Country risk in Timor-Leste is high with an OECD country credit grade of 6. This is akin to a speculative grade sovereign rating, which indicates an elevated risk of Timor-Leste being unable and/or unwilling to meet its external debt obligations. Timor-Leste is not rated by the three major private ratings agencies.
Timor-Leste is ranked 178 out of a possible 190 countries on the World Bank’s ease of doing business scorecard. Timor-Leste lags behind the regional average on almost all ease of doing business indicators. Though starting a business is relatively easier in Timor-Leste.
Timor-Leste has enjoyed tranquillity following widespread conflict and turmoil during its formative years. But it still lags most other Pacific Island nations in all areas of governance. The peaceful transfer of power following the May 2018 elections suggests greater political stability.
The risk of expropriation is elevated. According to the US investment climate report, Timor-Leste does not have formal expropriation laws. But the constitution does permit expropriation of private property provided proper compensation is paid to the investor. Overall the legal system lacks cohesion as it is based on a mix of Indonesian laws and regulations, acts passed by the United Nations Transitional Administration, and post-independence Timorese legislation. The judicial system is also ill-equipped to deal with demands currently placed on it. This would make it difficult for investors to seek legal recourse against the state in a timely manner.