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TIMOR-LESTE Timor-Leste’s Opportunity to Turn its Wealth Into Economic Development (Credit: Agung Wid/iStock by Getty Images)  Timor-Leste has achieved significant progress since its independence in May 2002. Asia’s youngest nation has maintained stability, strengthened institutions, and enjoyed enviable economic growth and inflation for a country emerging from conflict.    Notably, it has stockpiled proceeds from its offshore oil and gas fields in its Petroleum Fund, which now exceeds $18 billion, roughly equal to 10 times the Timorese economy’s annual gross domestic product.   While most countries that gained from commodity booms have allowed riches to slip away, Timor-Leste has managed to grow its sovereign wealth fund, introduced two decades ago, to be one of the largest relative to the economy’s size. And it did so at a much lower level of development than others, such as Qatar and Bahrain. At the same time, the population of 1.3 million faces mounting development needs. Growth of per-person income has stagnated in recent years, the private sector needs diversification, and progress on reducing poverty and malnutrition has stalled.    Turning savings into development   Addressing these urgent needs will require resources, and it’s natural that Timor-Leste would draw from its substantial savings to improve the livelihoods of its citizens. But the nation’s hard-earned wealth must be spent better and more slowly.   Better because recent large government budget deficits have not been yielding the desired growth dividends. Refocusing spending on building up human and physical capital would create the foundations for continued economic progress.   More slowly because oil and gas production is dwindling and big deficits could fully deplete the Petroleum Fund by the end of the 2030s. That would be a potentially destabilizing outcome that could halt imports of food and other basic supplies and disrupt public services such as health care.    To ensure a prosperous future for the next generation of Timorese, the government needs a medium-term plan to gradually align its spending with the country’s sustainable income stream. Overall spending should be reduced over the next decade, while accommodating support for priority areas, such as strategic public infrastructure and education. It would be helpful to start by containing wage growth in the public sector, where employment climbed 45 percent from 2020 to 2023, and on transfer payments that don’t go to the country’s most vulnerable people.   Private-sector reforms   Diversification and development won’t come from public spending alone. To durably boost growth, steady progress is needed across the government on a broad reform agenda that strengthens the investment climate. Our report offers options that we think could substantially accelerate growth in per-capita incomes over the next few decades. This should include efforts to modernize the legal framework for the financial system, develop a functional land registry, and improve corporate financial reporting.   Timor-Leste’s savings give the country room to maneuver and the opportunity to build a thriving economy for future generations—if it can correct course now **** Yan Carrière-Swallow is the IMF’s mission chief to Timor-Leste and Raju Huidrom is a senior economist in the IMF’s Asia and Pacific Department.   This article is based on the Staff Report for the 2024 Article IV Consultation with Timor-Leste. Related Links Timor-Leste and the IMF Staff Report We'd love to hear your thoughts and suggestions. Feel free to contact us.   Peter Walker  Managing Editor | IMF Country Focus Stay connected with the International Monetary Fund:       This email was sent to politikimx@gmail.com on behalf of: International Monetary Fund 1900 Pennsylvania Ave NW · Washington, DC · 20431

Making Germany Grow Again JUNE 2025  (Credit: Getty Images/Westend61) More than a quarter century after The Economist first dubbed Germany the “sick man of Europe,” the label applies again. And this time, the illness is a chronic condition, requiring a long-term treatment plan, Ulrike Malmendier and Claudia Schaffranka of the German Council of Economic Experts write in F&D.    The new government’s fiscal plan to fund infrastructure investment and increased defense spending is a start, the authers say. “But Germany must also open its economy to future-oriented technologies, push for greater market integration in Europe, and build stronger capital markets at home.” Read more In a podcast, Malmendier says Germany’s aging population and lack of workers are contributing to economic woes. Listen here. Europe: From Adversity to Advantage (Credit: Brian Stauffer) Europe’s Integration Imperative | The case for closer economic union has become more compelling as external challenges multiply | Alfred Kammer   Europe’s Elusive Savings and Investment Union| An integrated capital market must be accompanied by regulatory reforms to attract substantial investment | Ravi Balakrishnan and Mahmood Pradhan   Europe’s Innovators Are Waking Up | The continent’s innovation success stories and renewed sense of purpose defy criticism of overregulation | Alessandro Merli   Plus, government ministers from three of Europe’s fastest-growing economies share their perspectives on how to revive growth: Poland’s economic transformation can inspire Europe today, writes Andrzej Domański Greece’s strong reforms have turned it into one of Europe’s fastest-growing economies, according to Konstantinos Hatzidakis Spain’s new economic model of balanced and sustainable growth is overcoming traditional dilemmas, writes Carlos Cuerpo “The European Union must unite to shape today’s global economy, rather than be shaped by it.”— F&D editor-in-chief Gita Bhatt Read more Point of View (Credit: Chantal Jahchan) Europe’s Future Hinges on Greater Unity | But first the EU must overcome distrust between its member states and in its institutions | Simon Nixon   We Need a New Growth Compact | Innovation and integration can revive growth amid sweeping geopolitical change | Pierre-Olivier Gourinchas   Reclaiming a Policy Role for Economists | Acknowledging missteps, listening well, defending data, and avoiding jargon will help the profession engage | Karen Dynan Also Featured (Credit: Hadley Hooper) The Debate over Falling Fertility | A decline in global population later this century may threaten human progress, or it may lead to better lives | David E. Bloom, Michael Kuhn, and Klaus Prettner   The Longevity Dividend | Aging populations should be embraced, not feared | Andrew Scott and Peter Piot   Sustaining Growth in an Aging World | Older populations need not lead to slumping economic growth and mounting fiscal pressures | Bertrand Gruss and Diaa Noureldin   A Moving History | Migration has propelled human progress for hundreds of thousands of years | Ian Goldin   Stanley Fischer (1944–2025) | His storied career at the IMF, at central banks, and at universities shaped the study of macroeconomics and the next generation of macroeconomists | James Boughton Our Regular Departments (Credit: Sonia Pulido) When controlled by a select few, tech innovation can be self-serving and undermine the institutions that make it possible, Simon Johnson says in Café Economics.   Andreas Adriano profiles Agustín Carstens, finance minister, head of the BIS, and central banker with a start-up mentality, for People in Economics.   Kevin Fletcher explains why productivity, not competitiveness, is the better path to prosperity for Back to Basics.   Picture This shows how stalled trade and rising tariffs are testing global economic resilience.   For books, Mouhamadou Sy reviews Our Dollar, Your Problem: An Insider’s View of Seven Turbulent Decades of Global Finance, and the Road Ahead by Kenneth Rogoff.   Volker Wieland reviews Crisis Cycle: Challenges, Evolution, and Future of the Euro by John H. Cochrane, Luis Garicano, and Klaus Masuch.   And Vivek Arora reviews Entropy Economics: The Living Basis of Value and Production by James K. Galbraith and Jing Chen   For Currency Notes, Salsa Mazlan tells how Macao SAR’s unique history has yielded different yet equally elegant versions of the same banknote.   Nick Owen  Managing Editor | Finance & Development   nowen@IMF.org Stay connected with the International Monetary Fund: