By: Dionisio Babo Soares
In the dynamic landscape of Southeast Asia, a region long synonymous with “economic miracles,” countries have continually defied expectations, evolving from war-torn or isolated economies into vibrant hubs of opportunity and innovation. The “Asian Tigers”: South Korea, Taiwan, Hong Kong, and Singapore, pioneered rapid industrialization and export-led growth in the late 20th century. Southeast Asia’s economic progress is evident today in nations like Singapore, Vietnam, Malaysia, the Philippines, and Indonesia, with Cambodia and Laos closely behind. Given their proximity to Timor-Leste’s development trajectory, Cambodia and Laos embody resilience and progress, offering valuable lessons.
Cambodia emerged from decades of civil strife in the 1990s. Over the past two decades, sustained reforms and ASEAN integration have transformed its economy. Under Prime Minister Hun Sen, GDP per capita rose from around US$300 in 2000 to over US$1,700 by 2021. Poverty rates have seen a significant decline, from 36.7% in 2014 to 16.6% in 2022, reducing the number of Cambodians living in poverty from 5.6 million to 2.8 million. The World Bank concurs, noting a drop in poverty from 33.8% to 17.8% between 2009 and 2019, albeit with a slight reversal due to COVID-19.
Rural areas spearheaded this poverty reduction, driven by rising wages in the garment, tourism, and construction sectors. While disparities persist, including income inequality and urban-rural gaps, Cambodia’s progress is undeniable. Its Human Development Index has similarly improved, reinforcing its economic narrative, a testament to progressive leadership.
Conversely, once constrained by its landlocked geography and centralized governance, Laos has pivoted towards diversified development. Major reforms commenced in the early 1990s with IMF and World Bank support. Laos capitalized on hydropower and natural resources, earning the moniker “Southeast Asia’s battery” by 2022, with energy exports accounting for 12.8% of GDP.
Despite facing challenges in the early 2020s, including a debt crisis and inflationary pressures exacerbated by COVID-19, Laos’s poverty rate stands at 18.3%, notably lower than Timor-Leste’s 42%. Continued reforms have led to fiscal discipline of state-owned enterprises, an improved business environment, and expanded cross-border infrastructure. Although inflation and public debt remain concerns, Laos’s energy-export model and connectivity strategies have set the stage for its graduation from Least Developed Country (LDC) status.
Timor-Leste: Learning from Regional Journeys
Timor-Leste remains among the region’s poorest nations. A 2024 IMF report states that over 40% of its population lives in multidimensional poverty. Public spending has averaged 85% of GDP from 2013 to 2023, while growth has remained modest at less than 4% annually. The economy heavily relies on oil and gas revenues stored in the Petroleum Fund, valued at approximately US$18 billion, roughly ten times the size of the economy.
However, concerns loom over the Fund’s sustainability, with projections suggesting potential depletion by the late 2030s. In 2024-2025, Prime Minister Mr. Xanana Gusmão initiated spending reforms to align government expenditures with long-term sustainability goals. International observers, including the IMF and World Bank, emphasize the need for strategic investments over consumption, sustainable income-aligned withdrawals, streamlined public finances, and enhanced infrastructure, education, and human capital. Private-sector diversification remains pivotal.
Drawing from Cambodia and Laos’s economic journeys offers relevant insights for Timor-Leste. Macroeconomic discipline, coupled with strategic reinvestment, is crucial. Both countries transitioned from consumption-driven growth to targeted investments in human capital, infrastructure, and economic diversification. Their integration into regional markets underscores how connectivity and reforms can overcome geographic limitations.
Timor-Leste must establish clear priorities and ensure transparent, long-term development objectives to bolster investor and citizen confidence. Like Cambodia’s sustained reforms under former Prime Minister Hun Sen and current Prime Minister Hun Manet and Laos’s leadership, governance stability is key.
Economic diversification and SME empowerment are equally vital. Timor-Leste can achieve more inclusive growth by fostering sectors such as agriculture, tourism, small-scale manufacturing, and renewable energy, supported by enhanced skills and streamlined regulations.
Moreover, prudent sovereign-fund management is critical. Adopting rules like the Estimated Sustainable Income for withdrawals can convert finite oil wealth into intergenerational assets, ensuring the Petroleum Fund supports sustainable development.
While Timor-Leste must chart its own path, the success stories of its regional partners offer invaluable lessons. (*)
This opinion is personal and does not represent the views of the author’s affiliated institution.
Note: The data referenced herein is illustrative and may not reflect the most current official statistics.
