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Democratic Republic of Timor-Leste: Selected Issues and Statistical Appendix

Author(s):
International Monetary Fund
Published Date:
July 2005
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III. Dollarization in Timor-Leste: The Early Years1

A. Introduction

1. Timor-Leste has been officially dollarized since January 2000.2 As part of the transition to full independence, the initial decision to adopt the U.S. dollar was taken by the United Nations Transitional Administration in East Timor (UNTAET). The decision was made in consultation with the National Consultative Council of Timor-Leste (NCC), and drew on the expert advice of the International Monetary Fund. Following the move to full independence in May 2002, the government of Timor-Leste decided to maintain the U.S. dollar as the official currency.

2. As Timor-Leste moves beyond the post-conflict phase to consolidation focusing on strengthening national institutions and implementing reforms that promote growth and alleviate poverty, it is timely to review the early experience with official dollarization. This chapter also looks ahead and discusses the costs and benefits of continuing with dollarization, while taking into account that the still low level of institutional capacity severely constrains how soon Timor-Leste can move successfully to an alternative exchange rate regime. In this regard, the main objective should be to ensure that the monetary and exchange regime continues to support macroeconomic stability and growth, including by delivering low inflation.

B. A Brief History of Dollarization in Timor-Leste

What motivated the decision to dollarize?

3. The decision to dollarize was both a political and economic decision that also reflected the reality of weak institutional capacity in the new nation. At a political level the decision to remove the Indonesian rupiah from circulation and replace it with the U.S. dollar was a symbolic break from Indonesian rule that helped to reinforce the sense of an independent Timorese national identity, which culminated in the introduction of Timorese coins in November 2003. Institutions were emerging slowly after the conflict in 1999 and were already faced with significant challenges such as setting up a basic economic infrastructure, including an adequate payments system.3 Therefore it was important that the new currency regime could be implemented successfully within these constraints if it was to be credible and provide an effective nominal anchor.

4. The introduction of the U.S. dollar was also meant to deal with the distortions caused by having multiple currencies in circulation. After the UNTAET took on the responsibility in 1999 to manage the transition to full independence, several currencies began circulating in Timor-Leste which created inefficiencies and problems in the payments system. The Indonesian rupiah was familiar to the Timorese, but other currencies such as the Australian dollar, and Portuguese escudo also began circulating due to the international presence. Introducing a single currency was intended to eliminate problems such as exchange risk from exchange rate fluctuations, and introduce more transparency in the pricing of goods and services.

The implications of weak institutional capacity

5. The menu of options open to Timor-Leste for reforming its currency regime was constrained by the weak institutional capacity. This meant that the new currency regime had to be simple to administer, and minimize the burden on the newly created Central Payments Office (CPO) whose immediate priority was to set up a functioning payments system for the country.4

6. During Indonesian rule, the civil service and administration was dominated by native Indonesians with the Timorese population filling low level responsibilities with relatively little training. Once conflict broke out in 1999, and it became clear that the referendum vote would be strongly in favor of independence, the administration effectively collapsed as Indonesian staff returned home. After the return of relative peace, institutions had to be built up from scratch as almost all institutional memory was lost (it was not simply a matter of reviving already existing capacity).5 This was in contrast to some other post conflict countries, including Bosnia, where institutional capacity was already well developed before the period of conflict and so could be revived as peace took hold.

7. Dollarization was seen as a suitable option for Timor-Leste because it was simple to administer and would anchor the economy to the low inflation monetary policy of the United States.6 Introducing a national currency, including a relatively simple arrangement such as a currency board was much more difficult. Had a more ambitious monetary framework been planned, the chances of even limited success were not promising. For example, targeting the money supply either through market-based instruments or direct quantitative measures was constrained by the lack of even a rudimentary functioning payments system and financial system, and a limited capacity at the new CPO to analyze the link between money, economic activity and inflation.

Early progress with dollarization

8. Progress with dollarization was initially disappointing. Between 2000 and 2002, there were four currencies in circulation—the Indonesian rupiah, Australian dollar, Portuguese escudo and U.S. dollar. For historical reasons, the Indonesian rupiah was the most familiar and widely used currency. Moreover, NGOs and international agencies continued to pay their local staff in rupiah. The Portuguese escudo, Australian dollar and U.S. dollar were in circulation in a limited sphere of the economy such as shops, restaurants and hotels in the Dili area that were frequented by expatriate personnel. The dollarization process began to accelerate once regulations were amended to make it illegal to settle payments in currencies other than the U.S. dollar (supported by stronger enforcement including against transgressions by large businesses), and with the introduction of Timorese coins. By 2003, the initial problems with promoting the dollar as the legal tender had been addressed, the U.S. dollar was fully entrenched, and other currencies were out of circulation.

9. The initial lack of progress with dollarization was explained by several challenges faced by the Transitional Administration, including:

  • a lack of resources for the publicity campaign needed to familiarize the population with the use of U.S. dollars;
  • an insufficient supply of small denomination notes and coins since the average value of transactions was less than US$1. This constraint eased considerably with the introduction of Timorese coins (centavos) in November 2003. Supported by an extensive education campaign, these coins helped improve the popularity of the new currency regime by being seen as a symbol of national identity and by facilitating small transactions;
  • the continued use by international donors (including U.N. agencies and NGOs) of currencies other than the U.S. dollar, since initially regulations did not make it illegal to settle transactions in other currencies.

C. The Benefits and Costs of Dollarization

10. Choosing an exchange rate regime involves a trade off. On the one hand dollarization means giving up an independent monetary policy. Nevertheless, it is likely wise to adopt an international anchor currency if policy credibility or institutional capacity is weak, since under these circumstances the benefits of an independent monetary policy cannot be realized in any case. In the case of Timor-Leste, another important consideration for policymakers is the role that dollarization can play in facilitating the economy’s adjustment to large inflows of oil revenue. The experience of other countries is that large inflows of oil revenue (in relation to economic size) can result in pressure for a real exchange rate appreciation and make it more difficult to diversify the economy, including its export base.7 In a dollarized economy, the real exchange rate appreciation would have to come through higher relative prices for nontraded goods and services (versus traded goods and services) and higher wages, so that the relative price adjustment would probably take longer than if the nominal exchange rate were flexible.

11. While the experience of other countries may also shed some light on the costs and benefits of dollarization there are some issues to bear in mind. First, most dollarized economies have tended to be island economies with very small populations and strong colonial links (see Appendix Table 1). The few larger economies that have dollarized officially have tended to do so in reaction to prolonged economic instability—Ecuador dollarized after a history of economic crisis which made it difficult for the government to credibly commit to low inflation without “tying its own hands” and eliminating the option of printing its domestic currency to finance government spending.8 Second, Timor-Leste’s oil and gas production could have implications for its choice of exchange rate regime. Thus, drawing on the experience of other oil exporters may provide a guide as to whether a hard currency peg as opposed to a more flexible exchange rate regime is appropriate (Appendix Table 2). Third, Timor-Leste is a new nation with a short history, but many of the benefits of dollarization are necessarily long-term, and so may not yet be evident in the data (Berg et al., 2000).

Benefits of dollarization

12. The experience during the first few years of dollarization has been favorable and has supported the broader objective of nation building after the conflict of 1999. Given still deepening institutional capacity, Timor-Leste would have faced significant challenges in introducing its own currency and an independent monetary policy framework aimed at delivering similarly low inflation and exchange rate stability. First, the requisite analytical and organizational skills needed to conduct an independent monetary policy has yet to be developed. Second, the temptation to use monetary policy as a means of monetary financing for the government budget deficits may have proved difficult to resist in face of large budget financing gaps in the first few years after the referendum vote.9 Overall, the most important benefits of dollarization for Timor-Leste include;

  • Anchoring inflation at a low level in the face of significant shocks to food prices and the pressure on domestic demand from the international presence. After declining in the first few years following the introduction of the U.S. dollar, inflation has been generally in single digits with any pickup being temporary, reflecting increased pressure on domestic resources from the international presence, or a temporary increase in food inflation such as in 2003 when drought conditions adversely affected the harvest.
  • The decision to dollarize has provided an important constraint on fiscal policy, although it likely reflects a broader government commitment to fiscal discipline. In the first few years during the transition to full independence, and before major oil production began, the fiscal budget had large financing gaps. Nevertheless, the government decided to maintain a zero borrowing rule, choosing instead to live within the budget envelope financed by donor grants. In this context, dollarization can be seen as an important signal from the government to help buttress its credibility for budgetary discipline by removing the option of printing money to finance future budget deficits.
  • Adopting the U.S. dollar has also eliminated exchange rate fluctuations as a source of volatility for oil revenues, since international oil prices are quoted in U.S. dollars. Very few oil producers have a free floating exchange rate suggesting that oil exporters value exchange rate stability and are prepared to give up some flexibility in monetary policy. Even in Norway, which is a more diversified and industrialized economy, the exchange rate was allowed to float only recently (Appendix Table 1).
  • Adopting the U.S. dollar has eliminated the risk of speculative attack, which recent experience has shown can be disruptive to the economy. However, in the case of Timor-Leste this risk is somewhat limited by its lack of financial integration with the rest of the world.
  • Eliminating the risk of an exchange rate devaluation might be expected to reduce domestic interest rates in response to a decline in the risk premia on Timor-Leste assets. However, given the short time lapsed since commercial banks began to lend in Timor-Leste, it is difficult to assess whether interest rates are converging onto U.S. levels after taking into account differences in other country specific risk factors.

