Timor-Leste’s Opportunity to Turn its Wealth into Economic Development
IMF News, June 10, 2025
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- Published: June 10, 2025
Context and recent performance
- Timor-Leste has maintained stability, strengthened institutions, and enjoyed enviable economic growth and inflation for a country emerging from conflict since independence in May 2002.
- Population: 1.3 million.
- The article is based on the Staff Report for the 2024 Article IV Consultation with Timor-Leste.
Petroleum Fund and fiscal position
- The Petroleum Fund now exceeds $18 billion, roughly equal to 10 times the Timorese economy’s annual gross domestic product.
- Oil and gas production is dwindling; big deficits could fully deplete the Petroleum Fund by the end of the 2030s.
- Current large government budget deficits have not been yielding the desired growth dividends.
Development needs and risks from rapid spending
- Growth of per-person income has stagnated in recent years.
- The private sector needs diversification.
- Progress on reducing poverty and malnutrition has stalled.
- Rapid depletion of savings would be potentially destabilizing and could halt imports of food and other basic supplies and disrupt public services such as health care.
Fiscal strategy: spend better and more slowly
- Overall message: spend better and more slowly to turn savings into durable development.
- Medium-term plan recommended to gradually align spending with the country’s sustainable income stream.
- Overall spending should be reduced over the next decade while accommodating support for priority areas, such as strategic public infrastructure and education.
- Suggested fiscal adjustments include:
- Containing wage growth in the public sector, where employment climbed 45 percent from 2020 to 2023.
- Containing transfer payments that don’t go to the country’s most vulnerable people.
Private-sector and structural reforms
- Diversification and development require steady progress across government on a broad reform agenda that strengthens the investment climate.
- Recommended reforms include:
- Modernize the legal framework for the financial system.
- Develop a functional land registry.
- Improve corporate financial reporting.
- The IMF report offers options that could substantially accelerate growth in per-capita incomes over the next few decades.
Conclusion
- Timor-Leste’s substantial savings give the country room to maneuver and the opportunity to build a thriving economy for future generations—if it can correct course now.
Source: Timor-Leste’s Opportunity to Turn its Wealth into Economic Development (IMF News, June 10, 2025).