15
The nominal effective exchange rate weighted value of a country’s currency relative to the
currencies of its trading partners shows a general appreciation of the US dollar against the
currencies of Timor‐Leste’s major trading partners. Consumers across the country will benefit
from the appreciation through lower rates of inflation associated with cheaper imports.
Figure 2.2.1.2.1 Food, Oil and Exchange Rate Indices, January 2010‐July 2014
Source:
FAO Food Price Index and IMF Primary Commodity Prices
2.2.2 Domestic Economy
2.2.2.1 Economic Growth
In 2012 total GDP in Timor‐Leste increased by 5.6 to 4,889.6 million in constant 2010
prices. The petroleum sector, which grew by 4.9 in 2012, remains the dominant sector in the
Timorese economy and accounts for 76.4 of total GDP, though in recent years the dominance
of the petroleum sector has decreased.
In Timor‐Leste total GDP is a poor measure of economic welfare because it is very sensitive to
short ‐term changes in oil prices and production. In addition, few Timorese people work in the
oil industry and therefore total GDP is not closely related to living standards. For these reasons
the Government focuses on non‐petroleum GDP which is more closely related to living
standards in Timor‐Leste than total GDP.
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Table 2.2.2.1.1 Real Output 2007‐2012
2007 2008
2009 2010
2011 2012
Total GDP m
4,090.00 4,582.90
4,275.30 4,215.50
4,630.60 4,889.60
Growth Rate Total
GDP ‐0.60
12.10 ‐6.70
‐1.40 9.80
5.60 Petroleum
Sector m
3,428.30 3,826.60
3,421.70 3,281.30
3,559.40 3,734.50
Growth Rate
Petroleum Sector
‐2.70 11.60
‐10.60 ‐4.10
8.50 4.90
Non ‐Petroleum
Sector m
661.7 756.2
853.6 934.3
1,071.20 1,155.10
Growth Rate Non‐
Petroleum Sector
11.40 14.30
12.90 9.50
14.70 7.80
Source: Timor‐Leste National Accounts 2000‐2012, General Directorate of Statistics, Ministry of Finance, 2015
Revised figures which will be published in the Timor‐Leste National Accounts 2013
The 2007‐2012 period has been one of exceptionally high non‐petroleum GDP growth, over
these six years there have been two distinct growth periods. The first period, between 2007
and 2011 saw high growth driven by sharp increases in Government expenditure as
frontloading was scaled up. While in 2012 there was slightly lower non‐petroleum GDP growth
of 7.8 driven by factors other than Government expenditure. The lower Government
expenditure, which may be partially attributed to improvements in the investment
management process, is largely responsible for the below trend growth seen in 2012. Private
investment and household consumption both grew strongly over the entire 2007‐2012 period.
Growth across the major sectors of the Timorese economy varied significantly during the 2007‐
2012 period. Driven by increases in Government expenditure between 2007 and 2012, the
public administration and construction sector output increased significantly. However, the
slowdown in Government expenditure growth resulted in below trend growth in both sectors in
2012. Agricultural sector output, which grew strongly in 2012, fluctuated significantly over the
2007 ‐2012 period and output remains heavily dependent on weather conditions. Finally,
growth in the wholesale and retail sector, Timor‐Leste’s fourth major non‐petroleum sector,
grew steadily averaging growth of 7.7 a year.
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Table 2.2.2.1.2 Real Non‐Petroleum Sector Growth Rates 2006‐2012
2006 2007
2008 2009
2010 2011
2012 Non
Petroleum GDP ‐5.70
11.40 14.30
12.90 9.50
14.70 7.80
Agriculture. Forestry
Fishing 5.20
‐3.30 0.30
8.10 ‐2.90
‐17.90 14.60
Construction ‐44.60
94.30 139.80
50.00 6.90
52.70 ‐6.60
Wholesale and Retail Trade
‐3.20 8.60
13.10 8.50
4.40 4.20
7.30 Public
Administration 10.50
13.10 5.70
31.70 13.10
19.10 11.00
Source: Timor‐Leste National Account 2000‐2012, General Directorate of Statistics, Ministry of Finance, 2015
The MoF is forecasting non‐petroleum GDP growth in the 5.6 to 7.1 range over the 2013‐
2015 period see figure 2.2.2.1.3.. Despite being below the growth path seen between 2007
and 2011 these rates of economic growth are still high by international standards.
The below trend projection for 2013 is the result of low execution of Government capital
expenditure. However, strong growth rates in private sector investment and household
consumption helped to minimise the negative impact of the reduction in capital expenditure.
The non‐petroleum GDP growth forecasts for 2014 and 2015 are 7.1 and 7.0 respectively.
The 2014 projection is primarily driven by increases in household consumption and recurrent
Government expenditure. While the 2015 forecast is driven by increases in household
consumption and unprecedented private sector investment growth.
Figure 2.2.2.1.3 Real Non‐Petroleum GDP, Actual 2007‐2012 and Forecast 2013‐2015
Source: National Directorate of Economic Policy and General Directorate of Statistics, Ministry of Finance, 2015
2.2.2.2 Inflation
Year ‐on‐year inflation in Timor‐Leste in December 2014 was 0.3. As seen in figure 2.2.2.2.1,
recent year‐on‐year inflation has fluctuated significantly, reaching double digit rates between
March 2011 and September 2013 before quickly falling to below the target range. The trends in
inflation over this period can be attributed to three main causes, changes in international
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commodity prices, international exchange rate movements and increases in Government
expenditure.
Figure 2.2.2.2.1 Year‐on‐Year Inflation in Timor‐Leste 2007‐2015
Source: National Directorate of Economic Policy and General Directorate of Statistics, Ministry of Finance, 2015
Inflation is forecasted to increase in 2015 and finish the year within the Government’s 4‐6
target inflation range. The upward pressure in 2015 is partially the result of the improved
execution in Government expenditure, while downward pressure will come from the recent fall
in the international price of petroleum.
2.2.2.3 Higher Quality Growth
Though the non‐petroleum GDP growth forecast for 2013‐2015 is below the 2007 ‐ 2011
growth trend, it is likely to be growth of a higher quality for four reasons:
• Timor
‐Leste has begun to transition away from short‐term Government expenditure driven
growth towards more sustainable long‐term private sector driven growth. •
Private investment will play an increasingly important role in driving non‐petroleum GDP
growth over this period.
• Inflation
in this period is lower than during the 2007‐2012 period. •
Strong household consumption growth is forecasted to continue, helping to improve
living
standards.
