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2.2: Recent Reforms in Economic and Financial
Management
2.2.1: Overview
The MoF has implemented a significant reform program over the last year. Reforms have
been concentrated in the areas of economic monitoring, PFM and performance
management.
2.2.2: Economic Monitoring
Formulating effective public policies requires a detailed and up‐to‐date understanding of the
economy. The MoF has started drafting quarterly inflations reviews and GFS bulletins to
better understand the economy. It has also strengthened its economic forecasting model.
2.2.2.1: Quarterly Inflation Reports
The MoF drafts quarterly inflation reviews to analyse inflation. These reviews analyse trends
in the monthly and yearly rates of inflation, and in the underlying categories of the CPI index
such as food and transport. The likely causes of inflation, such as changes in Government
spending, in exchange rates and in international commodity prices, are also analysed in
these quarterly reviews.
The quarterly inflation bulletins for Q1 2014 and Q2 2014 were recently published on the
MoF’s website. Going forward each review will be published shortly after the relevant data
becomes available.
2.2.2.2: Government Financial Statistics
GFS is an internationally recognised reporting framework for the presentation and analysis
of fiscal data. The Government has recently implemented this framework and now publishes
GFS fiscal bulletins every quarter. The implementation of GFS in Timor‐Leste has two main
benefits. First,
GFS provides an internationally recognised and consistent framework for analysing the fiscal
position of the government. The GFS bulletins provide important information on how petroleum
revenues and PF investments affect the overall fiscal position of the Government.
Second, GFS classifies revenue and expense in a consistent way across all countries. This
allows for accurate international comparisons.
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2.2.2.3 Economic Forecasting
The MoF recently completed new forecasts of economic growth and inflation. These
forecasts were made based on an improved economic model and forecasting process.
Important reforms to the modelling process included: forecasting the components of non‐
petroleum GDP, modelling inflation and ensuring internal consistency.
Forecasting the components of non‐petroleum GDP; in the past non‐petroleum GDP, but
not its underlying components, were forecasted. This year the MoF has forecasted all the
underlying components of non‐petroleum GDP such as household consumption and private
investment. This strengthens economic policy making as the composition of economic
growth, and not just its overall level, is important.
Forecasting inflation; the MoF improved the methodology it uses to forecast inflation. The
new methodology uses advanced statistical techniques to account for the impact on
inflation of Government spending, international commodity prices and exchange rates.
Internal Consistency; in Timor‐Leste Government spending, economic growth and inflation
are all interlinked. Specifically:
• Government spending is a component of non‐petroleum GDP. So all else being equal high
expenditure will lead to higher economic growth. • Inflation is partly driven by Government recurrent expenditure. Thus all else being equal
high expenditure will result in higher inflation.
• High inflation may reduce long‐term economic growth if it undermines competiveness. Overall
these reforms have resulted in superior economic forecasts that have assisted the MoF
in better understanding recent and likely future economic developments.
2.2.3: Public Financial Management
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