Timor-Leste

Located in Southeast Asia, Timor-Leste comprises the eastern half of the Island of Timor, the Oecussi enclave to the west, and the nearby islands of Atauro and Jaco. Home to 1.4 million people, Timor-Leste was a Portuguese colony for over four centuries. It declared independence in 1975 but was occupied by Indonesia soon after. Following a UN-sponsored referendum in 1999, the country regained independence in 2002.

Since regaining independence, Timor-Leste has made good progress in peacebuilding and state building. It has established strong democratic norms, with regular elections for the Presidency and National Parliament and high levels of press freedom. Timor-Leste is a member of the Community of Portuguese Language Countries (CPLP). It completed its accession to the World Trade Organization in 2022 and is set to become a full member of the Association of Southeast Asian Nations (ASEAN) in October 2025.

Timor-Leste is classified as a lower-middle income country. Since 2011, development has been guided by the Strategic Development Plan, 2011-2030, which aims to achieve upper-middle income status by 2030. The current government took office in July 2023 and is implementing a comprehensive five-year program to leverage Timor-Leste’s natural resources, accelerate social and economic development, and strengthen key institutions.

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Timor-Leste’s economy is at an early stage of development. Public spending is the main driver of economic activity and productive capacity remains limited. Oil and gas production provided a substantial windfall that has been saved in the Petroleum Fund, a well-governed sovereign wealth fund. As of June 2025, the Fund had a balance of US$18.74 billion, equivalent to ten times of the country’s GDP, or US$13,400 per capita. The core challenge for policy makers is leveraging these resources to achieve inclusive and sustainable economic growth.

Offshore oil and gas production began in 2004 and continued until 2025. During this time, the industry operated as an enclave with few direct linkages to the onshore economy. Timor-Leste’s government is working to develop a new generation of natural resource projects with increased local content. The most significant prospect is Greater Sunrise, a large offshore gas field which straddles the maritime boundary with Australia. Timor-Leste is committed to onshore processing of gas from Greater Sunrise but the timeline and framework for project development remains uncertain.

In the absence of major new natural resource developments, Timor-Leste will face growing pressure to transition to a more sustainable fiscal path. Windfall oil and gas revenues enabled public spending to grow by an average of 5.3 percent per year between 2014 and 2024, keeping expenditure at an exceptionally high level—averaging 85.3 percent of GDP. This fiscal expansion far exceeds what can be sustained over the long term. Over the same period, fiscal deficits averaged 39.6 percent of GDP, financed largely through withdrawals from the Petroleum Fund. Without significant fiscal consolidation, official projections indicate that the Fund could be depleted by 2038.

High levels of public expenditure have helped improve basic infrastructure but have not led to commensurate increases in private investment. As a result, Timor-Leste’s private sector remains at an early stage of development, local employment opportunities are limited, and the country is highly reliant on imports. The government is targeting medium-term growth of at least 5 percent by stimulating private investment in agriculture. Tourism and manufacturing. Yet, recent growth has averaged at 3.4 percent between 2021-2023, and is projected at 3.7 percent over 2025-2027, well below the government’s ambition.

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Over the past two decades, the World Bank Group has been one of Timor-Leste’s key development partners, providing financing and expertise to help address key challenges. During 2002-2025, the World Bank Group provided Timor-Leste with $177.2 million in financing from its own resources and mobilized an additional $187.3 million from public and private sources.

In the early years after independence, the World Bank’s support focused on post-conflict reconstruction and establishment of core systems for budgeting and public financial management. Following the initial period of reconstruction, the World Bank helped Timor-Leste scale up its public investments by providing long-term concessional financing for national road upgrades and mobilizing grants and technical assistance for transformative projects in the health, education, and agriculture sectors.

The International Finance Corporation (IFC) was the transaction advisor for development of the Tibar Bay Port – a landmark public private partnership which commenced operations in 2022 and is currently supporting development of PPP projects related to renewable energy and affordable housing. IFC has played a significant role in development of the financial sector through its shareholding in Timor-Leste’s largest microfinance institution and ongoing support for foundational reforms to enable secured lending.

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During 2020-2025, the World Bank Group’s country partnership framework for Timor-Leste aimed to strengthen the foundation for private sector-led growth and economic stability; invest in human capital, service delivery and promote gender equity; and raise productivity through investments in connective infrastructure. The World Bank Group is currently preparing a new Country Partnership Framework to guide future support to Timor-Leste.

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