Dili, Timor-Leste – June 11, 2025 — More than two decades after gaining independence in May 2002, Timor-Leste has made commendable strides in stability, institution-building, and macroeconomic management. The country’s Petroleum Fund—now exceeding $18 billion—is a standout achievement, representing nearly ten times the size of its annual GDP.
Timor-Leste’s ability to preserve and grow its sovereign wealth fund places it in a rare class of commodity-dependent nations that have avoided the so-called “resource curse.” Launched two decades ago, the Petroleum Fund now ranks among the world’s largest in proportion to national income, even when compared to higher-income peers like Qatar and Bahrain.
However, the road ahead is steep. With a population of 1.3 million, Timor-Leste faces growing development pressures. Income growth has stagnated, poverty remains stubbornly high, and the private sector lacks diversification. Meanwhile, oil and gas production— the backbone of the nation’s fiscal strength—is in decline.
Spending Smarter, Not Faster
Experts warn that unless current spending patterns shift, the Petroleum Fund could be exhausted by the late 2030s, risking economic instability and interruptions to vital public services. Recent years have seen large budget deficits, yet with limited returns in economic growth.
A course correction is urgently needed. Analysts recommend that the government scale back overall spending while strategically investing in education, public infrastructure, and institutional capacity. Prioritizing these areas could lay the groundwork for long-term, inclusive development.
Containing wage growth in the public sector—where employment surged by 45% between 2020 and 2023—and targeting social transfers to the most vulnerable are among the proposed steps to ensure fiscal sustainability.
Unlocking Private Sector Potential
Public investment alone won’t be enough. A comprehensive reform agenda is essential to create an enabling environment for private sector-led growth. This includes:
• Modernizing the financial system’s legal framework
• Establishing a reliable land registry
• Enhancing transparency in corporate financial reporting
These reforms could help unlock much-needed domestic and foreign investment, boosting productivity and accelerating per-capita income growth over the coming decades.
A Window of Opportunity
Timor-Leste has time—and capital—on its side. But the window is narrowing. Effective policy shifts today could safeguard prosperity for the next generation and transform the country from a resource-dependent economy into a diversified and resilient one.
