Timor-Leste Country profile

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Timor-Leste’s economy contracted 6.8% percent in 2020—the sharpest fall since the country’s independence in 2002—due to the negative impact of COVID-19 and delays in the approval of the 2020 budget that constrained public spending. In addition to lockdowns, the departure of expatriates and the fall in remittances from Timorese losing their jobs overseas hindered activity for local businesses. Timor’s large sovereign wealth Petroleum Fund helped the country mitigate the economic and financial costs of the crisis. By December 2020, the value of the Petroleum Fund had risen to an all-time high of nearly US$18.9 billion—more than nine times the size of the economy—following the strong rebound in the US stock market.

The economy is forecast to grow in 2021 and 2022, supported by large public investments and the government’s Economic Recovery Plan. Under the plan, public spending is set to rise by 30% in the next three years, financed mostly by the Petroleum Fund. Higher public spending will support agriculture, education, health, social protection, tourism, infrastructure and housing. But a surge in COVID-19 cases since March and severe physical damage from flooding in April cloud the near-term outlook.

The Bayu-Undan field, the source of oil revenue for the country, is expected to be exhausted by 2022. Without new sources of public revenues and control of expenditure the fund could deplete over the next 20 years, returning the country to being entirely dependent on its underdeveloped domestic economy. Development of the Greater Sunrise natural gas field, if realised, could support more robust economic growth and public and external finances from the mid-2020s.

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GDP per capita has more than halved since 2012 on the back of lower oil production and weaker global oil prices. Job and income losses during the pandemic resulted in falling GDP per capita in 2020. The IMF forecasts per capita incomes to gradually recover in coming years in line with the economic recovery.

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