targeting the achievement of the MDGs.
In order to ensure a strong link on socio-economic development issues between the mission, the Government of Timor-Leste, UN system organizations and development partners, the Socio-Economic Development Unit was established in July 2007 under the Deputy Special Representative for Governance Support, Development and Humanitarian Coordination. This Unit advises the Deputy Special Representative on support to the Government and on poverty reduction and socio-economic policies and strategies in order to promote the goals of the medium and long term priorities of the country.
(i) Ministry of Economy and Development (Government of Timor-Leste), State of the Nation Report, Vol. I and II (Macroeconomic Management and Fiscal Policy and Thematic Reports), Dili, September 2008
(ii) Ministry of Finance (Government of Timor-Leste), General Budget of the State 2009 and the State Plan for 2009, Dili, 2009
(iii) Government of Timor-Leste and United Nations Development Programme, The Millennium Development Goals, Timor-Leste, 2009, Dili, 2009
(iv) Asian Development Bank, Asian Development Outlook 2009, Manila, 2009
(v) United Nations Development Programme, Human Development Report 2008, New York, 2008
(vi) Government of Timor-Leste, United Nations Development Assistance Framework 2009-2013, Dili, 2009
Mr. Finn Reske-Nielsen
Deputy Special Representative of the Secretary-General for
Governance Support, Development and Humanitarian Coordination
Tel: (670) 331 -3539
Mr. Abraham Joseph
Senior Socio-Economic Affairs Officer
Tel: (670) 331-2210 ext. 4608 or (670) 731-1678
Mr. Rui Gomes
Head, Pro-Poor Policy Unit
Tel: (670) 723-1571/5881