Díli, Feb. 13, 2025 (Lusa) - The Timorese economy is expected to grow by an average of 3.5% in 2025 and 2026, supported by infrastructure projects, while inflation is expected to stand at 2.5%, according to the economic outlook released on Thursday by the World Bank.
"The economic outlook suggests a continued but fragile recovery. Average growth of 3.5% is expected during 2025-2026, supported by infrastructure projects such as road building," reads the report presented at the Archives and Museum of the Resistance in Dili.
According to the World Bank, the possible conclusion later this year of negotiations with Australia over the Greater Sunrise gas field "could further improve the economic prospects".
"Tourism, remittances and a growing digital economy, supported by the installation of the fibre optic cable, are also poised to contribute to growth. However, the narrow export base, dependent on coffee, and the high dependence on imports limit the expansion of the non-oil sector," the document emphasises.
With regard to inflation, the World Bank predicts a decrease, but warns that "external risks pose some challenges".
"Inflation is expected to fall to 3.3% in 2024 and average 2.5% during 2025 and 2026. However, external risks such as weather-related disturbances and global volatility in commodity prices could increase price volatility," the report emphasises.
The document states that Timor-Leste's "dependence on imports and the use of the US dollar limit the ability to manage inflation through monetary policy, emphasising the need for robust external risk management strategies and a stronger role for fiscal policy".
For the World Bank, "urgent reforms are needed to diversify revenue sources and reduce unsustainable spending patterns".
"Public spending is expected to exceed domestic revenue by 2025, with the Petroleum Fund expected to finance 73% of public spending. The fiscal deficit is projected to reach 57% of Gross Domestic Product (GDP) in 2025," which demonstrates the “unsustainability of current practices,” the report reads.
The World Bank warns that climate change could threaten agricultural production and food security and that geopolitical tensions could affect trade and energy markets, "increasing vulnerabilities".
"Domestically, poor public service delivery, underinvestment in education and health, and inefficiencies in infrastructure projects can hold back private sector growth and delay economic diversification efforts," the report emphasises.
For the World Bank, Timor-Leste must improve "budget execution and ensure that investments in infrastructure provide long-term benefits" to "sustain growth", especially in transport and digital infrastructure, which will reduce costs for the private sector.
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