quarta-feira, 9 de abril de 2014

La'o Hamutuk: The Double Digit disappears

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Timor-Leste’s leaders often boast that the country’s non-oil Gross Domestic Product (GDP) is growing more than 10% per year faster than global inflation – that is, at “double-digit rates.” 

For example, last week the Prime Minister told potential investors in Malaysia that “Since 2007, our average growth rate has been 11.9% and the Asian Development Bank predicts double digit rates of growth will continue into the future.”

However, the World Bank’s East Asia Pacific Economic Update ( Timor-Leste section), released yesterday, tells a different story, as do the ADB’s Asian Development Outlook ( Timor-Leste section) published last week, the IMF’s Article IV Report on Timor-Leste from December 2013, and the RDTL Ministry of Finance’s analysis two months before that.  It’s not a very optimistic story, but it’s true and should be a key input into policy-making.  The World Bank predicts that in 2015 Timor-Leste will be the fifth-fastest growing country in the region, although last October's the Bank had us in second place.

When Timor-Leste’s Ministry of Finance proposed the 2014 State budget last October, it reduced its earlier estimate of 2012 GDP growth from 10.6% to 8.1%, as well as reducing its projection for 2013 growth from 10.6% to 8.2%. For past years, international agencies use the Government’s figures, so they followed suit.

The Ministry also lowered projections for future growth. The international agencies make their own projections, and they lowered them even more than the Government did. The IMF and World Bank now predict that non-oil GDP growth will decline gradually, to 7.7% by 2015. After that, they expect Government spending to increase, especially on large infrastructure projects, which will stimulate more rapid GDP growth. Sadly, nobody anticipates significant growth in the productive GDP (agriculture and manufacturing) for at least the next several years.

Overestimating future GDP growth could cost Timor-Leste many millions of dollars. Last October, the invitation to build and operate the Tibar Port told potential bidders that “Timor-Leste’s economy is growing strongly and IMF predicts real non-oil GDP growth of at least 10%, over the next 5 years.”  Companies have now been pre-selected, and bids for this Public Private Partnership will be invited this month. If port traffic turns out to be less than expected (the recent revisions of GDP estimates would reduce it by 16% or more), Timor-Leste may have to compensate the company for its reduced income.

GDP is not a good way to measure equitable economic development. GDP counts dollars, not people, so poor people are not represented.  An economy can have high GDP growth at the same time that more and more people are living in poverty -- indeed, that is Timor-Leste's situation since 2007. In addition, rapid population growth reduces GDP's benefits for each individual or family, and national inflation has been much higher than global inflation, separating "real" GDP from its purchasing power for poor and middle-class people.

More than three-fourths of Timor-Leste's GDP comes from exporting non-renewable oil and gas reserves, which also provide around 93% of State income. However, the non-oil GDP discussed above excludes this part of the GDP, unlike statistics for other countries. The World Bank explains that non-oil GDP is "Timor-Leste’s preferred measure of economic activity" because it is more responsive to policy decisions than oil, which is extracted by foreign companies and sold on the global market. Timor-Leste's oil revenues peaked in 2012 and will decline over the next decade, so that total GDP growth will be negative during most of that time.

Another problem is that the non-oil GDP is largely derived from State spending (of oil money). In fact, without government-driven construction, public administration, and large parts of trade and real estate, non-oil GDP is stalled.  Productive sectors -- manufacturing and agriculture -- were larger in 2003 than in 2011 (the latest available data), even without adjusting for population growth.

The IMF will publish an updated World Economic Outlook later this month. Will that be the report which finally gets Timor-Leste's decision-makers and private sector to focus on the difficult, unglamorous task of developing agriculture, light industry, appropriate tourism and food processing to reduce our 98% trade deficit and create an economy which doesn't depend on spending dwindling oil reserves? There isn't much time left.
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La'o Hamutuk
Rua Martires da Patria, Bebora, Dili, Timor-Leste
Telephone: +670-3321040 or +670-7723-4330
email: info@laohamutuk.org
http://www.laohamutuk.org      blog: http://laohamutuk.blogspot.com/
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