East Timor Country Risk Report 2019

East Timor Country Risk Report 2019

We forecast Timor-Leste's growth to strengthen to 4.3% in 2019 and 5.0% in 2020 from our estimate of -0.2% in 2018. We believe that Timor-Leste's fundamental growth drivers remain strong, with the acceleration of infrastructure activity in 2019 and the construction of fibre optic cable likely to support digitalisation and boost investment. That said, we note that investment in the 'Tasi Mane' infrastructure project may drain the government's resources, presenting a downside risk to our forecast.

The Timor-Leste government is likely to continue drawing down from its national Petroleum Fund (PF) over the forecast period, as oil sector revenues dry up and non-oil revenues fall far short of the country's spending requirements. This trend represents an underlying threat to the long-term sustainability of public finances, though the size of the PF and very low levels of debt mean risks to stability are currently low. Financing the government's high-risk Tasi Mane petroleum project will require a massive increase in borrowing and could further deplete the PF, implying higher risk and uncertainty in our long-term fiscal outlook.

Relations between Timor-Leste and Australia are likely to continue improving after parliaments in both countries approved the necessary legislation to ratify the landmark Maritime Boundary Treaty. Implementing the Treaty is also a positive step for the exploitation of offshore oil and gas resources in the Timor Sea, including the massive Greater Sunrise field, which is central to Timor-Leste's long-term economic outlook. Timor-Leste could potentially benefit from the growing geopolitical rivalry between China and Australia in the region, though it remains unclear whether it can secure funding to develop an onshore petroleum industry.

Timor-Leste will continue to inch towards membership of the Association of South East Asian Nations (ASEAN), though we expect the process to remain slow, with a decision not likely until at least 2020. Our core view is that the country will eventual be granted entry into the bloc, creating opportunities for increased economic integration and security cooperation. ASEAN membership in itself is no silver bullet for Timor-Leste's economic development, though we believe that it should be a net positive for the country's political and economic risk environment over the longer term.


Executive Summary
Core Views
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
Timor-Leste Growth To Improve, But Downside Risks Loom
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Outlook On External Position
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
Monetary Policy Framework
Structural Fiscal Position
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Long-Term Economic Outlook
Three Scenarios For Long-Term Growth
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
Timor-Leste Inching Closer To ASEAN Membership
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Stability Despite Poverty And Corruption
THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ Credit Rating. Any comments or data included in the report are solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.ContentsDemographic Outlook
TABLE: POPULATION BY AGE GROUP
TABLE: POPULATION BY AGE GROUP %
TABLE: POPULATION HEADLINE INDICATORS
TABLE: KEY POPULATION RATIOS
TABLE: URBAN/RURAL POPULATION & LIFE EXPECTANCY
Global Macro Outlook
Manufacturing Weakness And Rising Political Risk To Weigh On Growth
TABLE: GLOBAL MACROECONOMIC FORECASTS (2018-2023)
TABLE: DEVELOPED MARKETS – REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: TIMOR-LESTE – MACROECONOMIC DATA & FORECASTS

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