Timor-Leste’s Economic Turning Point: Growth Rises but Fragility Persists

Timor-Leste is stepping into a defining moment in its economic journey. A new World Bank report, developed in collaboration with national institutions such as the Ministry of Finance, Banco Central de Timor-Leste, and the National Institute of Statistics, highlights a country transitioning from an oil-dependent economy to one seeking a new growth path.

For years, petroleum revenues powered government spending and economic stability. That model is now fading. With oil production from the Bayu-Undan field coming to an end, Timor-Leste must build a more sustainable economy based on businesses, exports and skilled workers.

Growth Is Back, But Not Stable

Recent numbers offer some optimism. The economy grew strongly in 2025, supported by public spending, infrastructure projects and improved political stability. There are also early signs of private sector activity picking up.

However, this growth is not yet strong enough to stand on its own. It depends heavily on government spending, much of which is financed by drawing money from the Petroleum Fund. Instead of producing more goods and exports, the economy is driven by consumption and imports.

In simple terms, Timor-Leste is using its savings to grow, rather than generating new income.

A Weak Export Base and Job Challenges

The end of oil exports has left a big gap. Today, coffee makes up most of the country's exports, showing how limited diversification remains. Imports are much higher than exports, creating a large trade deficit that continues to grow.

The job market reflects similar weaknesses. Employment has increased in recent years, but mostly in low-productivity sectors like retail and construction. Many jobs are concentrated in the capital, Dili, leaving other areas behind.

Young people face particular challenges. A large share are not in jobs, education or training, and wages have barely increased. This points to deeper problems in productivity and skills development.

Rising Fiscal Pressure

Government finances are under growing strain. Public spending remains very high, especially on salaries, subsidies and transfers. While tax collection has improved, it still does not cover total spending.

To fill the gap, the government relies heavily on withdrawals from the Petroleum Fund. Although the fund still holds significant savings, this approach is not sustainable in the long run. If current trends continue, these savings could run out within the next decade or so.

This creates a difficult but unavoidable reality. The country must reduce spending pressures, improve how money is used, and find new ways to raise revenue without relying on oil.

ASEAN: A Path to Transformation

One of the most important developments is Timor-Leste's entry into ASEAN. This is more than a political milestone. It offers a practical pathway to economic transformation.

ASEAN membership gives access to a large regional market and encourages reforms in areas like trade, investment and digital systems. Countries such as Vietnam and Cambodia have used ASEAN integration to boost exports, attract investment and create jobs.

But success is not automatic. Timor-Leste must actively implement reforms to benefit. This means improving customs processes, simplifying business rules, strengthening institutions and investing in skills and infrastructure.

The Road Ahead

Timor-Leste still has strong advantages. It has financial reserves, a young population and growing regional connections. But time is limited.

The report makes it clear that the country must act now. Shifting from a government-driven economy to one led by private businesses and exports will take effort and consistent reforms.

The choices made in the next few years will shape the country's future. If managed well, this transition can create jobs, strengthen the economy and ensure long-term stability. If delayed, the adjustment could become much more difficult.

The post-oil era has begun. What Timor-Leste does next will determine whether it turns this moment into an opportunity or a challenge.