East-Timor flag East-Timor:

Country risk of East-Timor : Economy

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East Timor is a young nation which become independent in 2002. Despite impressive progress since independence, East Timor is still one of the poorest countries in Asia and its economy is heavily dependent on foreign aid and oil (which represents more than 95% of total export revenues). After growing 1.8% in 2019, due to the outbreak of the COVID-19, GDP growth was estimated at -7.6% in 2020 and picked up to 1.8% in 2021. It should reach 3.8% in 2022 subject to the post-pandemic global economic recovery and the completion of the Tibar commercial port project. Private consumption is also set to sustain growth, while the weaker global situation should hinder private investment.

Historically, the government failed to spend as much as its budget allowed and has been running a budget deficit following a very significant increase in government expenditure and poor oil revenues. Timor Leste should record a fiscal deficit of 35.1% of GDP in 2021 up from 26.6% in 2020 as the government looks to increased budgeted expenditure by at least 27.0% up to USD 1.9 billion from USD1.5 billion. The oil industry makes up 75% of total revenues, followed by international aid (around 19% of revenues). Timorese public debt has been very low in the past years and it was estimated at 12.3% for 2020 and 16.5% for 2021, with a forecast at 18.5% for 2022. Foreign currencies reserves are high, at around 6 months of imports. Inflation stood at 0.5% in 2020 and 1.6% in 2021. It is expected to pick up to 2.5% in 2022 and 2.8% the following year, on the back of a rise in global food prices (World Economic Outlook IMF, October 2021). The country has made excellent progress in state building and improving key social services, but its human development indicators remain among the lowest in the region. The government deposits all oil income in the Petroleum Fund, which is not counted as part of GDP but reflected in government revenue figures. Investment returns from the Petroleum Fund have been particularly high, increasing the fund's balance to USD 16.6 billion in 2019. However, the prospect of depletion of its energy resources is forcing the country to face the challenge of diversifying its economy. The priorities of East Timor are to reduce its dependence on oil revenues, by developing agriculture, tourism and light industries, to create employment (mainly in rural areas) and to improve the quality of public services. The country enjoys political stability, and the Democracy Index 2021 ranks Timor-Leste the 7th country in Asia in terms of democracy. Elections in May 2018 saw the appointment of a new Prime Minister, Taur Matan Ruak, from a coalition of the Alliance for Change and Progress (AMP), (composed of three parties: National Congress for Timorese Reconstruction (CNRT) and the Popular Liberation Party (PLP) and KHUNTO). Timor-Leste is still trying to become a member of ASEAN, although some member countries postponed the decision to 2021.

With 60% of the population under 25 years of age, East Timor is one of the youngest countries in the world. The country have achieved lower middle-income status and aspires to become an upper middle income country by 2030. Unemployment Rate in East Timor increased to 5.06% in 2020 from 3% in 2019 (National Statistics Directorate, Timor, 2022). In the long-term, the East Timor unemployment rate is projected to trend around 3.6% in 2022 and 3.2% in 2023 according to the World Bank econometric models. Poverty is declining at a faster pace than in most countries, but employment opportunities in the formal sector are limited and 41.8% of the population still lives below the national poverty line, particularly in rural areas where the majority of the population lives with little or no access to markets.

 

Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.

 
 
Country Risk
See the country risk analysis provided by Coface.
Main Online Newspapers
Timor-Leste News Sites
East Timor News
BBC Country Profile, East Timor
Al Jazeera, East Timor
Useful Resources
Ministry of Finance
Government of East Timor
Central Bank of Timor-Leste

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Latest Update: May 2022