Dili – After the dual shocks of COVID-19 and natural disasters, East Timor's economy is showing some signs of recovery and this year's gross domestic product (GD) growth in real terms is expected to improve to 1.9 percent, according to the latest World Bank economic update, 'Timor-Leste Economic Report: Steadying The Ship', released earlier this month by the global lender based in Washington, DC
Timor-Leste is East Timor's official Portuguese name.
The COVID-19 situation in the half-island nation has begun to improve as the novel coronavirus vaccine rollout continues to accelerate and case numbers drop. Some 71 percent of the eligible population has received one dose and 57 percent of has been fully (twice) vaccinated. Disparity of vaccine coverage persists however, with an average of 30 percent of the eligible population vaccinated in many districts.
East Timor has 1.3 million inhabitants.
Receipts from sales and excise taxes rebounded while household credit expanded as public spending grew by 20.3 percent year-on-year. Inflation increased to 3.6 percent in the second quarter of this year, driven largely by rising food, beverage, alcohol, and tobacco prices. However non-oil GDP contracted by 8.6 percent in 2020 and the government collected 11.3 percent less domestic revenue during the first half this year.
"The COVID-19 crisis came on top of a period of low growth, suggesting deeper structural problems in the economy," said Bernard Harborne, World Bank Country Representative for East Timor. "Advancing the structural reform agenda can improve growth, competitiveness, and employment. Raising more fiscal revenues, the special focus of this issue, is a key step in ensuring a sustainable future for Timor-Leste".
The economy is projected to expand further to 2.4 percent in 2022, driven by more manageable COVID-19 infections, and less restrictive public health measures. On the demand side, a gradual rebound in private consumption (+2.9 percent) will drive economic growth in 2022. Private investment is likely to remain low while global trade is expected to pick up further, positively affecting both exports and imports.
The Timor-Leste Economic Report includes a special focus on Domestic Revenue Mobilization which highlights the importance of improving revenue mobilization to finance public spending on development and poverty reduction. The report recommends collecting more revenue by introducing value-added taxes (VAT) and increasing income and excise tax rates to match regional norms. Revenue administration can be improved by modernizing the tax system. Estimates on the tax potential suggest that, if existing gaps in tax policy and administration are addressed, tax revenue collection could double from around eight to 15 percent of GDP.
– Courtesy of The World Bank (additional reporting by The Macau Post Daily)