Location and People
Timor-Leste ('Leste' is 'east' in Portuguese language) lies in Southeastern Asia, northwest of Australia in the Lesser Sunda Islands at the eastern end of the Indonesian archipelago. Its 14,874 square kilometers of rugged terrain includes the eastern half of the island of Timor, the Oecussi (Ambeno) region on the northwest portion of the island of Timor, and the islands of Pulau Atauro and Pulau Jaco. The western part of Timor (excluding the Timor-Leste enclave of Oecussi) is part of the Indonesian province of Nusa Tenggara Timur. The 2004 national census estimated Timor-Leste's population at 925,000. At 7.8 children per women, Timor-Leste has the highest fertility rate in the world and the population is growing above 3% per annum.
Timor-Leste is one of the world's newest nations. Formerly a Portuguese colony, and annexed by Indonesia in 1975, Timor-Leste was internationally recognized as an independent democratic state on 20 May 2002.
The referendum of 1999, which saw a majority of East Timorese choose independence from Indonesia was attended by extreme violence that was stopped only by the intervention of an Australian-led United Nations military force. Over 1,000 East Timorese died in the violence. Many more were displaced, public and private buildings were destroyed in every village, townand city, agriculture and trade was disrupted, and about 70% of East Timor's economic infrastructure was laid waste. Six years later, in April 2006 the then Prime Minister was able to pronounce to development partners that "now we have a state"; but six years of recovery had yielded little improvement in the lives of ordinary East Timorese. At least 40% of the people remained poor and most relied on subsistence agriculture. Infrastructure and social services, particularly in rural areas had not approached the levels they were before 1999.
Though non-petroleum gross domestic product (GDP) had recovered modestly in 2005, negative growth in earlier years and fast population growth has meant that GDP per capita has actually fallen--from $450 in 2001 to and an estimated $364 in 2005. But already the Government is receiving its 90% share of tax and royalties paid by the operators of the Bayu Undan oil and gas field in the Timor Sea -- $265 million in financial year 2004/2005 (FY2005); approximately $550 million estimated for FY2006, and leveling out at about $1 billion each year from FY2008 onwards. So within 2-3 years, the Government of Timor-Leste will be receiving petroleum revenues almost triple the size of the country's entire GDP (together, gross national income or GNI). Other fields may be developed in the Timor Sea, including the large Greater Sunrise field from which Timor-Leste will share tax and royalties 50:50 with the Government of Australia. Timor-Leste is in an extremely strong fiscal position.
TopHistorical Background
Timor-Leste is one of the world's newest nations. Formerly a Portuguese colony, and annexed by Indonesia in 1975, Timor-Leste was internationally recognized as an independent democratic state on 20 May 2002.
The referendum of 1999 which saw a majority of East Timorese choose independence from Indonesia was followed by massive violence and unrest, ended only by the intervention of the United Nations. The conflict caused death and injury, the extensive dislocation of the people, the widespread destruction of public and private property, and significant disruption to the agricultural cycle and trade and destruction of almost 70% of the economic infrastructure. Five years after the 1999 conflict, the East Timorese still bear the conditions imposed by their fragile security situation, poor infrastructure, limited local administrative capacity, and their primarily subsistence-based agricultural mode of production.
2002 National Accounts put the total domestic production at $370 million. This translates to a total annual income of $445 for each East Timorese - a figure estimated to be substantially inflated by the boost to the domestic economy generated by the temporary international presence of the United Nations (UN) and donor agencies during this period.