Headline and nonfood inflation in Timor-Leste

(12-month percent change)

Costs

13. As with any currency regime there is a trade off between having a flexible versus more rigid exchange rate regime. However, in the context of Timor-Leste, it is important to recognize that many of the costs of dollarization when compared with regimes that allow for more policy flexibility are only “real” if the alternative, more flexible currency regime, is a credible option. Otherwise the benefits of a flexible regime will not be realized and a country may be saddled with higher inflation, exchange rate and macro instability. With this in mind, the most important costs of dollarization for Timor-Leste include;10

  • The need for the economy to adjust to asymmetric shocks through the goods and labor markets instead of via a change in the nominal exchange rate and an appropriate monetary policy response. While trying to quantify these costs is difficult, and data is lacking, it is clear that the structure of Timor-Leste’s economy is very different to that of the United States. Timor-Leste relies on oil for a greater share of government revenue, and its economy is less diversified than the United States, relying more heavily on agriculture. Therefore, the economy is likely to be subject to asymmetric shocks and, in the absence of an independent monetary policy, greater variation in output.
  • Foregoing seigniorage revenue. However, this revenue loss, especially in relation to oil revenue, is very small.
  • Loss of lender of last resort capabilities. Dollarized economies may be subject to less moral hazard risks which may explain why research finds that dollarized economies have experienced fewer systemic banking crises, at lower cost to the taxpayer when compared to countries with their own central banks (Frydl, 1999). Dollarized economies have tended to rely on self-insurance mechanisms to deal with temporary liquidity problems in the banking system while also putting a premium on effective supervision. In Ecuador, banks, in cooperation with the monetary authority, help finance a liquidity fund which can be accessed periodically (using appropriate collateral) by banks that have a temporary need for liquidity. Although, in the case of Timor-Leste, no such mechanism is in place.

D. Conclusion: The Balance of Benefits and Costs for Timor-Leste

14. While it is too early for a thorough assessment of the impact of dollarization in Timor-Leste some initial observations are possible. The economic rationale for adopting the U.S. dollar in Timor-Leste clearly reflects the country’s constrained initial conditions, and the early experience with dollarization has been positive. Timor-Leste has never operated under a different exchange rate regime, and so unlike for other dollarized economies such as Ecuador, it is not possible to compare the period of dollarization with economic performance under a previous regime. What is clear is that dollarization has made significant contributions to a number of achievements in Timor-Leste either directly or indirectly, although quantifying them is difficult. These include:

  • Evidence of measured inflation converging to U.S. levels while the Banking and Payment Authority has been able to concentrate on core functions such as banking supervision and the payments system;
  • Indirectly supporting budget discipline by eliminating the option of printing money to finance the budget during the first few years following the independence vote when budgetary financing gaps were very large;
  • Budgetary discipline has also helped to maintain price competitiveness as measured by the real effective exchange rate through restraint in public sector wage growth. While the real effective exchange rate has appreciated more recently as the Indonesian rupiah has depreciated against the U.S. dollar, over the period as a whole, the real exchange rate has been broadly stable (chart).11
  • A recent pickup in credit growth. As the banking system has remained stable and confidence in the dollarization process has grown, credit growth accelerated sharply in the second half of 2003 (see chart).

Timor Leste: Nominal and Real Effective Exchange Rate Developments 1/

(Jan 2002=100)

1/ Includes Indonesia and Australia, Timor-Leste’s main trade partners. In absence of a trade weighted series, the NEER and REER are based on weights of 70 percent for Indonesia and 30 percent for Australia.

Credit growth and bank intermediation in Timor-Leste

15. Looking ahead, there are several areas in which the BPA, together with the government, can make efforts to lay the necessary preconditions for a more flexible exchange rate regime should that be deemed appropriate in the future. Further strengthening of institutional capacity remains a priority in this regard, including steps to strengthen capacity at the Banking and Payments Authority that would make it a fully functioning central bank at an operational level. Other steps include:

  • Enhancing the depth and sophistication of the financial system, including by setting up of a foreign exchange market and domestic money market. These elements would ensure that indirect instruments could be used to set monetary policy, and that a freely traded domestic currency reflects economic fundamentals;
  • Strengthening fiscal institutions. The sound management of petroleum resources will be key, and in this regard the passing of the new Petroleum Fund act is an important step in setting up a transparent framework that has public support. In addition, it will be important that fiscal policy continues to support macroeconomic stability as well as providing for the much-needed investment in human and physical capital.
Appendix Table 1.Officially Dollarized Economies, 2002
EconomyPopulationGDP ($bn)Political statusCurrency
American Samoa67,0000.5U.S. territoryU.S. dollar
Andorra68,0001.2independenteuro (formerly French franc, Spanish peseta)
British Virgin Islands21,0000.3British dependencyU.S. dollar
Cocos (Keeling) Islands6000Australian external territoryAustralian dollar
Cook Islands21,0000.1New Zealand self-governing territoryNew Zealand dollar
Cyprus, Northern140,0000.8de facto independentTurkish lira
Ecuador13,200,00037.2IndependentU.S. dollar
El Salvador6,200,00024IndependentU.S. dollar
Greenland56,0001.1Danish self-governing regionDanish krone
Guam160,0003.2U.S. territoryU.S. dollar
Kiribati94,0000.1independentAustralian dollar, own coins
Kosovo1,600,000?U.N. administrationeuro
Liechtenstein33,0000.7independentSwiss franc
Marshall Islands71,0000.1independentU.S. dollar
Micronesia135,0000.3independentU.S. dollar
Montenegro700,0001.6semi-independenteuro (partly “DM-ized” since 1999)
Monaco32,0000.9independenteuro (formerly French franc)
Nauru12,0000.1independentAustralian dollar
Niue2,0000New Zealand self-governing territoryNew Zealand dollar
Norfolk Island2,0000Australian external territoryAustralian dollar
Northern Mariana Islands75,0000.9U.S. commonwealthU.S. dollar
Palau19,0000.1independentU.S. dollar
Panama2,800,00016.6independentU.S. dollar, ownbalboa coins
Pitcairn Island420British dependencyNew Zealand, U.S. dollars
Puerto Rico3,900,00039U.S. commonwealthU.S. dollar
San Marino27,0000.9independenteuro (formerly Italian lira), own coins
Timor-Leste 1/857,0000.2independentU.S. dollar, own coins
Tokelau1,5000New Zealand territoryNew Zealand dollar
Turks and Caicos Isands18,0000.1British colonyU.S. dollar
Tuvalu11,0000independentAustralian dollar, own coins
U.S. Virgin Islands120,0001.8U.S. territoryU.S. dollar
Vatican City1,0000independenteuro (formerly Italian lira), own coins

For Timor-Leste, the currency regime is for 2004.

Sources: Kurt Schuler, “Encouraging Official Dollarization in Emerging Markets,” staff report, Office of the Chairman, Joint Economic Committee, U.S. Congress, April 1999; CIA World Factbook 2001; press reports.Notes: Data for some countries here are latest available from the CIA World Factbook; not all data are 2001. Some other countries issue domestic notes and coins but grant a foreign currency status as a parallel legal tender. GDP is in terms of purchasing power parity.

For Timor-Leste, the currency regime is for 2004.

