The Government of Timor-Leste, represented by H.E. Ms. Santina Cardoso, Minister of Finance, signed a loan agreement with the EXIM Bank of China, represented by H.E. Mr. Liu Hongyang, Chinese Ambassador to Timor-Leste. This is the first loan agreement to be signed between the Government of Timor-Leste and the EXIM Bank. The agreement allows Timor-Leste to have access to a concessional loan with a value of US$ 50 million to construct and upgrade Dili drainage system.
The signing ceremony that took place on the 18 December 2015 at the Ministry of Finance was attended by H.E. Mr. Xanana Gusmão, Minister of Planning and Strategic Investment; H.E. Mr. Gastão de Sousa, Minister of Public Works; H.E. Mr. Alfredo Pires, Minister of Petroleum and Mineral; H.E. Mr. Helder Lopes, Vice Minister of Finance, and representatives from selected Chinese major companies.
H.E. Minister Cardoso in her opening speech stated that “the implementation of this project will significantly enhance the urban development and quality of life in the city of Dili”. She further added that “the construction and upgrade of the Dili drainage system will directly improve the health of the city’s inhabitants, reduce the risk of flooding and damage to households and businesses, increase the resilience of the poorest households, and facilitate the economic development”. She concluded her brief statement by emphasizing that “it is a pro-poor project that will have an important impact of the city of Dili and which will constitute a visible mark of the friendship between Timor-Leste and the People’s Republic of China”.
In turn, H.E. Ambassador Hongyang, in his speech, stated that the agreement “signifies that the Sino-Timorese bilateral relationship has entered from the traditional friendship into a new phase of pragmatic cooperation”. In his response to the media when asked why China wants to help Timor-Leste, the Ambassador replied that “China considers Timor-Leste as a brother and has long been a strong supporter of Timor-Leste since 1975 and the first country in the world to recognize Timor-Leste’s independence”. He stressed that “China does not come to help, but to cooperate with Timor-Leste as an equal partner in the development of Timor-Leste”.
The agreement allows Timor-Leste to have access to a concessional loan with a value of US$ 50 million, with an interest rate of 2% per year over 20 years with a grace period of 5 years with 20 year maturity. The loan is highly concessional with a grant element of 27.76%, exceeding 25% concessionality value required by the OECD.
The current loans contracted by the Government of Timor-Leste are used to finance key infrastructure projects and have relatively low rates of interest than Petroleum Fund’s average return and significant grace periods and free access to the associated technical expertise. The Government is well aware of the potential disadvantages of excessive indebtedness, and has ensured that all loans agreed to date have a cost of borrowing below the return on the Petroleum Fund as stated in the Public Debt Law, thus ensuring that the future debt repayments remain well within the country’s capacity to pay.