Socio-Economic Conditions
Key Social and Poverty Indicators
Per capita GDP (2005, current): US$374
| Indicators | '02 | '03 | '04 | '05 |
|---|---|---|---|---|
| Current acct. balance/GDP (%) | 7.6 | 5.1 | 35.1 | 42.6 |
| Fiscal balance/GDP (%) | 0.4 | 3.2 | 9.8 | 32.4 |
| Inflation rate (end of period, %) | 4.8 | 7.1 | 3.2 | 1.8 |
| Money supply (M2) growth (%)a | 6.8 | 4 | 16.2 | - |
| Debt service ratio (% of exports) | 0.0 | 0.0 | 0.0 | 0.0 |
| Official reserves (gross, US$ m) | - | - | - | - |
- Employment
- Jobs are scarce in both the public and private sector
- Subsistence farming, which is the predominant mode of agricultural production, and seasonal agriculture, do not create adequate employment.
- Food Security
- Food insecurity is aggravated by natural hazards. The country is prone to drought, floods and landslides and the islands are vulnerable to earthquakes and tropical cyclones.
- Food aid is necessary to supplement food production and imports
- Education
- Primary school enrolment is still poor at 76%, lower secondary at 33%, and upper secondary at 18%
- Adult literacy is estimated at 50%
- Gender
- Gender disparity is more pronounced in secondary education than in the primary level
- Health
- Malnutrition is a serious concern for children under five
- Vaccination programs are not extensive
- Maternal health indicators are poor, with a low incidence of assisted births
- Family planning programs have limited reach
- Limited use of contraceptives prevail
- HIV/AIDS awareness is low
- Public health resources are scarce and inadequate for undertaking promotional activities
- Prevalence of water-borne and-sanitation-related diseases is estimated to be high
- Malaria is prevalent
- Environment
- The forests, home to 25 rare and endangered bird species is fast disappearing with an estimated 31% of its land area seriously degraded.
- Lack of monitoring and data on environmental impacts deter conservation of watershed and marine resources
- Poverty Incidence
- Poverty is pervasive with 40% of the population living below the poverty line
- Urban poverty is about 25%
- Rural poverty is about 44%
- There are more people living below the poverty line in the western districts while only 14% of people in Dili and Baucau districts live below the poverty line
- More than 75% of the poor live in rural areas and survive on subsistence and seasonal agriculture
View the Millennium Development Goals in the Pacific: Relevance and Progress
Country Outlook
On 4 April 2006, then Prime Minister Mari Alkatiri announced to development partners that it was "DECISION TIME" for the Government of Timor-Leste. He declared that the national economy would have to grow by 7-8% per annum to significantly reduce poverty and that such growth in the short and mid-term would have to be government led; that the private sector could not be expected to initiate and sustain this level of growth. Most commentators agree with this strategy and it is likely that the new Government under Prime Minister Ramos Horta will implement an ambitious capital investment program intended to accelerate economic growth and create the thousands of jobs needed. This is even more important now as Timor Leste recovers from the current crisis. Much of the violence has been perpetrated by unemployed urban youth. Timor-Leste currently has 14,000 school leavers each year.
The Government enjoys sufficient fiscal latitude to undertake such a program. Estimated Sustainable Income from the Petroleum Fund is calculated by the International Monetary Fund (IMF) to be around $283 million per annum. This is sufficient to cover the budget deficit proposed in the enlarged crisis-response FY2007 national budget presented to Parliament in June 2006 (and represented to Parliament by the new Government in the third week of July). Whilst the Government has ample fiscal capacity to accelerate economic growth, it lacks budget execution capacity to meets its targets. The Government knows this and development partners are positioning their programs to help overcome this constraint, including the ADB.
Meanwhile, private investment, including foreign direct investment into Timor-Leste will remain modest. Timor-Leste's economy is uncompetitive -small and with poor infrastructure, high cost, low labor skills, incomplete legal and institutional frameworks. The Government also realizes this and will work with partners to progressively improve the attractiveness of Timor-Leste's economy.
All in all, the economy of Timor-Leste is small and the population is poor, by international standards. In the medium to long term, however, Timor-Leste is expected to benefit from the commercial exploitation of oil/gas resources in the Timor Sea projected to increase government revenues significantly. The medium term outlook is for gradual growth and improvement in social conditions.
View the Asian Development Outlook 2006.