The World Bank report indicates that growth will be driven mainly by public investment in infrastructure, the expansion of the services sector, and improvements in digital connectivity and transportation.
The document notes that the development of fiber optics will “support the digital economy,” while tourism and immigrant remittances will provide additional momentum.
Joining the Association of Southeast Asian Nations (ASEAN) in October will also offer “opportunities for growth and integration.”
Regarding inflation, the World Bank forecasts a gradual decrease to about 2.1% by 2027, though “food prices and external shocks remain significant risks within the context of limited monetary policy instruments.”
The World Bank emphasizes that Timor-Leste faces “several significant risks that could undermine economic stability and growth prospects.”
“Structural constraints, including a poorly diversified export base, heavy reliance on imports, and underdeveloped institutions, continue to limit the expansion of the non-oil economy and exacerbate external vulnerabilities,” the financial organization highlights.
“Institutional instability and delays in policy implementation further exacerbate these challenges, increasing the risk of macroeconomic imbalances. Simultaneously, the limited economic diversification leaves the country vulnerable to external shocks, such as volatility in commodity prices and geopolitical disruptions,” the document states.
The World Bank also states that budget prospects will remain “fragile” in 2025 and 2026, with the deficit staying at around 50.7% of GDP, “driven by high public spending and continuous withdrawals from the Petroleum Fund.”
“This heavy reliance highlights the urgent need to strengthen domestic revenues, improve the efficiency of public investment, and gradually reduce dependency on oil income,” it advises.
The financial institution suggests Timor-Leste should proceed with fiscal reforms, such as introducing a Value Added Tax (VAT) and making the payroll more sustainable.
Structurally, the World Bank advises Timor-Leste to expedite economic diversification, which is crucial for job creation.
