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- GDP (PPP):
- $6.1 billion
- 6.6% growth
- 8.8% 5-year compound annual growth
- $4,928 per capita
- Inflation (CPI):
- FDI Inflow:
Since becoming an independent nation, Timor-Leste has made efforts to boost economic growth and foreign investment. The oil sector accounts for most economic activity, and dependence on this sector calls the sustainability of the economy into question. Policies that promote economic freedom are needed at all levels to aid in development.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 45.8 (up 0.3 point)
- Economic Freedom Status: Repressed
- Global Ranking: 167th
- Regional Ranking: 40th in the Asia–Pacific Region
- Notable Successes: Trade Freedom and Monetary Freedom
- Concerns: Rule of Law, Investment Freedom, and Financial Freedom
- Overall Score Change Since 2012: +2.5
Timor-Leste has a long history of corruption and governmental unfair practices, and these problems persist today. Business regulations hinder entrepreneurial activity, and much non-agriculture employment is in the public sector.
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, who had been prime minister since 2007, stepped down in February 2015 and appointed opposition leader Rui Araujo as his successor. Timor-Leste remains one of East Asia’s poorest countries. Economic liberalization has mostly stalled, and the economy depends heavily on foreign aid. The economy is primarily agricultural, infrastructure is poor, and corruption is pervasive. 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.
Corruption and nepotism continue to plague Timor-Leste. In one high-profile case, President Taur Matan Ruak granted an official pardon in August 2014 to former Justice Minister Lucia Lobato, who had been found guilty of corruption related to government procurement. Rule of law is weak. Land reform remains an unresolved and contentious issue with rival property claims from the Portuguese, Indonesian, and post-independence eras.
The top personal income and corporate tax rates are 10 percent. Most government revenue comes from offshore petroleum projects in the Timor Sea. Government spending under the strategic development plan, which aims to bring the economy to upper-middle-income status by 2030, has increased expenditures to over 100 percent of total domestic output. The budget balance has a considerable surplus due to offshore oil drilling.
Despite considerable reductions, the minimum capital requirement for establishing a business remains equal to more than the average annual income. The public sector accounts for about half of non-agricultural employment, and the formal labor market remains underdeveloped. In 2015, the government rejected calls for it to scale back its large subsidy programs for food, power, and fuel.
The simple average tariff rate for Timor-Leste was 2.5 percent as of 2013. Domestic and foreign investors are generally treated equally under the law. The government may not expropriate property without providing compensation. Foreign investors may not own land. The small financial sector is underdeveloped, and less than 2 percent of the population has access to financial services.