East-Timor: Economic Outline

Economic Indicators

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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, GDP growth went into negative territory at -8.3% in 2020 due to the outbreak of the COVID-19. It  picked up to 2.9% in 2021 and 3.3% in 2022. It should reduce to 2.2% in 2023 (IMF, 2023), 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. With the pandemic impact receding, government spending in 2022 increased from 92.5 to 101.2 percent of non-oil GDP on the back of rising government goods and services, as well as capital spending. Domestic revenue collection has not returned to pre-pandemic level and consequently the fiscal deficit widened from 47 percent of non-oil GDP in 2021 to 58.3 in 2022 (World Bank, 2023).

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, at 10.1% for 2020, 6.5% for 2021 and 7.5% in 2022. It is forecasted at 2.2% for 2023 and 3.1% in 2024. Foreign currencies reserves are high, at around 6 months of imports. Inflation stood at 3.8% in 2021 and increased to 7% in 2022. It is expected to come back to 4% in 2023 and 2.5% the following year (IMF, 2023). 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 17.84 billion in 2022 (Central Bank of East Timor, 2022). 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 2022 ranked Timor-Leste the 6th 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 and was granted an observer status in 2022.

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 5.2% in 2022 from 3% in 2019 (Trading Economics, 2023). Poverty is declining at a faster pace than in most countries, but employment opportunities in the formal sector are limited and 22.6% 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 (Asian Development Bank, 2023).

Monetary Indicators	2016	2017	2018	2019	2020
American Dollar (USD) - Average Annual Exchange Rate For 1 GHS	0.25	0.23	0.22	0.19	0.18

Source: World Bank - Latest available data.

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Latest Update: September 2023