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- GDP (PPP):
- $9.5 billion
- 10.6% growth
- 11.8% 5-year compound annual growth
- $8,701 per capita
- Inflation (CPI):
- FDI Inflow:
Timor-Leste’s economic freedom score is 43.7, making its economy the 166th freest in the 2013 Index. Its score has increased by 0.4 point from last year, reflecting improvements in investment freedom, labor freedom, and business freedom. Timor-Leste is ranked 38th out of 41 countries in the Asia–Pacific region, and its overall score is well below the world and regional averages.
Timor-Leste’s economic freedom appears to have bottomed out in 2011 with small improvements over the past two years. Although progress has been uneven, economic reconstruction has proceeded, and income growth has been supported by a modest level of trade freedom.
Daunting institutional and policy shortcomings continue to undermine overall economic freedom. The economic base is narrow, and political instability still hampers stable long-term economic development. The state plays an outsized role in the economy. Private-sector development is also limited by Timor-Leste’s burdensome regulatory environment and underdeveloped financial sector. Widespread corruption, unchecked by a weak judicial system, is a considerable drag on economic activity.
The Democratic Republic of Timor-Leste became independent in 2002 after 25 years of Indonesian occupation and two and a half years of administration by the United Nations. Successive governments have struggled to pacify the country. Revolutionary leader Xanana Gusmao, who served as the country’s first president, has headed the government as prime minister since 2007. Economic liberalization has mostly stalled, and the economy still 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 proceeds. 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.
A rudimentary legal system has been established, but the justice system remains among the weakest sectors of government, relying heavily on foreign assistance. Land titles from the Portuguese colonial period may conflict with competing claims from the Indonesian occupation and also with claims from squatters who may occupy the land. Overall progress in fighting corruption has been marginal.
The top income and corporate tax rates are 10 percent. Most government revenue comes from offshore petroleum projects in the Timor Sea. New spending under the strategic development plan, which aims to bring the economy to upper-middle-income status by 2030, has increased expenditures to 156.4 percent of total domestic output. The budget balance has a huge surplus due to offshore oil drilling.
The overall freedom to launch and operate a business remains constrained by the burdensome regulatory environment. Despite considerable reductions, the minimum capital requirement for establishing a business remains more than the level of average annual income. The public sector accounts for around half of employment outside of agriculture, and the formal labor market remains underdeveloped. Inflation has risen.
The trade-weighted average tariff rate is 6 percent, with non-tariff barriers continuing to distort trade activity. A 2011 law provides for equal treatment of domestic and foreign investors, but the investment environment is significantly limited by inadequate institutional capacity, complex licensing requirements, and poor infrastructure. The small financial sector is underdeveloped, and less than 2 percent of the population has access to services.