Sources: Kurt Schuler, “Encouraging Official Dollarization in Emerging Markets,” staff report, Office of the Chairman, Joint Economic Committee, U.S. Congress, April 1999; CIA World Factbook 2001; press reports.Notes: Data for some countries here are latest available from the CIA World Factbook; not all data are 2001. Some other countries issue domestic notes and coins but grant a foreign currency status as a parallel legal tender. GDP is in terms of purchasing power parity.
Appendix Table 2.Exchange Arrangements in Selected Oil-Producing Economies (1991 - 2004)
Oil Exports (in percent of)
CountryGDPTotal ExportsExchange Arrangement in 2004
(percent)(percent)
Algeria28.891.4Managed floating with no preannounced path for the exchange rate
Angola61.088.0Managed floating with no preannounced path for the exchange rate
Azerbaijan19.660.2Managed floating with no preannounced path for the exchange rate
Cameroon8.032.6Exchange arrangement with no separate legal tender
Chad8.336.6Exchange arrangement with no separate legal tender
Congo, Rep55.981.3Exchange arrangement with no separate legal tender
Cote d’Ivore4.511.3Exchange arrangement with no separate legal tender
Ecuador9.234.1Exchange arrangement with no separate legal tender
Equatorial Guinea96.894.1Exchange arrangement with no separate legal tender
Gabon41.572.9Exchange arrangement with no separate legal tender
Indonesia3.511.8Managed floating with no preannounced path for the exchange rate
Iran17.975.3Managed floating with no preannounced path for the exchange rate
Kuwait42.183.0Conventional pegged arrangement
Libya33.592.5Conventional pegged arrangement
Malaysia5.24.9Conventional pegged arrangement
Nigeria40.088.7Managed floating with no preannounced path for the exchange rate
Norway15.838.3Independently floating
Qatar27.647.4Conventional pegged arrangement
Russia8.127.6Managed floating with no preannounced path for the exchange rate
Sao Tome0.20.8Managed floating with no preannounced path for the exchange rate
Saudi Arabia34.683.2Conventional pegged arrangement
Timor-LesteExchange arrangement with no separate legal tender
UAE29.037.9Conventional pegged arrangement
Venezuela21.374.4Conventional pegged arrangement
Sources: WEO, Annual Report on Exchange Arrangements and Exchange Restriction (2004)
Sources: WEO, Annual Report on Exchange Arrangements and Exchange Restriction (2004)
STATISTICAL APPENDIX
Table 1.Timor-Leste: Selected Social Indicators 1/
Timor-LesteEast Asia and Pacific island countriesLow income countries
Gross national per capita income (U.S. dollars)4171,080450
Area (in thousands of square kilometers)15
Demography
Total population (in millions)0.9252/1,8552,310
Population growth (in percent) 3/4.01.22.0
Life expectancy and mortality
Life expectancy at birth (years)627058
Male606857
Female647159
Infant mortality (per thousand live births)893280
Under 5 mortality rate (per thousand live births)10741123
Education
Illiteracy rate (in percent) 4/51105/495/
Male46
Female55
Net primary school enrollment rate (in percent)75935/775/
Health
Immunization rate
(in percent of children aged 12 to 23 months)
Measles608265
DPT708267
Other indicators 6/
The population below the poverty line405/
Households with access to electricity26
Households with access to safe water527/787/757/
Sources: UNDP Human Development Report 2004, World Bank, and Fund staff estimates.

Data are for 2003, unless otherwise indicated.

Data for 2004. Provisional population count from 2004 census.

For Timor-Leste, average growth over 2000-2004, including returning refugees. For comparators average for 1990-2003.

For ages 15 and above.

Figures are for 2001.

In percentage share of the total.

Figures are for 2002.

Sources: UNDP Human Development Report 2004, World Bank, and Fund staff estimates.

Data are for 2003, unless otherwise indicated.

Data for 2004. Provisional population count from 2004 census.

For Timor-Leste, average growth over 2000-2004, including returning refugees. For comparators average for 1990-2003.

For ages 15 and above.

Figures are for 2001.

In percentage share of the total.

Figures are for 2002.

Table 2.Timor-Leste: Selected Economic Indicators, 2000-2005
200020012002200320042005
Est.Proj.
Output and prices 1/
Non-oil GDP316368343336339349
Real non-oil GDP growth (percentage change)15.416.6-6.7-6.21.82.5
Inflation (percentage change, end-period) 2/3.0-0.39.54.21.82.5
(In percent of non-oil GDP)
Investment-saving balance
Gross investment 3/414236312832
Non-government797999
Government343228231923
Gross national savings-46-44-48-34627
Non-government-51-50-54-44-36-26
Government566104253
External savings87868465235
Central government budget 4/
Revenues171524319057
Domestic revenues4669109
Oil/gas revenues439127145
Grants96101093
Expenditure151521212230
Recurrent expenditure91217191920
Capital expenditure6343210
Overall balance203106827
Public debt000000
Combined sources fiscal operations 4/5/
Revenues181625339215
Expenditure697073666270
Recurrent expenditure353844444541
Capital expenditure343230221829
Overall balance-52-53-48-3329-55
Money and credit
Broad money (end-period) 6/61416222528
Net domestic assets (end-period)-4-4-10-11-30-84
(In millions of U.S. dollars)
External sector
Current account excl. international assistance-275-316-288-218-77-18
Current account incl. international assistance37462617119149
Trade balance-237-280-260-213-194-204
Merchandise exports 7/5467810
Merchandise imports 8/-242-284-266-221-202-214
Overall balance1682018122216
(In percent of non-oil GDP)
Current account excl. international assistance-87-86-84-65-23-5
Current account incl. international assistance1213853543
Trade balance-75-76-76-64-57-58
Merchandise exports 7/212223
Merchandise imports 8/-77-77-78-66-60-61
Overall balance52653662
Sources: Data provided by the Timor-Leste authorities; and Fund staff estimates.

Non-oil GDP and national accounts data for 2000-2003 are based on estimates prepared by BIDE consultants in October 2004.

CPI for Dili.

Excludes oil/gas sector investment.

Fiscal year basis (July-June); for example, 2000 refers to FY2000/01.

Includes fiscal and quasi-fiscal expenditure programs undertaken by bilateral donors and international financial institutions, outside the central government budget. The sharp revenue decline in FY 2005/06 reflects the adoption of the new savings and petroleum fund policy according to which only the sustainable income from the oil wealth is transferred to the budget.

Exclude currency holdings by the public, for which no data are available.

Excludes oil/gas revenue, which are recorded under the income account (royalties) and transfers (tax revenues).

In 2005 includes the transfer of assets from UNMISET, valued at approximately US$ 12 million.

Sources: Data provided by the Timor-Leste authorities; and Fund staff estimates.

Non-oil GDP and national accounts data for 2000-2003 are based on estimates prepared by BIDE consultants in October 2004.

CPI for Dili.

Excludes oil/gas sector investment.

Fiscal year basis (July-June); for example, 2000 refers to FY2000/01.

Includes fiscal and quasi-fiscal expenditure programs undertaken by bilateral donors and international financial institutions, outside the central government budget. The sharp revenue decline in FY 2005/06 reflects the adoption of the new savings and petroleum fund policy according to which only the sustainable income from the oil wealth is transferred to the budget.

Exclude currency holdings by the public, for which no data are available.

Excludes oil/gas revenue, which are recorded under the income account (royalties) and transfers (tax revenues).

In 2005 includes the transfer of assets from UNMISET, valued at approximately US$ 12 million.

Table 3.Timor-Leste: Non-oil Gross Domestic Product by Sectoral Origin, 1999–2004 1/
199920002001200220032004
(At current market prices)
Agriculture, forestry, and fishery116.681.584.791.297.4107.1
Mining and quarrying2.73.743.32.72.8
Manufacturing7.58.71911.311.412.112.5
Electricity, gas, water2.12.6481.42.73.33.3
Construction33.043.345.637.93131.9
Trade, hotels, and restaurants15.124.726.324.525.125.4
Transport and communications14.622.926.328.331.231.8
Finance, rents, and business services10.820.52525.626.729.4
Public admin, and defense 2/66.2106.3141.4116.3104.192.7
Private services1.61.91.922.12.1
Total270.1316.2367.9343.2335.7339.0
(At constant 2000 market prices)
Agriculture, forestry, and fishery95.181.588.693.993.5102.9
Mining and quarrying3.13.73.83.22.52.6
Manufacturing7.98.710.911.011.011.2
Electricity, gas, water2.32.61.42.73.33.3
Construction34.443.344.136.928.829.4
Trade, hotels, and restaurants17.424.725.623.923.323.5
Transport and communications15.922.925.427.429.329.9
Finance, rents, and business services16.920.524.124.824.527.0
Public admin, and defense 2/83.5106.3142.7118.0104.597.0
Private services1.71.91.92.01.91.9
Total278.2316.2368.5343.8322.6328.5
Sources: Data provided by the Timor Leste authorities; and Fund staff estimates.

Data on oil and gas value added are not yet available. Figures for 1999 are Fund Staff estimates. Figures for 2000-2003 are estimates made by BIDE consultants under a World Bank-supported technical assistance project.

Includes the value-added of services provided by UNTAET/UNMISET and donor-supported agencies acting on behalf of the Timor-Leste government.

Sources: Data provided by the Timor Leste authorities; and Fund staff estimates.

Data on oil and gas value added are not yet available. Figures for 1999 are Fund Staff estimates. Figures for 2000-2003 are estimates made by BIDE consultants under a World Bank-supported technical assistance project.

Includes the value-added of services provided by UNTAET/UNMISET and donor-supported agencies acting on behalf of the Timor-Leste government.

