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30 January 2019

Finance company warns divisive politics is Timor-Leste’s greatest risk to economic growth in 2019

Finance company warns divisive politics is Timor-Leste’s greatest risk to economic growth in 2019 Independente, January 28, 2019

Findings from a macroeconomic report warn that the biggest risk to Timor-Leste’s economic growth outlook over the next 12 months is the nation’s on-going political instability.

A continued standoff between the ruling government and the President of the Republic is also likely to see further delays in policy-making that would continue to “paralyze the public administration”. Fitch solutions, which used a report released Tuesday after the President of the Republic vetoed the nation’s highest ever budget of $2.132billion and parliament now sits within a 90-day review period to re-approve it with a simple majority, to remind the political sector against spiraling political uncertainty.

“We highlight that the biggest downside risks to Timor-Leste’s economic growth outlook is the government’s failure to pass the budget in a timely fashion and/or a hold-up in the disbursement of state funds due to political deadlock.” Timor-Leste’s government expenditure amounts to between two-thirds and three quarters of the country’s GDP.

“Due to the delay in the passage of the budget last year, many businesses complained that they struggled to stay afloat, and this likely held back the country’s economic recovery.” However, the international finance company predicted that the 2019 budget would be approved in “coming weeks given the margin of support among lawmakers.”

“Our core view is that both sides will be able to arrive at some sort of an agreement and implement the budget sooner rather than later; however, other issues will likely remain unresolved.”

“For instance, we see no end to the face-off on the issue of ministerial nomination which has persisted since May 2018.” Fitch predicts Timor-Leste’s real GDP growth to increase to 4.0 % in 2019, from an estimated 2.3% in 2018, but noted “that risks are weighted to the downside.” Under Timor-Leste law, if parliament approves the budget the President must promulgate the statute within eight days after receiving it.

“Given that the AMP government only has 35 seats (out of 65) in parliament, this means that some members of parliament from the Democratic Party or opposition Fretilin also voted in favor of the proposal, which is reflective of greater collaboration between policymakers.” Fitch warned against delaying budget approval, reminding repercussions of delay in 2018.

“Due to delay in the passage of the budget last year, many businesses complained that they struggled to stay afloat, and this likely held back the country’s economic recovery,” the report said.

“For instance, the head of Timor Plaza, which is the largest shopping center in the country, stated that 2018 ‘was the difficult year’ for the national economy, While Kmanek Group, which owns two largest Supermarkets in Dili, said that sales plunged by 17% in H118 and 25% in H218.”

Martin Hardy did you condemn me for calling the situation a crisis?

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