The strong growth of the past 6 years continued on the back of public expenditure and private sector activity, and this performance is expected to be maintained. Inflation moderated in 2013 but will likely reaccelerate if planned increases in public spending are fully implemented. A major policy challenge is to design fiscal policies to translate oil and gas revenues into sustainable and inclusive growth.

Economic performance

Gross domestic product (GDP) excluding the offshore petroleum industry is estimated to have grown by 8.0% in 2013 as rapid private sector growth helped offset reductions in public investment. The public sector continues to be the main source of demand. While government expenditure of $1.3 billion was lower than in 2012, it remained close to recent highs, equivalent to 86% of non-oil GDP.

Royalty payments to the government from offshore oil and gas production totaled $3.1 billion in 2013. This dwarfed tax and other non-oil revenues of $150 million and enabled the government to post a $2.1 billion budget surplus that was deposited in the Petroleum Fund. Public savings, defined as the Petroleum Fund plus foreign exchange reserves, are $14.9 billion, which is 9.2 times annual non-oil GDP or about $12,400 per capita.

Selected Economic Indicators (%) - Timor-Leste 2014 2015
GDP Growth 8.5 8.5
Inflation 9.5 9.0
Current Account Balance (share of GDP) 47.0 50.3

Source: ADB estimates.

Economic prospects

Growth is forecast to remain strong at 8.5% in 2014 and 2015 as government expenditure increases and the private sector continues to expand. Although earlier plans for major capital investments have been scaled back amid concerns about implementation capacity and expenditure effectiveness, the 2014 budget projects a 38% rise in recurrent expenditure and a 47% increase in government capital investment. However, the effect of this spending on growth and inflation is hard to gauge, as actual expenditures have fallen short of budgeted amounts in recent years.

Source: ADB. 2014. Asian Development Outlook 2014. Manila.