Timor-Leste’s Economic Make-or-Break Moment

Via The Diplomat, an article on Timor Leste’s urgent efforts to diversify its economy:

Since the restoration of its independence in 2002, Timor-Leste has made tremendous progress in social capital (education and health), infrastructure (electricity and telecommunication), and in institutional frameworks such as security, defense and foreign affairs. To cite some figures, in the health sector, the number of physicians per 1,000 people significantly increased from 0.034 in 2007 to 0.722 in 2018, which amounts to a 21 fold rise. Additionally, there have been enormous improvements in access to electricity. In 2002, only 23.9 percent of households had access to electricity – essentially, only Timorese living in cities. However, today, even those who live in the countryside have electricity. According to the 2019 survey, the number of households with access to electricity reached 94.7 percent nationwide. These are just two examples of the stunning improvements Timor-Leste has made in less than 20 years.

Although there have been definite advancements in the lives of the ordinary people in general, however, there is still a long way to go. For instance, the supply of rice, the main staple food of the Timorese people, is always a huge concern due to the low production rate in the country. This consequently forces the government to import almost half of Timor-Leste’s consumption from foreign countries such as Vietnam, India, Pakistan, and China annually. Additionally, malnutrition in Timor-Leste is still high. In 2013, 50.2 percent of children under 5 years old had stunted growth, though this number slightly decreased to 47.1 percent in 2020. Taken together, these and other data points indicate that Timor-Leste needs to further endeavor to improve the life of its people. Clearly there is still much more work to do collectively.

Among the priorities that need attention, one of the biggest concerns that the country is facing is how to diversify its economy away from its current massive dependence on oil and gas revenue to other productive sectors, such as agriculture, fisheries, small industries, and tourism. Currently, Timor-Leste’s economy is still vulnerable due to heavy reliance on taxes collected from oil and gas extracted from the Timor Sea. These revenues are invested abroad in financial assets, known as the Petroleum Fund. Unfortunately, since 2013, there has been an enormous decline of oil and gas revenues as reserves in the Timor Sea dwindle. Since then, the Petroleum Fund has reached a plateau and currently it merely relies on investment returns in major international companies.

Thus, the depletion of this Petroleum Fund is only a matter of time if annual government spending keeps going beyond the annual investment return. In Timor-Leste more than 95 percent of the state’s annual spending is directly withdrawn from the petroleum fund. Additionally, the recent COVID-19 pandemic has also burdened the government, which allocated an extra budget with a total of $150 million to deal with the outbreak and ensuing economic cost. This budget also directly withdrew from the Petroleum Fund.

A final downside of relying on the Petroleum Fund is that its investment return rate is hugely influenced by the market. In 2015 and 2018 the investment return was negative, while 2019 notched the highest-ever return rate.

These points all suggest that there is an urgent need to shift the economy to ensure long-term sustainability. Timor-Leste’s governments have been working on diversification of the economy based on countless recommendations from various credible institutions both domestic and international, as well as experts around the globe. Unfortunately, this initiative has faced tremendous challenges in the last few years due to the numerous political discords between the ruling and the opposition parties, as well as between the factions of Mari Alkatiri and Xanana Gusmao.

In spite of this, the task of the next government, the ninth constitutional government, will be clear. This period will be crucial in the history of Timor-Leste, as the government must at least initiate the shifting of the economy sectors outside of oil and gas The main priority of the next government’s program should include laying out the foundation of how to face the new era in the next 15 to 20 years without oil and gas revenues. Early steps would involve improvement of the quality and quantity of domestic agricultural products, promoting and growing small-scale industries, and improving as well as promoting the tourism industry.

Apart from oil and gas production, coffee is the current largest export of Timor-Leste. Its annual coffee exports range from $10-12 million, which is still on a small scale; however, this counts as a huge business in Timor-Leste’s economy. Improving the quality of the coffee will naturally attract more marketplaces, which eventually will increase the value of the coffee as well.

Another sector that needs full attention is the production of rice, which is a main staple for most Timorese people. The country needs around 132,000 tonnes of rice to feed its 1.3 million people. However, domestic production capacity only provides half of this. Thus, improving the quantity of rice production is a major issue for both the economy and food security. The government needs to respond as swiftly as possible to eliminate the rice deficit.

As for tourism, Timor-Leste is still one of the world’s untouched destinations with pristine landscapes as well as seashores throughout the island. Boosting the number of visitors should be initiated by improving the basic infrastructures of tourism as well as cuisine, hygiene, and safety. These should be prioritized by the next government.

Small industries will play an essential role for the sustainability of the economy over the long term. These small industries will also have a direct effect on the unemployment rate in the country. Timor-Leste must have inclusive economic system where foreign investments are welcomed freely, with ease and fast bureaucratic procedures.

Taken together, these are representative examples of the priorities that need to be addressed in the coming years if Timor-Leste wants to sustain its economy over the long term.

The road will be steep and exhausting to climb, but this is the only path for the Timorese people in order to survive as a sovereign and independent country. Timorese people deserve an inclusive economic system where all people participate for a better life and thrive. The people of Timor-Leste should choose the next government by supporting the party that they believe would best provide and plan for the initiation of economic diversification toward non-oil and gas production. Once this program is realized nationwide, Timor-Leste, with a sustainable economy, will be elevated to the next level.



This entry was posted on Wednesday, November 24th, 2021 at 7:37 am and is filed under Timor Leste.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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