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- GDP (PPP):
- $11.0 billion
- 10.0% growth
- 11.5% 5-year compound annual growth
- $9,873 per capita
- Inflation (CPI):
- FDI Inflow:
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.
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.
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.
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.
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.
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.