Guteriano Neves
As Timor-Leste marks 24 years of independence, it faces a critical question: can its current economic model deliver the growth needed to meet its development goals? For more than a decade, growth has remained persistently slow—far below what is required to create jobs, reduce poverty, and sustain public finances. If this trajectory continues, the country risks falling further behind its ASEAN peers.
Timor’s Slow Growth Story
Low economic growth—approaching stagnation—has characterized Timor-Leste’s economy for more than a decade. From 2011 to 2024, non-oil GDP grew at just over 2% per year, while per capita growth averaged around 0.5%. Excluding the COVID-19 years, median non-oil GDP growth reached only 2.9%, with per capita growth at 1.2%. Since 2021, recovery has begun, but it remains modest: the average of non-oil GDP growth was 3.6%, and the per capita growth average was 2.6% between 2021 and 2024. While this growth is often seen as a sign of recovery, it falls far short of the Strategic Development Plan (SDP) target of 8%–11% per year and is lower than Asean peers. More importantly, considering Timor’s development stage, such rates are close to stagnation.
Economic growth may not fully capture well-being, but it is a critical macroeconomic foundation for broader development. Persistently low growth is one of the central constraints facing Timor-Leste, reflecting the structural weaknesses of a petroleum-dependent economy.
Slow growth has direct implications for fiscal sustainability. Reducing reliance on the Petroleum Fund requires expanding domestic revenues—but with current growth levels, that will be extremely difficult. Without a stronger domestic economy, the government’s policy choices become increasingly constrained. Non-oil revenues remain a small share (15%) of total government annual spending. At current rates, it could take more than a decade to double domestic revenue. In the meantime, it must balance between growing population, rising demands for public services, with the need to preserve the sustainability of the fund.
For ordinary citizens, the consequences are already visible and felt. As for much-needed employment, the economy generates only around 2,000 new jobs annually by the formal private sector—roughly 10% of the number needed to absorb new entrants into the labor force each year. The public sector has the biggest employment so far, more than 50% of the total formal employment. However, as the fiscal pressure is mounting, there is an urgency to curtail the growing size of public sector, and reduce the number of public employment.
In the context of limited formal employment, informal employment offers ways to survive. More than 70% of employment is found in informal work and self-employment. It serves as a survival mechanism. While overseas employment provides temporary relief for many young people, it cannot serve as the sole solution. What matters most is expanding the capacity of the domestic economy to create jobs at home.
The structure of the economy further exacerbates these challenges. Public administration has expanded significantly, with its nominal value rising from $243 million in 2011 to $554 million in 2023—an increase of about 128%; while non-oil GDP grew by only 23.3%. Today, public administration accounts for about one-third of total GDP, making it the largest non-oil sector.
In contrast, agriculture—critical for poverty reduction—has stagnated. Between 2011 and 2024, it recorded a median growth rate of just 0.5% per year. A joint study by the Monash University and National Statistic (INETIL) concluded that After accounting for inflation and population growth, agricultural GDP per capita declined by 20% between 2010 and 2020. This imbalance limits both job creation and income growth, particularly in rural areas.
If the current model continues, the outlook is concerning. Poverty reduction will remain slow and could take two to three decades to eliminate absolute poverty if the existing approach persists. At the same time, government revenues will struggle to keep pace with rising expenditure needs.
The implications for regional convergence are equally serious. If Timor-Leste continues to grow at this pace while its ASEAN neighbors expand more rapidly, the income gap will widen rather than narrow. Living standards may improve gradually, but not fast enough to keep up with the region.
This outcome is not inevitable. It is the result of policy choices. For nearly two decades, supported by petroleum revenues, Timor-Leste has relied on a “frontloaded” fiscal strategy—using high public spending to drive development. However, this approach has not translated into sustained economic growth. Instead, it has contributed to structural challenges often associated with the resource curse.
Looking Ahead
The evidence is clear: the current approach is not delivering the level of progress the country needs to meet the nation’s development dreams and aspirations. Change is necessary, but it will require political leaders to make difficult and strategic choices. The experiences of other countries in the region show that rapid progress is possible when growth is strong and sustained through good political and environmental conditions, the right policy approach, and a competent state bureaucracy.
First, Timor-Leste must raise its ambition. The political leaders must come to a realization that the current path is not a sustainable path and will not bring the country to achieve its development needs. In that regard, sustained, higher economic growth is essential to reduce dependence on the Petroleum Fund, generate employment, improve living standards, and narrow development gaps with ASEAN peers.
Second, higher, more inclusive and more equitable growth can only be achieved through economic diversification and structural transformation. Agriculture, light manufacturing, and tourism should form the backbone of a more balanced growth strategy. These sectors have strong potential to create jobs, particularly for young people, and to reduce poverty—especially in rural areas.
Third, the private sector, household, and cooperative group must take a central role in driving growth. Micro, small, and medium enterprises can play a key role in job creation and income generation. However, they require supportive conditions, including better access to finance, a skilled workforce, improved infrastructure and connectivity, and a conducive environment for them to grow and flourish.
Government intervention must also become more strategic. Public spending should enable—not crowd out—private sector development. Investments in roads, electricity, connectivity, and skills development must be aligned with the needs of a productive and diversified economy.
Fourth, ASEAN accession offers significant opportunities. It has the potential to expand trade, attract foreign investment, and accelerate institutional reforms. However, these benefits do not come automatically with accession and integration or ticking the box. It will largely depend on the quality of domestic policies and the willingness of leaders to undertake necessary structural reforms and align it with domestic needs.
Finally, none of these efforts will succeed without effective governance. Strong leadership, coherent policies, and capable institutions are essential for implementation. Competent and efficient public administration is critical to translating policy into tangible outcomes. Without it, development goals risk becoming little more than aspirations.
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The evidence is clear. The current approach is not delivering the development outcomes that Timor-Leste needs to address multiple development needs. Economic growth should not be treated as an abstract target but as a means to achieve nation’s dreams and improve people’s lives. Without faster and more inclusive growth, Timor-Leste will struggle to achieve its broader development objectives—fiscal sustainability, job creation, poverty reduction, and convergence with ASEAN peers.
Author is independent policy analyst based in Dili.