Table 4.Timor-Leste: Non-oil Gross Domestic Product by Expenditure, 1999–2004 1/
199920002001200220032004
Estimates
(In millions of U.S. dollars)
Non-oil GDP at current prices270.1316.2367.8343.3335.7339.0
Consumption305.3376.0438.2403.0393.0381.4
Private264.8206.0213.0203.8200.0207.9
Public 2/3/40.5170.0225.2199.2193.0173.5
Gross investment 4/56.7130.7153.6122.5105.096.3
Private13.522.534.925.429.230.7
Public 2/43.2108.2118.797.175.865.6
Net exports of goods/non-factor services-91.9-190.5-224.0-182.2-162.3-138.7
GNP at current prices270.1322.7379.7363.4371.1481.7
non-oil GDP270.1316.2367.8343.3335.7339.0
Oil income0.06.511.920.135.4142.7
Gross national savings19.8-144.6-161.9-165.1-112.719.5
Private22.598.3118.067.123.018.7
Public 2/-2.7-242.9-280.0-232.1-135.80.7
External savings37.0275.3315.5287.6217.776.8
(In percent of non-oil GDP)
GDP at current prices100.0101.0102.0103.0104.0105.0
Consumption113.0118.9119.1117.4117.1112.5
Private98.065.157.959.459.661.3
Public 2/3/15.053.861.258.057.551.2
Gross investment21.041.341.835.731.328.4
Private5.07.19.57.48.79.0
Public 2/16.034.232.328.322.619.4
Net exports of goods/non-factor services-34.0-60.2-60.9-53.1-48.3-40.9
GNP at current prices100.0102.1103.2105.9110.6142.1
non-oil GDP100.0100.0100.0100.0100.0100.0
Oil income0.02.13.25.910.642.1
Gross national savings7.3-45.7-44.0-48.1-33.65.7
Private8.331.132.119.56.95.5
Public 2/-1.0-76.8-76.1-67.6-40.40.2
External savings13.787.185.883.864.922.7
Sources: Data provided by the Timor-Leste authorities; and Fund staff estimates.

For 2000-2003 the estimates are partially based on provisional national account data prepared by BIDE under a World Bank grant. Data for 1999 and 2004 are Fund staff estimates.

Includes fiscal and quasi-fiscal activities undertaken by multinational institutions and bilateral donors.

Does not necessarily correspond to recurrent expenditures shown in Table 16 due to differences in the coverage of data (particularly those relating to technical assistance).

Sources: Data provided by the Timor-Leste authorities; and Fund staff estimates.

For 2000-2003 the estimates are partially based on provisional national account data prepared by BIDE under a World Bank grant. Data for 1999 and 2004 are Fund staff estimates.

Includes fiscal and quasi-fiscal activities undertaken by multinational institutions and bilateral donors.

Does not necessarily correspond to recurrent expenditures shown in Table 16 due to differences in the coverage of data (particularly those relating to technical assistance).

Table 5.Timor-Leste: Consumer Price Index, 2000–2004 1/(April 2000 = 100.0)
Jan.Feb.MarchAprilMayJuneJulyAug.Sept.Oct.Nov.Dec.Annual average
2000
Index100.0108.4110.4111.3110.4110.2111.1110.3114.6109.6
Month-to-month percentage change8.41.80.8-0.8-0.20.8-0.73.9
Year-on-year percentage change
2001
Index113.6114.1112.7111.4111.9115.8115.6113.0112.9113.4113.9114.2113.5
Month-to-month percentage change-0.80.4-1.2-1.20.43.6-0.2-2.2-0.20.50.50.3
Year-on-year percentage change11.43.24.93.92.42.42.13.3-0.33.6
2002
Index115.3115.3115.0115.6116.5117.8118.7119.7121.8121.3124.7125.1118.9
Month-to-month percentage change0.90.0-0.30.60.71.20.70.81.8-0.42.80.3
Year-on-year percentage change1.51.12.03.84.11.72.75.97.96.99.49.54.7
2003
Index124.9125.0126.8125.8125.6127.5128.0128.8128.4128.6129.4130.3127.4
Month-to-month percentage change-0.20.11.4-0.7-0.21.50.40.6-0.30.20.60.7
Year-on-year percentage change8.38.410.38.87.88.27.87.65.46.13.84.27.2
2004
Index130.0130.1130.3130.9133.1132.8132.8131.3131.2131.6131.7132.6131.5
Month-to-month percentage change-0.30.10.20.51.6-0.2-0.1-1.1-0.10.30.00.7
Year-on-year percentage change4.14.12.84.05.94.23.72.02.22.31.71.73.2
2005
Index132.9132.9133.0
Month-to-month percentage change0.20.00.1
Year-on-year percentage change2.22.12.0
Source: Data provided by the Timor-Leste authorities.

The price index relates to Dili.

Source: Data provided by the Timor-Leste authorities.

The price index relates to Dili.

Table 6.Timor-Leste: Monetary Survey, 2000–05 1/
200020012002200320042005
Dec.Dec.Dec.Dec.Mar.JuneSept.Dec.Mar.
(In millions of U.S. dollars; end of period)
Net foreign assets33.865.489.9108.3127.7122141.2186.6283.7
Assets33.872.993.3141.6184.1154179.7228.2326.1
Cash holdings6.311.718.119.028.617.827.828.424.5
Claims on foreign banks27.561.275.3122.6155.6136.186.965.865.5
Treasury bills0.00.00.00.00.00.065.0134.0236.1
Other0.00.10.00.00.00.00.00.00.0
Liabilities0.07.53.533.356.43238.541.642.4
Net domestic assets-13.8-14.3-35.3-36.0-52.7-35.7-54.4-102.6-197.0
Claims on government (net)-19.0-21.1-33.7-49.7-74.3-78.7-104.3-168.4-269.0
Loans and advances to private sector0.33.05.122.132.453.466.370.575.6
Other items (net)4.93.8-6.7-8.4-10.8-10.4-16.4-4.7-3.6
Broad money 2/20.051.154.672.375.084.486.884.086.7
Demand deposits19.336.939.140.143.949.753.649.452.4
Saving deposits0.08.210.222.625.228.527.327.826.7
Time deposits0.76.05.39.65.96.25.96.87.5
(In percent of non-oil GDP)
Net foreign assets10.717.826.232.337.736.041.755.081.2
Net domestic assets-4.4-3.9-10.3-10.7-15.5-10.5-16.0-30.3-56.4
Broad money 2/6.313.915.921.522.124.925.624.824.8
Demand deposits6.110.011.411.913.014.715.814.615.0
Saving deposits0.02.23.06.77.48.48.18.27.7
Time deposits0.21.61.62.91.71.81.72.02.1
Memorandum item:
Bank loan/broad money ratio (in percent)1.55.99.430.643.163.376.483.987.2
Source: Data provided by the Banking and Payments Authority.

The banking system consists of the Banking and Payments Authority (BPA), four commercial banks, and one microfinance institution.

Excludes currency in circulation, for which no data is available due to dollarization of the financial system.

Source: Data provided by the Banking and Payments Authority.

The banking system consists of the Banking and Payments Authority (BPA), four commercial banks, and one microfinance institution.

Excludes currency in circulation, for which no data is available due to dollarization of the financial system.

Table 7.Timor-Leste: Balance Sheet of the Banking and Payments Authority, 2000–05(In millions of U.S. dollars; end of period)
200020012002200320042005
Dec.Dec.Dec.Dec.Mar.JuneSept.Dec.Mar.
Net foreign assets16.023.743.561.386.891.9119.4183.1284.5
Assets16.023.743.561.386.891.9119.4183.1284.5
Cash in vault1.34.913.06.920.48.721.821.118.4
Claims on central banks14.718.830.554.466.483.232.628.029.9
Reserve Bank of Australia14.718.730.554.466.483.232.628.029.9
o/w Timor Sea account 1/3.17.47.510.613.913.913.914.0
Other foreign banks0.00.00.00.00.00.00.00.00.0
Other 2/0.00.10.00.00.00.065.0134.0236.1
Liabilities0.00.00.00.00.00.00.00.00.0
Net domestic assets-16.0-22.7-39.1-55.0-80.9-86.2-112.6-177.6-279.0
Government (net position)-19.0-21.1-33.7-49.7-74.3-78.7-104.3-168.4-269.0
Budget-16.0-13.8-26.2-39.1-60.4-64.8-90.4-154.4-214.6
Timor Sea account 1/-3.17.4-7.5-10.6-13.9-13.9-13.9-14.0-54.4
Claims on financial institutions3.03.52.43.42.51.31.30.70.2
Commercial banks3.03.52.43.02.10.91.51.31.9
Microfinance institution0.00.00.00.40.40.4-0.3-0.6-1.7
Other items (net)0.0-5.0-7.8-8.8-9.2-8.8-9.5-9.9-10.3
O/w: capital and reserves-0.7-5.0-6.9-7.7-7.78.48.69.09.5
Liabilities0.00.04.56.35.95.86.95.55.4
Financial institutions0.00.04.56.35.95.86.95.55.4
Commercial banks0.00.02.34.54.13.95.03.63.6
Microfinance institution0.00.02.21.81.81.91.81.91.9
Other0.00.00.00.00.00.00.00.00.0
Source: Data provided by the Banking and Payments Authority.

Cumulative oil/gas revenue savings (First Tranche Petroleum and interest thereon). After 2004, funds invested in US treasury bills.

Investment in US treasury bills of FTP and part of the government cash-balances.

Source: Data provided by the Banking and Payments Authority.

Cumulative oil/gas revenue savings (First Tranche Petroleum and interest thereon). After 2004, funds invested in US treasury bills.

Investment in US treasury bills of FTP and part of the government cash-balances.

