2014 Index of Economic Freedom

Timor-Leste

overall score43.2
world rank170
Rule of Law

Property Rights20.0

Freedom From Corruption25.4

Limited Government

Government Spending0.0

Fiscal Freedom64.7

Regulatory Efficiency

Business Freedom45.4

Labor Freedom79.2

Monetary Freedom68.3

Open Markets

Trade Freedom64.4

Investment Freedom45.0

Financial Freedom20.0

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Quick Facts
  • Population:
    • 1.1 million
  • GDP (PPP):
    • $11.0 billion
    • 10.0% growth
    • 11.5% 5-year compound annual growth
    • $9,873 per capita
  • Unemployment:
    • 18.4%
  • Inflation (CPI):
    • 11.8%
  • FDI Inflow:
    • $42.0 million
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Timor-Leste’s economic freedom score is 43.2, making its economy the 170th freest in the 2014 Index. Its score has decreased by 0.5 point from last year, reflecting declines in trade freedom, labor freedom, and monetary freedom that outweigh improvements in investment freedom and freedom from corruption. Timor-Leste is ranked 40th out of 42 countries in the Asia–Pacific region, and its overall score is well below the world and regional averages.

Since 2009, when Timor-Leste’s economic freedom was first assessed in the Index, its score has declined by over 7 points. Large score improvements in investment freedom and labor freedom have been offset by substantial declines in five other economic freedoms including a very large deterioration in the management of government spending. Public spending that is huge relative to non-oil GDP reflects the state’s outsized role in the economy.

Economic freedom remains severely constrained in Timor-Leste. Since 2010, Timor-Leste has been mired in the ranks of the “repressed” economies. The economic base is narrow, and widespread corruption unchecked by a weak judicial system has been a considerable drag on economic activity.

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Background

The Democratic Republic of Timor-Leste became independent in 2002, and successive governments have struggled to pacify the country. Revolutionary leader Xanana Gusmao, who served as its first president, has headed the government as prime minister since 2007. Economic liberalization has mostly stalled, and the economy depends heavily on foreign aid. Infrastructure is very poor, and corruption is pervasive. Timor-Leste remains primarily an agricultural economy. Oil and gas profits account for more than 95 percent of government revenue. The government deposits all oil income in a Petroleum Fund that is not counted as part of GDP but is reflected in government revenue figures. In 2011, with Indonesia’s support, Timor-Leste applied for membership in the Association of Southeast Asian Nations.

Rule of LawView Methodology

Property Rights 20.0 Create a Graph using this measurement

Freedom From Corruption 25.4 Create a Graph using this measurement

Corruption and nepotism have plagued governments of both major parties, but efforts are underway to establish internal discipline and performance standards. The country suffers from weak rule of law and a prevailing culture of impunity. There is a considerable backlog in the understaffed court system. Community property comprises approximately 90 percent of the land in East Timor, and land reform remains a contentious issue.

Limited GovernmentView Methodology

The top individual income and corporate tax rates are 10 percent. The majority of government revenues come from offshore oil and gas production in the Timor Sea. Tax revenue equals almost three times the size of the domestic economy. Government spending is nearly 140 percent of GDP. The government reserves all income from the oil sector in its Petroleum Fund, which makes government revenue quite large.

Regulatory EfficiencyView Methodology

Despite reductions, the minimum capital requirement for starting a business remains more than the level of average annual income. Incorporating a business still takes over 90 days. The labor market remains largely underdeveloped, and the public sector accounts for about half of non-agriculture employment. The state uses its substantial oil revenues to fund large subsidy programs for food, power, and fuel.

Open MarketsView Methodology

The simple average tariff rate for Timor-Leste was 10.3 percent in 2011. Restrictions on foreign land ownership and a slow-moving bureaucracy deter foreign investment. The financial sector is still at a nascent stage of development. Modest progress has been made in establishing an effective banking system. Access to credit remains limited, and the commercial banking sector remains very small.

Country's Score Over Time

Bar Graph of Timor-Leste Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Timor-Leste to other economic country groups

Regional Ranking

rank country overall change
1Hong Kong90.10.8
2Singapore89.41.4
3Australia82-0.6
4New Zealand81.2-0.2
5Taiwan73.91.2
6Japan72.40.6
7Macau71.3-0.4
8South Korea71.20.9
9Malaysia 69.63.5
10Kazakhstan63.70.7
11Thailand 63.3-0.8
12Azerbaijan61.31.6
13Samoa61.14.0
14Kyrgyz Republic 61.11.5
15The Philippines60.11.9
16Sri Lanka60-0.7
17Vanuatu59.52.9
18Mongolia58.9-2.8
19Fiji58.71.5
20Indonesia58.51.6
21Tonga58.22.2
22Cambodia57.4-1.1
23Bhutan56.71.7
24India55.70.5
25Pakistan 55.20.1
26Bangladesh 54.11.5
27Papua New Guinea53.90.3
28China52.50.6
29Tajikistan52-1.4
30Laos51.21.1
31Maldives512.0
32Vietnam50.8-0.2
33Nepal50.1-0.3
34Micronesia49.8-0.3
35Burma46.57.3
36Uzbekistan46.50.5
37Kiribati46.30.4
38Solomon Islands46.21.2
39Timor-Leste43.2-0.5
40Turkmenistan42.2-0.4
41North Korea1-0.5
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