- GDP (PPP):
- $2.0 billion
- 3.1% growth
- 1.0% 5-year compound annual growth
- $3,253 per capita
- Inflation (CPI):
- FDI Inflow:
Timor-Leste’s economic freedom score is 44.7, making its economy the 170th freest in the 2021 Index. Its overall score has decreased by 1.2 points, primarily because of a decline in property rights. Timor-Leste is ranked 38th among 40 countries in the Asia–Pacific region, and its overall score is below the regional and world averages.
The economy of Timor-Leste has registered few signs of economic freedom since its inclusion in the Index in 2009. The Timorese economy depends on government expenditures funded by drawdowns from the Petroleum Fund. Other impediments to greater economic freedom are pervasive corruption, which weakens government integrity, and the ineffectiveness of the judicial system.
IMPACT OF COVID-19: As of December 1, 2020, no deaths had been attributed to the pandemic in Timor-Leste, but the economy was forecast to contract by 6.8 percent for the year.
The Democratic Republic of Timor-Leste gained independence from Indonesia in 2002 and has struggled to achieve political stability. U.N. peacekeepers were required until 2012. Current President Francisco Guterres and Prime Minister Taur Matan Ruak have clashed as they maneuver for power. Timor-Leste remains one of East Asia’s poorest countries and is heavily dependent on foreign aid. Economic liberalization has largely stalled. Oil and gas account for more than 95 percent of government revenue, which is consigned to a Petroleum Fund that at the end of February 2019 had assets of $16.6 billion, an amount that the IMF forecasts will decline rapidly in the coming years. The technology-intensive oil industry has done little to create jobs.
Laws governing land and property ownership in Timor-Leste are unclear and uncertain. Numerous claims are unresolved because of conflicting statutes from the Portuguese, Indonesian, and post-independence eras. The overly complex legal framework reflects the same confusing pedigree, although the government is instituting some judicial reforms. The World Bank estimates that as much as 2 percent of GDP is lost annually to corruption.
The top individual income and corporate tax rates are 10 percent. Most government revenue comes from offshore petroleum projects in the Timor Sea. The overall tax burden equals 25.0 percent of total domestic income. Government spending has amounted to 86.9 percent of total output (GDP) over the past three years, and budget deficits have averaged 31.2 percent of GDP. Public debt is equivalent to 3.8 percent of GDP.
A social security contribution scheme paid by employers has increased the cost of operating a business. Labor force participation declined in 2019. Young people entering the labor force have found limited opportunities for employment, and the large offshore oil and gas industry creates few jobs. Petroleum revenues have enabled the government to stimulate domestic consumption through direct or indirect subsidies, but better fiscal management is needed.
Timor-Leste’s average tariff rate is 2.5 percent, but overall trade freedom is hampered considerably by nontariff barriers and institutional shortcomings. Timor-Leste is not a member of the World Trade Organization. Foreign ownership of land is not allowed, and investment in other sectors of the economy is screened. The financial sector is still at a nascent stage of development, and access to credit is challenging for a new company.