The New National Poverty Rate and What It Means: A Brief Look at Performance, History and What Comes Next

By: Mario Filomeno da Costa Pinheiro

Timor-Leste’s latest poverty figures provide an important opportunity to take stock of the country’s progress in reducing poverty. According to the 2024 Timor-Leste Living Standards Survey (TLSLS), the national poverty rate fell from 41.8 percent in 2014 to 37.0 percent in 2024, a reduction of 4.8 percentage points over the decade. Poverty remains considerably higher in rural areas, at 45.5 percent, compared with 18.4 percent in urban areas.

The relatively modest reduction is not an encouraging result and may understandably raise questions about the effectiveness of poverty-reduction efforts over the past decade. However, treating the latest figure as a straightforward scorecard of government performance would overlook the very different circumstances in which governments operated before and after 2014.

Between 2007 and 2014, poverty fell much more rapidly, from 50.4 percent to 41.8 percent. Much of the improvement was attributed to rising consumption and economic activity, particularly among households dependent on agriculture. The period also coincided with a major expansion of public spending and investment. Government expenditure became a powerful driver of domestic economic activity, supporting infrastructure development, construction and household incomes.

The conditions after 2014 were considerably more challenging. Political uncertainty and budget delays disrupted economic activity. In 2017, public expenditure fell by 25 percent, while capital spending declined by 57 percent. GDP contracted, and many linked the deterioration to the political deadlock and resulting constraints on government spending. The situation continued into 2018, when the absence of an approved budget for much of the year constrained public spending and economic activity.

The COVID-19 pandemic then delivered another major shock. Economic activity was severely disrupted in 2020 and 2021. A Socio-Economic Impact Assessment of COVID-19 Pandemic in 2021 reported income losses, unemployment and business closures among households and small and medium-sized enterprises, pushing already-struggling families into poverty. GDP contracted sharply in 2020 and capital spending nearly halved.

This context does not mean the 4.8-point reduction should be dismissed. It does, however, suggest that it should be interpreted carefully. The more fundamental question is why exceptionally high levels of public spending have not generated stronger and more sustained economic growth. Public expenditure averaged 85 percent of GDP between 2013 and 2023, while average annual GDP growth was only 1.13 per cent with per capita growth averaged around 0.5%.

The challenge for the future is therefore not simply to spend more, but to obtain greater economic and social returns from public spending. Transitioning from a high-spending, low-returns model to strategic investments that create jobs, diversify the economy and reduce poverty will be difficult politically, given the public sector’s rapid growth over the past 15 years. Yet this shift is essential to securing the country’s future and lowering the long-term fiscal and economic burden of an inefficient public sector.

The Government’s programme sets an ambitious objective of reducing poverty to 10 percent within five years, alongside annual economic growth above 5 percent and stronger private-sector investment. While the 2024 result fell short of the set target, there is still so much to take away from the result. Drawing from the relatively successful lesson from the 2007-2014 period while adapting to post-pandemic conditions will be essential to reducing poverty going onward. This should include a future plan that focuses on consolidating political stability, rebuilding momentum in infrastructure and private sector development, and implementing targeted poverty reduction programmes.

In the end, the 2024 poverty rate is neither a vindication nor a condemnation. It is a measure of how far Timor-Leste has come, and how far it still has to go. The country’s past success shows that rapid poverty reduction is possible. Its recent experience demonstrates how quickly progress can stall when stability and focus are lost. The task ahead is to consolidate stability, learn from what worked, and ensure that public spending finally delivers the jobs and incomes that allow families to leave poverty behind for good.