Table 8.Timor-Leste: Consolidated Balance Sheet of Financial Institutions, 2000–05 1/(In millions of U.S. dollars; end of period)
200020012002200320042005Memorandum Items
Dec.Dec.Dec.Dec.Mar.JuneSept.Dec.Mar.Interest rates 2/
Net foreign assets17.841.746.447.040.930.121.83.5-0.8
Assets17.849.249.880.397.462.160.345.141.7
Cash holdings5.06.85.012.18.29.16.07.46.1
Claims on foreign banks12.842.444.868.289.253.054.337.835.6
Other0.00.00.00.00.00.00.00.00.0
Liabilities0.07.53.533.356.432.038.541.642.4
Net domestic assets5.212.910.728.836.657.566.381.287.7
Deposits with BPA0.01.04.56.35.95.86.96.05.5
Claims on government (net)0.00.00.00.00.00.00.00.00.0
Loans and advances to private sector0.33.05.122.132.453.466.370.575.6
Other items (net)4.98.91.10.410.510.54.217.6-16.5
Deposit liabilities20.051.154.672.375.086.386.884.086.7
Demand deposits19.336.939.140.144.050.053.649.452.40.4
Saving deposits0.08.210.222.625.130.127.427.826.70.3
Time deposits0.76.05.39.66.06.25.96.87.50.4-0.8
Liabilities to BPA3.03.52.43.42.51.31.30.70.2
Source: Data provided by the Banking and Payments Authority.

Comprise four commercial banks and the microfinance institution.

Refers to weighted average interest rates at end-2004.

Source: Data provided by the Banking and Payments Authority.

Comprise four commercial banks and the microfinance institution.

Refers to weighted average interest rates at end-2004.

Table 9.Timor-Leste: Central Government Budget Operations (CFET), FY2000/01–FY2004/05 1/
FY2000/01FY2001/02FY2002/03FY2003/04FY2004/05
BudgetRevised 2/
(In millions of U.S. dollars)
Revenue58.754.081.3105.497.9192.2
Domestic revenues14.120.519.329.223.031.6
Direct taxes0.65.45.36.75.47.5
Indirect taxes11.612.711.718.113.619.5
Nontax revenues and other1.92.42.34.44.04.6
Oil/gas revenues13.110.829.541.444.1129.8
Tax revenues9.96.526.438.018.393.9
Royalties and interest3.14.33.13.425.835.9
Royalties3.04.23.03.325.535.5
Interest0.10.10.10.10.30.4
Grants31.622.732.534.830.830.8
Expenditure51.352.670.872.275.178.7
Recurrent expenditure29.641.156.262.564.967.8
Wages and salaries13.918.821.924.028.228.2
Goods and services15.722.234.338.536.739.6
Capital expenditure21.711.514.59.710.210.9
Overall balance7.41.410.533.222.8113.5
Financing-7.4-1.4-10.5-33.2-22.8-113.5
Changes in CFET cash balances (increase -)-4.22.7-8.6-29.83.0-77.6
Oil/gas revenue savings (increase -) 3/-3.1-4.3-3.1-3.4-25.8-35.9
Other-0.10.21.10.00.00.0
(In percent of non-oil GDP)
Revenue17.215.223.931.228.555.9
Domestic revenues4.15.85.78.76.79.2
Direct taxes0.21.51.62.01.62.2
Indirect taxes3.43.63.55.44.05.7
Nontax revenues and other0.50.70.71.31.21.3
Oil/gas revenues3.83.08.712.312.837.7
Of which: Tax revenues2.91.87.811.35.327.3
Expenditure15.014.820.821.421.822.9
Recurrent expenditure8.711.616.618.518.919.7
Wages and salaries4.05.36.57.18.28.2
Goods and services4.66.310.111.410.711.5
Capital expenditure6.43.24.32.93.03.2
Overall balance2.20.43.19.86.633.0
Financing-2.2-0.4-3.1-9.8-6.6-33.0
(In millions of U.S. dollars unless otherwise indicated)
Memorandum items:
Cumulative oil/gas savings (end-period)3.17.410.513.941.049.8
(In percent of GDP)0.92.13.14.111.914.5
(In percent of recurrent expenditure)10.618.118.722.263.273.5
Non-oil overall fiscal balance-5.7-9.3-18.9-8.2-21.3-16.3
(In percent of non-oil GDP)-1.7-2.6-5.6-2.4-6.2-4.7
Sources: Data provided by the Timor-Leste authorities; and Fund staff estimates.

Fiscal year: July-June.

Supplementary budget adopted in February 2005.

Under the current oil/gas saving policy, royalties and interest income are automatically saved and only tax revenues are available for budget financing.

Sources: Data provided by the Timor-Leste authorities; and Fund staff estimates.

Fiscal year: July-June.

Supplementary budget adopted in February 2005.

Under the current oil/gas saving policy, royalties and interest income are automatically saved and only tax revenues are available for budget financing.

Table 10.Timor-Leste: Central Government Domestic Revenues, FY2000/01–FY2004/05 1/
FY2000/01FY2001/02FY2002/03FY2003/04FY2004/05
BudgetRevised 2/
(In millions of U.S. dollars)
Total domestic revenue14.120.519.329.223.031.6
Tax revenue12.218.117.024.819.027.0
Direct tax0.65.45.36.75.47.5
Wage tax0.52.52.72.92.63.6
Government0.50.50.50.60.30.4
Other0.01.92.22.32.33.2
Corporate income tax0.21.71.71.92.02.8
Special withholding tax0.01.30.91.90.81.1
Indirect tax11.612.711.718.113.619.5
Tax on goods and services8.89.68.714.210.414.9
Sales tax 3/3.03.33.44.43.34.7
Excise duty 3/4.14.33.47.25.07.2
Service tax 4/1.72.01.92.62.13.0
Tax on international trade2.83.13.03.93.24.6
Import duty2.63.13.03.93.24.6
Export duty 5/0.20.00.00.00.00.0
Non-tax revenue1.92.42.34.44.04.6
Fees and charges1.21.82.14.33.74.3
O/w: Property rental1.11.11.11.31.21.4
Interest receipts and other0.60.60.20.10.30.3
(In percent of non-oil GDP)
Total domestic revenue4.15.85.78.76.79.2
Tax revenue3.65.15.07.45.57.8
Direct tax0.21.51.62.01.62.2
Wage tax0.10.70.80.90.81.0
Corporate income tax0.00.50.50.60.60.8
Special withholding tax0.00.40.30.60.20.3
Indirect tax3.43.63.55.44.05.7
Tax on goods and services2.62.72.64.23.04.3
Sales tax 3/0.90.91.01.01.4
Excise duty 3/1.21.21.02.11.52.1
Service tax 4/0.50.60.60.80.60.9
Tax on international trade0.80.90.91.20.91.3
Non-tax revenue0.50.70.71.31.21.3
Memorandum item:
Taxes collected at the border9.910.79.815.511.516.5
(In percent of non-oil GDP)2.93.02.94.63.34.8
Sources: Data provided by the Timor-Leste authorities and Fund staff calculations.

Fiscal year: July-June.

Supplementary budget adopted in February 2005.

Currently collected only at the border.

Turnover tax on hotel, restaurant, and transportation rental services.

Abolished in July 2001.

Sources: Data provided by the Timor-Leste authorities and Fund staff calculations.

Fiscal year: July-June.

Supplementary budget adopted in February 2005.

Currently collected only at the border.

Turnover tax on hotel, restaurant, and transportation rental services.

Abolished in July 2001.

Table 11.Timor-Leste: Oil/gas Revenues, FY2000/01–FY2004/05 1/
FY2000/01FY2001/02FY2002/03FY2003/04FY2004/05
BudgetRevised 2/
(In millions of U.S. dollars)
Total oil/gas revenues13.110.829.541.444.1129.8
Tax revenues9.96.526.438.018.393.9
Income tax6.84.715.525.911.056.3
VAT3.11.710.912.17.337.6
Royalties and interest3.14.33.13.425.835.9
Royalties3.04.23.03.325.535.5
Interest income0.10.10.10.10.30.4
(In percent of non-oil GDP)
Total oil/gas revenues3.83.08.712.312.837.7
Tax revenues2.91.87.811.35.327.3
Income tax2.01.34.67.73.216.4
VAT0.90.53.23.62.110.9
Royalties and interest0.91.20.91.07.510.4
Royalties0.91.20.91.07.410.3
Interest income0.00.00.00.00.10.1
Memorandum items:
Cumulative oil/gas savings (end-period)3.17.410.513.941.049.8
(In percent of GDP)0.92.13.14.111.914.5
Sources: Data provided by the Timor-Leste authorities; and Fund staff estimates and calculations.

Fiscal year: July -June.

Supplementary budget adopted in February 2005.

Sources: Data provided by the Timor-Leste authorities; and Fund staff estimates and calculations.

Fiscal year: July -June.

Supplementary budget adopted in February 2005.

