Economic studies


Population 1,167 million
GDP 2462 US$
Country risk assessment
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  2014 2015 2016 (e) 2017 (f)
GDP growth (%) 5.9 4.3 5.0 4.0
Inflation (yearly average) (%) 0.8 0.6 1.5 3.8
Budget balance* (% GDP) 25.9 4.2 -10.4 -20.5
Current account balance (% GDP) 25.1 16.5 2.0 -11.9
Public debt (% GDP) 0.5 1.8 7.3 13.8


(e) Estimate (f) Forecast


  • Oil and gas reserves in the Sea of Timor
  • Support of the Community of Portuguese-speaking countries


  • Vulnerability to natural clusters (landslides, violent winds, floods)
  • Under-development of infrastructures
  • Deficit in human capital
  • Very high dependency on oil revenues (98% of exports)
  • Almost half the population lives below the poverty threshold
  • High level of unemployment amongst the young (40%)
  • Low banking intermediation


A period of transition towards a post-oil economy marked by a sharp rise in government investment

Without taking oil production into account in the calculation of GDP, East Timor should continue to grow in 2017. Unless the country discovers new oil wells, it is likely to cease its energy production between now and 2023. This gradual reduction in production is likely to be triggered by an increase in government spending on long-term capital investments. Numerous capital investments have been initiated by the country's oil fund, linked to the Strategic Development Plan (2011-2030) as with the first public-private partnership in the history of the country, in June 2016 (construction of the new port in the Bay of Timor). These investments are likely to be aligned around four pillars, namely healthcare, infrastructure (telecommunications, energy and supply of water and drainage), the promising sectors (agriculture, tourism and petrochemicals) and the institutional framework in order to improve the efficiency of the institutions. Nevertheless, even if foreign-source investments (+18% in 2017) and public investments in infrastructures grew, the poor diversification of the economy would still penalise the country's attractiveness. Consumption is likely to benefit from high domestic demand for electricity, cereals, drinks and construction materials as a result of an increase in lending in the construction and agricultural sectors, whereas sales of cars are likely to fall. In fact imports, which should reach a peak in 2017, will be overrepresented by mineral fuels.
Inflation is historically volatile in East Timor, as a result of the country's exposure to changes in foodstuff and oil prices. It is likely to increase in 2017 as a result of an upturn in domestic demand and the gradual increase in oil prices.


The country is accumulating deficits

Since 2016, the country has been running a budget deficit as a result of the very significant increase in government expenditure and poor oil revenues (for the 2016 budget, the country had estimated an increase in oil revenues of 24%, whereas in reality they fell by 21%). The deficit is likely to widen sharply in 2017 as a result of a fall in revenues and an increase in expenditures. In fact, capital expenditure is likely to increase significantly. The principal risk for the country is the excessive wastage by oil funds by investing in "white elephants" like the new port which is under construction. Hence, the budget deficit could be greater than initially planned.
In the same way, the current account is likely to post a deficit linked to the sharp increase in the trade and services deficit. Exports of goods, principally coffee, and current transfers should increase slightly in 2017, whereas imports are likely to increase as a result of the need for manufactured goods and equipment. In order to finance the current account deficit, the country is likely to continue to take on external debt, since its external debt is again likely to increase very rapidly (tripled between 2015 and 2016), obliging the country to draw on the country's oil fund.


Political uncertainties, weak governance and external conflict

The government of East Timor, led by the Prime Minister, Rui Maria de Araújo, who succeeded Xanana Gusmão in February 2015, is likely to remain stable until the presidential election in March 2017. Prior to resigning, Mr Gusmão negotiated a government coalition associating the majority and the opposition on the basis of a joint programme. Due to the absence of any political opposition to the government, the civil organisations remain the only opposition force in political and budgetary terms. The efficiency of the government's actions is still being called into question by the population, and poverty continues to be very significant. Given that the great majority of the Timorese still live in rural areas and depend on agriculture, the government has been unable to bring dynamic change to the private sector. Consequently, unemployment amongst the young is very significant.
In external matters, the country is disputing the legitimacy of Greater Sunrise with Australia. The argument put forward by Timor is based on disputing the treaty signed in 2006 with Australia. Indeed, the country considers that it was manipulated by the Australians during the negotiation of the treaty, which aimed to redistribute the oil revenues between the two countries and to offer them a respite period of 50 years. This reserve of hydrocarbons would represent an enormous contribution to the country's production capacity; it would postpone the penury to which the government will have to face up in the coming years and would increase the revenues of the country's oil fund. The negotiations, supervised by the International Court of the Law of the Sea, are in progress.


Last update: January 2017

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