East-Timor: Economic Outline

Economic Indicators

East Timor is a young nation which became 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. However, oil and gas production ended in 2023, leaving coffee as the main commodity export. After experiencing an 8.3% decline in 2020 due to the pandemic, the non-oil economy rebounded with growth rates of 2.9% in 2021 and 4.0% in 2022. However, despite these improvements, economic output has yet to reach pre-pandemic levels. Challenges in budget implementation, exacerbated by electoral processes, led to a deceleration of growth in the non-oil economy, estimated at 2.1% in 2023. Economic growth is anticipated to average 4.1% in both 2024 and 2025. The government's emphasis on capital expenditure and infrastructure investment, reflected in the budget increase from 18.4% of GDP in 2023 to 24.5% of GDP in 2024, is expected to stimulate growth. However, export expansion might encounter limitations, primarily due to reliance on coffee as the primary export commodity (data World Bank).

The fiscal deficit is projected to have decreased to 44.4% of GDP from nearly 60% in 2022. It is anticipated to remain at approximately 45% of GDP over the medium term. Government spending in 2023 amounted to 87% of GDP, ranking among the highest globally, while non-oil-related revenue accounted for just 14.1% of GDP. To address the significant budget deficit, Timor-Leste is tapping into its diminishing Petroleum Fund. The Fund's balance stood at 18.2 billion by the end of 2023, equivalent to 10.6 times GDP. However, with the cessation of oil and gas production, the Fund's revenues are outweighed by the annual withdrawals required to fund the budget. Official estimates project that the Petroleum Fund will be depleted by 2034. Consumer price inflation stayed elevated, averaging 8.4% throughout 2023, propelled by rising prices of food, non-alcoholic beverages, alcohol, and tobacco. However, price pressures were mitigated by the appreciation of the US Dollar, the official currency in Timor-Leste. Inflation is expected to decrease in 2024, driven by a slowdown in global commodity prices. Several downside risks could impact the outlook. Sluggish global growth may reduce returns from the Petroleum Fund. Extreme weather events, particularly linked to El Niño, could disrupt rice availability and imports. Moreover, elevated energy prices are expected to raise domestic transportation and electricity expenses. The IMF recommends that Timor-Leste pursue an ambitious reform agenda to foster a robust private sector. This includes reducing public expenditure to match the economy's capacity for absorption and enhancing its quality, particularly by prioritizing investment in human and physical capital. Gradual mobilization of domestic revenue is advised. To provide a strategic framework, a medium-term fiscal plan should ensure fiscal sustainability. Additionally, to stimulate growth and broaden the economic base, structural reforms are necessary. These reforms should address barriers in agriculture and tourism, promote digitalization to enhance productivity, and tackle legal obstacles hindering business operations and financial growth.

With 60% of the population under 25 years of age, East Timor is one of the youngest countries in the world. The country has achieved lower middle-income status and aspires to become an upper middle-income country by 2030. Unemployment was estimated at only 1.8% in 2023 by the World Bank; however, labor force participation has remained stagnant at around 30.6% over the past decade. There has been a decline in labor productivity, and employment is increasingly clustered in sectors with the lowest labor productivity. When measured at the international level (USD 2.15 in 2017 PPP), the poverty rate was estimated at 27.5% of the population in 2023 (it was 40.9% in 2007).

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: May 2024