Table 12.Timor-Leste: Central Government Expenditure Composition, FY2001/02-FY2004/05 1/
FY2001/02FY2002/03FY2003/04FY2004/05
BudgetRevised 2/
(In millions of U.S. dollars)
Total expenditure52.670.872.275.178.7
Wages and salaries18.821.924.028.228.2
Salaries18.821.924.028.128.1
Overtime/allowances0.00.00.00.10.1
Goods and services22.234.338.536.739.6
Travel1.01.71.72.02
Vehicle1.64.65.08.14.4
Utilities0.41.51.82.52.4
Fuel for generators0.06.28.14.54.5
Materials and supplies6.58.46.97.57.4
Other operational expenses10.43.61.22.32.4
Training/workshops0.30.70.61.01
Others2.17.613.28.814
Refund of Revenue0.00.00.00.01.5
Capital expenditure11.514.59.710.210.9
Infrastructure1.75.16.28.48.7
Purchase of equipment6.04.73.21.21.9
Other3.84.70.30.60.3
(In percent of non-oil GDP)
Total expenditure14.820.821.421.822.9
Wages and salaries5.36.57.18.28.2
Goods and services6.310.111.410.711.5
Capital expenditure3.24.32.93.03.2
Sources: Data provided by the Timor-Leste Authorities.

Fiscal year: July - June.

Supplementary budget adopted in February 2005.

Sources: Data provided by the Timor-Leste Authorities.

Fiscal year: July - June.

Supplementary budget adopted in February 2005.

Table 13.Timor-Leste: Public Sector Employment and Wages, FY2000/01–FY2004/05(In number of employees unless otherwise specified)
FY2000/01FY2001/02FY2002/03FY2003/04FY2004/05Monthly
BudgetAct.BudgetAct.BudgetAct.BudgetAct.Budgetwage 1/2/
Total government employees11,16410,01214,81712,56916,38713,17017,15014,30017,175
L12,2631,9953,0132,5943,4402,6012,6961,3851,51885
L27895571,2831,3622,0242,0183,2283,4724,180110
L34,9584,7136,4025,3956,7935,1876,6985,8626,825123
L42,5992,3603,1192,6783,3572,9203,6582,9723,741155
L5359255693392549320622454666201
L6162104261121201112225128223266
L7342846272312232722361
Total non-police/defense9,6488,49911,8949,83912,1399,47412,44210,08712,489
L176349589282583956266930466785
L27795488856629706881,0747941,105110
L34,9524,7096.1535,3446,3805,1646,5165,6806,483123
L42,5992,3603,0032,4793,2222,6303,3672,7393,384155
L5359255661383513309584418611201
L6162104256119194110213126219266
L7342844272111192620361
Police (PNTL)9169132,0501,8642,8552,5813,3623,0333,251
L19009001.4351,0831,4001,1261,08226722185
L21093476491,0001,2071,8872,5492,665110
L36420573702100590123
L4003912455245250189240155
L500200240302231201
L60031511013266
L7001010301361
Defense (FDTL)6006008738661,3931,1151,3461,1801,435
L1 Recruit/DEF01-026006006866861,20191394581463085
L2 DEF03-0500515154123267129410110
L3 DEF06-08004444432182177252123
L4 DEF09-1000777580454144117155
L5 DEF11-1200129121181424201
L6 DEF13002121211266
L7 DEF14001011111361
Memorandum item:
Average monthly wage (in US$)
Total employee127126128125125139131149137
Total non-police/defense134134136132134133135
Police86859699101103107
Defense85859796939396
Sources: Data provided by the Timor-Leste authorities and Fund staff estimates and calculations.

Figures relate to the average wage for each grade in U.S. dollars.

The public sector pay-scale has not been changed since FY2000/01.

Sources: Data provided by the Timor-Leste authorities and Fund staff estimates and calculations.

Figures relate to the average wage for each grade in U.S. dollars.

The public sector pay-scale has not been changed since FY2000/01.

Table 14.Timor-Leste: Autonomous Agencies Operations, FY2000/01–FY2004/05 1/
FY2000/01FY2001/02FY2002/03FY2003/04FY2004/05

Budget
(In millions of U.S. dollars)
Total retained revenues1.44.44.95.58.4
Aviation0.41.11.01.01.0
Port0.71.31.11.00.9
Power0.32.02.93.56.5
Total expenditures8.69.212.610.613.9
Aviation0.10.20.80.60.9
Port0.10.20.50.30.9
Power8.48.911.29.712.1
Wages and salaries0.40.40.50.40.7
Aviation0.00.00.10.10.2
Port0.00.00.10.10.1
Power0.40.30.30.30.4
Goods and services7.68.09.510.012.2
Aviation0.00.10.50.50.6
Port0.00.10.20.20.3
Power7.57.78.89.311.3
Capital0.60.92.50.21.1
Aviation0.10.00.20.00.2
Port0.00.00.30.00.5
Power0.50.82.00.10.4
Overall balance-7.2-4.8-7.7-5.1-5.6
Aviation0.30.90.20.40.1
Port0.61.10.50.70.0
Power-8.1-6.9-8.3-6.2-5.7
Financing7.24.87.75.15.6
Transfers from the budget8.46.88.46.65.7
Aviation0.00.00.00.00.0
Port0.00.00.00.00.0
Power8.46.88.46.65.7
Other (Increase -)-1.2-1.9-0.8-1.5-0.1
Aviation-0.3-0.9-0.2-0.4-0.1
Port-0.6-1.1-0.5-0.70.0
Power-0.30.1-0.1-0.40.0
(In percent of non-oil GDP)
Total retained revenues0.41.21.51.62.4
Aviation0.10.30.30.30.3
Port0.20.40.30.30.3
Power0.10.60.81.01.9
Total expenditures2.52.63.73.14.0
Aviation0.00.10.20.20.3
Port0.00.00.20.10.3
Power2.52.53.32.93.5
Sources: Data provided by the Timor-Leste authorities, and Fund staff estimates and calculations.

Fiscal year: July-June.

Sources: Data provided by the Timor-Leste authorities, and Fund staff estimates and calculations.

Fiscal year: July-June.

Table 15.Timor-Leste: Operations of the Power Authority, FY2000/01–FY2004/05 1/
FY2000/01FY2001/02FY2002/03FY2003/04FY2004/05

Budget
(In thousands of U.S. dollars)
Revenue collection2581,9972,8713,5266,450
Expenditure8,6398,74911,2019,71712,016
Wages and salaries364309309269416
Goods and services7,7827,6188,8439,30611,280
Fuel7,5235,5967,9507,7328,150
Maintenance3867561,785
Other5088191,345
Capital expenditure4938222,049142320
Of which: Prepayment meter project 2/001,90000
Operating balance-7,887-5,929-6,281-6,049-5,246
Overall balance-8,380-6,751-8,330-6,191-5,566
Financing8,3806,7518,3306,1915,566
Budgetary transfers8,3806,7518,4426,5575,652
External assistance00000
Other00-112-366-86
(In percent of GDP)
Revenue collection0.10.50.81.12.0
Expenditure2.42.33.12.93.6
Wages and salaries0.10.10.10.10.1
Goods and services2.22.02.42.83.4
Capital expenditure0.10.20.60.00.1
Budgetary transfers2.41.82.32.01.7
(In percent of total central government expenditure)
Budgetary transfers16.312.811.98.37.5
(In thousands of U.S. dollars)
Memorandum item:
Average monthly revenue collection29166239294538
Sources: Data provided by the Timor-Leste authorities, and Fund staff estimates and calculations.

Fiscal year: July-June.

The total cost of prepayment meter project was $2.7 million, of which $1.9 million was provided from the budget, with the remainder financed by Norad and TFET.

Sources: Data provided by the Timor-Leste authorities, and Fund staff estimates and calculations.

Fiscal year: July-June.

The total cost of prepayment meter project was $2.7 million, of which $1.9 million was provided from the budget, with the remainder financed by Norad and TFET.

Table 16.Timor-Leste: Combined Sources Fiscal Operations, FY2000/01–FY2004/05 1/
FY2000/01FY2001/02FY2002/03FY2003/04FY2004/05
Estimates 2/
(In millions of U.S. dollars)
Revenue60.158.486.2111.1315.7
Domestic revenue14.120.519.329.233.2
Autonomous agencies own revenue1.44.44.95.78.2
Oil/gas revenue 2/13.110.829.541.4243.5
Grant financing (budget support)31.622.732.534.830.8
Expenditure236.6247.9248.7221.4214.4
Recurrent expenditure121.0135.4147.8147.0153.8
Central government budget (incl. autonomous agencies)30.544.059.566.371.6
Donor projects90.591.488.380.882.2
Capital expenditure115.6112.5100.974.360.6
Central government budget (incl. autonomous agencies)22.212.916.211.610.9
Donor projects93.499.584.762.749.7
Overall balance-176.5-189.5-162.4-110.3101.3
Financing176.5189.5162.4110.3-101.3
Oil fund financing of non-oil central government fiscal deficit
Oil/gas revenue savings (increase -)-3.1-4.3-3.1-3.4-49.2
Committed project financing by donors183.9190.9173.0143.5132.4
Changes in treasury cash-balances (increase -)-4.32.9-7.5-29.8-184.5
(In percent of non-oil GDP)
Revenue17.616.425.432.991.7
Domestic revenue4.15.85.78.79.6
Autonomous agencies own revenue0.41.21.51.72.4
Oil/gas revenue (accruing to the budget)3.83.08.712.370.8
Grant financing (budget support)9.26.49.610.38.9
Expenditure69.269.773.365.662.3
Recurrent expenditure35.438.143.543.644.7
Capital expenditure33.831.629.722.017.6
Overall Balance-51.6-53.3-47.9-32.729.4
Financing51.653.347.932.7-29.4
Oil fund financing of non-oil central government fiscal deficit
Oil/gas revenue savings (increase -)-0.9-1.2-0.9-1.0-14.3
Committed project financing by donors53.853.751.042.538.5
Changes in treasury cash-balances (increase -)-1.30.8-2.2-8.8-53.6
Memorandum items:(In millions of U.S. dollars unless otherwise specified)
Non-oil fiscal balance-5.7-9.3-18.9-8.2-10.3
Cumulative oil Savings (end-period)3.17.410.513.963.1
Cumulative oil savings (in percent of non-oil GDP)0.92.13.14.118.4
Total Donor Financing183.9190.9173.0143.5132.4
Source: Data provided by the Timor-Leste authorities; and Fund staff estimates.

