In May 2002, Timor-Leste (formerly known as East Timor) gained independence. Violence had left the country and families torn apart, nearly 70 per cent of all buildings, homes and schools destroyed, and an estimated 75 per cent of the population was displaced.
During April-May of 2006, there was a rapid deterioration of security. Serious violence caused the displacement of around 150,000 people in the capital, Dili and the surrounding areas, and the government subsequently requested military assistance from neighboring countries and humanitarian and police assistance from the United Nations. In 2006, the economy contracted by an estimated 5.4 per cent, and there were significant increases in poverty levels across the country.
Despite the challenges, Timor-Leste has progressed, particularly due to their endowment of natural resources. With the petroleum revenue boom, fiscal policy since 2005 has been expansionary. In 2007-08 the government increased spending on public transfers and infrastructure to address the pressing need to ensure social and institutional stability following the 2006 crisis.
The economy continues to grow rapidly on the back of government spending. These developments are starting to contribute to poverty reduction and improved social outcomes.
The World Development Report 2011 found that on average post-conflict countries take between 15 and 30 years – a full generation – to transition out of fragility and to build resilience. It is against this backdrop that social and economic development in Timor-Leste can be seen as remarkable.
The 2011 budget provides a strong indication of priorities for the government’s upcoming Strategic Development Plan. The investment strategy is expected to focus strongly on major infrastructure, skills, and other structural gaps, seeking to generate increased and sustainable private sector investment as a means to enhance job opportunities and reduce poverty for the people of Timor-Leste.