2015 Index of Economic Freedom


overall score45.5
world rank167
Rule of Law

Property Rights20.0

Freedom From Corruption30.0

Limited Government

Government Spending0.0

Fiscal Freedom64.7

Regulatory Efficiency

Business Freedom59.8

Labor Freedom72.0

Monetary Freedom68.7

Open Markets

Trade Freedom79.6

Investment Freedom40.0

Financial Freedom20.0

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Quick Facts
  • Population:
    • 1.2 million
  • GDP (PPP):
    • $25.8 billion
    • 8.4% growth
    • 10.4% 5-year compound annual growth
    • $21,705 per capita
  • Unemployment:
    • 4.5%
  • Inflation (CPI):
    • 10.6%
  • FDI Inflow:
    • $19.8 million
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Timor-Leste’s economic freedom score is 45.5, making its economy the 167th freest in the 2015 Index. Its score has increased by 2.3 points from last year, with improvements in trade freedom, business freedom, and freedom from corruption that more than offset declines in labor freedom and investment freedom. 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.

Timor-Leste remains one of the world’s least economically free countries. Its economic freedom has increased by 2.7 points over the past five years, but improvements have come from such a low base that economic activity remains suppressed. Efforts to spur investment and increase regulatory efficiency have led gains in four of the 10 economic freedoms.

Economic institutions and infrastructure remain weak. Residual instability following violence surrounding independence from Indonesia has slowed or even prevented much economic reform. The rule of law is weakly respected, and vast oil and gas reserves encourage corruption and nepotism. Timor-Leste’s trade freedom is among the worst in the world, and a slow-moving bureaucracy hampers investment that could diversify the economy.



The Democratic Republic of Timor-Leste became independent in 2002, and successive governments have struggled to pacify the country. Revolutionary leader Xanana Gusmao, its first president, has been prime minister since 2007 but has stated his intention to step down at the end of 2014. Economic liberalization has mostly stalled, and the economy depends heavily on foreign aid. Infrastructure is very poor, and corruption is pervasive. The economy remains primarily agricultural. 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.

Rule of LawView Methodology

Property Rights 20.0 Create a Graph using this measurement

Freedom From Corruption 30.0 Create a Graph using this measurement

President Taur Matan Rauk reportedly has said that corruption exists at all levels in society. Increasing allegations of petty corruption against the police force and a perception that government contracts generally go to those with the right connections have raised concerns about endemic public-sector corruption. Rule of law is weak. Land reform remains an unresolved and contentious issue.

Limited GovernmentView Methodology

Timor-Leste’s top individual and corporate income tax rates are 10 percent. Other taxes include a sales tax. The majority of tax revenue, which is equal to 69.1 percent of gross domestic product, comes from offshore oil and gas production in the Timor Sea. Government expenditures are equivalent to 86.4 percent of domestic production.

Regulatory EfficiencyView Methodology

The regulatory environment remains burdensome and costly. The minimum capital required to establish a business still costs more than the level of average annual income. The public sector accounts for around half of non-agricultural employment, and the formal labor market remains underdeveloped. The government uses its substantial oil revenues to fund large subsidy programs for food, power, and fuel.

Open MarketsView Methodology

The simple average tariff rate for Timor-Leste was 6.0 percent as of 2007. New foreign investment is subject to government screening. The investment environment is significantly limited by inadequate institutional capacity, complex licensing requirements, and poor infrastructure. The financial sector is very small and underdeveloped. Less than 2 percent of the population has access to financial services.

Country's Score Over Time

Bar Graph of Timor-Leste Economic Freedom Scores Over a Time Period

Country Comparisons

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Regional Ranking

rank country overall change
1Hong Kong89.6-0.5
3New Zealand82.10.9
7South Korea71.50.3
8Malaysia 70.81.2
10Brunei Darussalam68.9-0.1
12Thailand 62.4-0.9
15Kyrgyz Republic 61.30.2
21Sri Lanka58.6-1.4
25Pakistan 55.60.4
27Bangladesh 53.9-0.2
29Papua New Guinea53.1-0.8
36Solomon Islands470.8
42North Korea1.30.3
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