Include central government budget expenditure and expenditure programs undertaken by bilateral donors, UNTAET/UNMISET, and international financial institutions outside the central government budget, but excludes externally funded military expenditures (e.g. UN military peacekeeping).

On the basis of data collected in the register for external assistance of the Ministry of Plannig and Finance as reported in the April 2005 Sectoral Investment Programs (SIPs) overview paper.

Source: Data provided by the Timor-Leste authorities; and Fund staff estimates.

Include central government budget expenditure and expenditure programs undertaken by bilateral donors, UNTAET/UNMISET, and international financial institutions outside the central government budget, but excludes externally funded military expenditures (e.g. UN military peacekeeping).

On the basis of data collected in the register for external assistance of the Ministry of Plannig and Finance as reported in the April 2005 Sectoral Investment Programs (SIPs) overview paper.

Table 17.Timor-Leste: Balance of Payments, 2000–2004
20002001200220032004
Estimates
(In millions of U.S. dollars)
Current account excl. international assistance-275-316-288-218-77
Current account incl. international assistance37462617119
Trade balance-237-280-260-213-194
Exports of goods 1/54678
O/w: coffee43567
Imports of goods-242-284-266-221-202
O/w: international assistance-related-148-163-141-109-100
Services (net)-52-56-56-48-34
Income (net)256530
O/w: oil/gas royalty and interest244326
Current transfers (net)325377337273317
O/w: oil/gas tax revenue581632116
international assistance313362314235195
Capital and financial accounts-29-40-11167
Official capital transfers8086715347
Financial account-109-127-82-37-40
Errors and omissions (net)725-15-4
Overall balance1682018122
Changes in foreign assets (increase -)-16-8-20-18-122
Oil/gas revenue savings (increase -)-19-2-13-16-119
Other3-6-7-2-3
(In percent of non-oil GDP)
Current account excl. international assistance-87-86-84-65-23
Current account incl. international assistance12138535
Trade balance-75-76-76-64-57
(In millions of U.S. dollars)
Memorandum items:
Oil/gas revenue7122035143
Gross foreign assets (end-period)16244461183
Source: Data provided by the Timor-Leste authorities, and Fund staff estimates.

Exclude oil/gas revenues, which are recorded under the income (royalties) and transfers (tax revenues) because of lack of detailed data on the oil/gas sector (including production, exports, service payments, and profit remittances).

Source: Data provided by the Timor-Leste authorities, and Fund staff estimates.

Exclude oil/gas revenues, which are recorded under the income (royalties) and transfers (tax revenues) because of lack of detailed data on the oil/gas sector (including production, exports, service payments, and profit remittances).

Table 18.Timor-Leste: Banking Indicators(in percent)
20032004
Q1Q2Q3Q4Q1Q2Q3Q4
Capital adequacy ratio9.19.133.819.413.112.613.614.2
Loan growth (q/q)18.629.361.275.246.665.124.16.3
Equity/assets2.62.710.67.25.67.28.29.8
Core earnings/average assets
NPLs/total loans20.815.810.46.33.92.43.25.4
Total provisions/NPLs0.91.22.12.25.69.57.95.8
Liquid assets/total assets86.284.681.674.369.350.447.636.0
Sources: Data provided by the Timor-Leste authorities, and Fund staff estimates.
Sources: Data provided by the Timor-Leste authorities, and Fund staff estimates.
Table 19.Timor-Leste: Summary of Tax System

(as of March 2005) 1/2/

TaxNature of TaxExemptions and DeductionsRates
1. Direct Taxes
1.1. Income taxTimor-Leste has inherited the Indonesian income tax system with some modifications.



The income tax applies to all taxable income other than that subject to withholding taxes (1.3) or wage income tax (1.4), and is supplemented by the minimum income tax (1.2).



In the case of a legal person, income from dividends, interest, royalties and rent is included in the taxable income, with a credit for withholding tax.



Progressive rates with three brackets are applicable in the case of a natural person, and a flat rate is applicable in the case of a legal person.
Depreciation[Natural person]
Business building - Straight line depreciationIncome brackets and tax rates:
- 20 years useful lifeat 5 percent0-$3,36810%
- 10 years useful lifeat 10 percent$3,368 - $6,73715%
$6,737-30%
Depreciable assets
Individual depreciation[Legal person]
- 1-4 years useful lifeat 25 percentIncome tax rate:30%
- 5-8 years useful lifeat 12.5 percent
- 9+ years useful lifeat 6.25 percent
Pooling depreciation
- 1-4 years useful lifeat 50 percent
- 5-8 years useful lifeat 25 percent
- 9+ years useful lifeat 12.5 percent
Amortisation of intangibles
- 1-4 years useful lifeat 25 percent
- 5-8 years useful lifeat 12.5 percent
- 9+ years useful lifeat 6.25 percent
Deductible expenses include:
bad debt, interest, foreign exchange losses, salary and wages, contractor expenses, R&D expenses, and losses from sale/transfer of property.
1.2. Minimum income taxMinimum income tax is levied on the taxpayer’s total turnover for the year. The ordinary income tax payable is credited against the minimum tax payable for the year.The taxpayer’s total turnover does not include any amount derived by the taxpayer that is subject to the withholding taxes.1 % of the total turnover
1.3. Withholding taxesIncome earned from designated sources (including dividend, interest, royalty, and rent) is subject to withholding tax at a variety of rates.



The tax is withheld by a person making payments to the recipient of the income.



The withholding taxes are final, except for dividends, interest, royalties and rent paid to a legal person.
Tax rates vary according to the source of income:



Payable to residents and non-residents with permanent establishment:
Type of incomeTax rate
dividend/interest/royalty15%
rent from land/building10%
income from:
  prizes and lotteries15%
  construction activities2%
  construction consulting4%
  provision of transportation2.64%
  petroleum drilling/mining4.5%
  provision of selected services0%
Payable to non-resident without permanent establishment:
all income20%
1.4. Wage income taxThe wage income tax is withheld by the employer.Each employee is allowed a monthly tax credit of $10 against the wage income tax payable for the month. Excess credit is neither refunded nor carried forward.Resident with Tax Identification

Number (TIN)
Monthly wage incomeTax rate
$0to $55010 percent
Exempt wages include:above $55030 percent
(a) wages received for official duties by diplomatic staff of a foreign government’s representative officeNon-resident20 percent
(b) wages of a public servant of a foreign governmentResident without TIN30 percent
(c) wages of an employee of the UN or its agencies
1.5. Presumptive income tax on coffee exportsImposed on exports of coffee beans, whether processed or unprocessed, at the time of export. Not applicable for coffee export after 05/31/01Up to 5 kilograms of coffee beans exported in accompanied baggage by a person departing from Timor-Leste are exempt.5 percent of the value of coffee beans. The value of the coffee beans is the arm’s length free on board value of the beans.
2. Indirect Taxes
2.1 Border TaxesAll taxes in this category are levied at the border.
2.1.1. Import dutyApplicable to all imports at an ad-valorem rate except for selected import items.Imported goods that are exempt include:

(a) when accompanying an arriving person

  • - 200 cigarettes and 2.5 liters of excisable beverages
  • - non-commercial goods for personal use up to $300
  • - household effects (returning former residents)
6 percent of the customs value.



The customs value is the transaction value of the goods, including cost, insurance and freight.
(b) imports by diplomats, UN and specialized agencies.
(c) re-imported goods
(d) goods for which import duty is less than $10.
2.1.2. Excise taxExcise tax is levied on designated goods at specific or ad-valorem rates.



Excise taxes on imported goods are levied on the excise value, or the customs value plus the import duty payable.



Excise tax is also applicable to designated goods produced domestically, but is not collected currently because of the absence of domestic production.



Some of the excises (e.g., those on private yachts and aircrafts) bear characteristics of a luxury goods tax.
Exemption is given to:

(a) Goods exported from Timor-Leste within 28 days of importation.

(b) Goods that are exempt from import duty.
Rates for major excisable goods:



Specific rates on quantity
Soft drinks$ 0.65 per liter
Beer$ 1.90 per liter
Wine$ 2.50 per liter
Alcoholic beverages$ 8.90 per liter
Tobacco$ 19.00 per kg
Gasoline, diesel fuel$ 0.06 per liter
Ad-valorem rates of the excise value
Fruit juices/ice cream12%
cigarette lighter, smoking pipe12%
Audio electronic goods12%
Mobile phones, TV, videos12%
Perfumes18%
Fireworks, arms/ammunition120%
Motor cars: the greater of 36 % excise value, or $500 + 36% over $20,000
private yachts / aircrafts12%
in excess of US $20,00036%
2.1.3. Sales taxSales tax is applicable to imported goods, and goods sold and services provided domestically. For imported goods, the tax base consists of customs value, and the import duty and excise tax payable.



Sales tax applicable to goods sold and services provided domestically is not collected currently.
Sales tax does not apply to imported goods exempt from import duty.6 percent of the sum of: the customs value of the goods; the import duty payable; and the excise tax payable.
2.2. Service taxThe service tax applies to designated services, which comprise:
  • (a) hotel services
  • (b) restaurant and bar services
  • (c) telecommunications services
  • (d) rental services of:
    • (i) cars, trucks, omnibuses, etc
    • (ii) helicopters and airplanes
    • (iii) seagoing vessels
Service tax is payable by providers of services, with monthly turnover of $500 or more.A uniform 12 percent.
Source: Information provided by the Timor-Leste authorities.

The tax system of Timor-Leste was established by UNTAET Regulation (No. 2000/18 June 30, 2000), modifying then applicable Indonesian Law on Income Tax. After independence, the tax system was amended by the Revenue System Amendment Act (applicable on July 1, 2002).

These taxes are not applicable to oil/gas activities in the Timor Gap.

Source: Information provided by the Timor-Leste authorities.

The tax system of Timor-Leste was established by UNTAET Regulation (No. 2000/18 June 30, 2000), modifying then applicable Indonesian Law on Income Tax. After independence, the tax system was amended by the Revenue System Amendment Act (applicable on July 1, 2002).

These taxes are not applicable to oil/gas activities in the Timor Gap.

Table 20.Timor-Leste: Summary of the Exchange and Payments System(Position as of April 30, 2005)
I. Status Under IMF Articles of Agreement
1. Date of membershipYesJuly 23, 2002.
Article VIIIYesDate of acceptance: July 23, 2002
II. Exchange Arrangement
1. CurrencyThe currency of the Democratic Republic of Timor-Leste is the u.s. dollar.
a. Other legal tenderYesOn November 10, 2003, Timorese coins were introduced to serve as fractional currency to the U.S. dollar.
2. Exchange rate structure
a. UnitaryYes
3. Classification
a. Exchange arrangement with no separate legal tenderYesThe dollar is legal tender and circulates freely. Foreign exchange transactions are effected through three (foreign-owned) commercial banks and one licenced currency exchange bureau.
4. Exchange taxNo
5. Exchange subsidyNo
6. Forward exchange market
a. Official cover of forward operationsNo
III. Arrangements for Payments and Receipts
1. Prescription of currency requirements
a. Controls on the use of domestic currencyAll domestic transactions and settlements must be in the domestic currency (u.s. dollar).
b. Use of foreign exchange among residentsNo restriction
2. Payments arrangementsNone
3. Administration of controlOverall responsibility for the administration of exchange controls rests with the BPA, which has the power to regulate payment and settlement systems in domestic and foreign currency.
4. International security restrictionsNo
5. Payments arrearsNo
6. Controls on trade in gold (coins and/or bullion)No
7. Controls on exports and imports of banknotes
a. On exportsNo
b. On imports
1. Domestic currencyNo
2. Foreign currencyNo
IV. Resident Accounts
1. Foreign exchange accounts permitted
a. Held domesticallyNo restrictionThere are no restrictions on the holding of foreign exchange accounts,
Approval requiredNo
b. Held abroadNo restrictions
Approval requiredNo
2. Accounts in domestic currency held abroadNo restricitons
3. Accounts in domestic currency convertible into foreign currencyNo restriction
V. Nonresident Accounts
1. Foreign exchange accounts permittedNo restrictions
a. Approval requiredNo
2. Domestic currency accountsNo restrictions
a. Convertible into foreign currencyYes
b. Approval requiredNo
3. Blocked accountsNo
VI. Imports and Import Payments
1. Foreign exchange budgetNo
2. Financing requirements for importsNo
3. Documentation requirements for release of foreign exchange for importsNo
4. Import licenses and other nontariff measuresNo
5. Import taxes and/or tariffs
a. Taxes collected through the exchange systemThere are no quantitative restrictions on imports. With the exception of selected items (e.g., cigarettes and alcohol with certain limits, household effects of returning former residents), a uniform ad-valorem tariff (6 percent) is levied on all imports. Also, excise taxes are levied on imports of selected goods at specific or ad-valorem rates (10-170 percent) depending on types of goods. In addition, the sale tax (6 percent) is levied on the sum of customs value, import duty, and excise payable.
6. State import monopolyNo
VII Exports and Export Proceeds
1. Repatriation requirementsNo
2. Financing requirementsNo
3. Documentation requirementsNo
4. Export licensesNo
5. Export taxesNo
VIII. Payments for Invisible Transactions and Current Transfers
Controls on transfersNo
IX. Proceeds from Invisible Transactions and Current Transfers
1. Repatriation requirementsNo
2. Restrictions on use of fundsNo
X. Capital Transactions
A. Controls on capital transactions
1. Controls on capital and money market instrumentsNoNo domestic capital and money markets have developed yet.
2. Controls on derivatives and other instrumentsNo
3. Controls on credit operationsNo
4. Controls on direct investmentNo
5. Controls on liquidation of direct investmentNo
6. Controls on real estate transactions
a. Purchase abroad by residentsNo
b. Purchase locally by nonresidentsYesThe constitution prohibits ownership of land by foreigners.
c. Sale locally by nonresidentsYesThe constitution prohibits ownership of land by foreigners.
7. Controls on personal capital transactionsNo
8. Provisions specific to commercial banks and other credit institutions
a. Borrowing abroadNo
b. Maintenance of accounts abroadNo
c. Lending to nonresidents (financial or commercial credits)No
d. Lending locally in foreign exchangeYesAll domestic transactions must be made in the domestic currency.
e. Purchase of locally issued securities denominated in foreign exchangeYesAll domestic transactions must be denominated in the domestic currency.
f. Differential treatment of deposit accounts in foreign exchangeNo
g. Differential treatment of deposit accounts held by nonresidentsNo
h. Investment regulationsNo
i. Open foreign exchange position limitsNo
9. Provisions specific to institutional investorsNo
10. Other controls imposed by securities lawsNo
Changes During 2004
None
References

    AaronJanine2002“Building institutions in post conflict African countries,”Wider Discussion paper No. 2002/124United Nations.

    BergAndrew and EduardoBorenzstein2000“Full dollarization: the Pros and Cons,”Economic Issues Number 24International Monetary Fund.

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    FrydlEdward1999“The length and cost of banking crises,”IMF Working Paper No. 99/30.

    ZarmenoMayra and MarianoCortes“Dollarization,”Ecuador Selected Issues Paper IMF Staff Country Report No. 00/125.

1Prepared by Ashok Bhundia.
2This is in contrast to a de facto dollarized economy in which, alongside a domestic currency, residents to a lesser or greater degree hold foreign currency and foreign-currency denominated deposits at domestic banks. A high degree of de facto dollarization is usually evident in countries that have high inflation and other forms of macroeconomic instability, because residents try to hedge against the loss in purchasing power of the domestic currency.
3The more general point is that an inappropriate sequencing of reforms can lead to macroeconomic instability especially in the face of economic shocks as institutions are insufficiently developed to adapt and deal with such shocks.
4The CPO was established in January 2000 and was the precursor to the Banking and Payments Authority (BPA) which was established in November 2001.
5Aaron (2002) argues that institutional capacity is probably easier to resuscitate than build from scratch.
6Notwithstanding the significant (initial) technical challenges of replacing notes and coins in circulation with U.S. dollars and educating the public on the benefits of the new currency system.
7The full extent of the real exchange appreciation would depend on how the oil resources are spent. Other things equal, there would be less pressure for an appreciation if expenditures were more import intensive, or if a significant proportion of the oil resource flow was saved by accumulating assets abroad.
8See Zarmeno, Mayra and Mariano Cortes, “Dollarization,” Ecuador, Selected Issues and Statistical Annex, IMF Staff Country Report no. 00/125, International Monetary Fund, for a discussion of the pros and cons of dollarization in Ecuador.
9These financing gaps were closed through budget support from donors.
10While a comprehensive empirical examination of the various costs and benefits is constrained by a lack of data, some initial observations are possible.
11In the absence of disaggregated trade data by country or commodities, the real effective exchange rate is calculated by assuming a 70 percent weight for Indonesia and 30 percent for Australia.

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