2022 Index of Economic Freedom

Timor-Leste

OVERALL SCORE46.3
WORLD RANK164
Rule of Law

Property Rights30.8

Judicial Effectiveness35.3

Government Integrity38.2

Government Size

Tax Burden97.6

Government Spending0.0

Fiscal Health19.7

Regulatory Efficiency

Business Freedom57.9

Labor Freedom56.2

Monetary Freedom79.5

Open Markets

Trade Freedom75.0

Investment Freedom45.0

Financial Freedom20.0

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Quick Facts
  • Population:
    • 1.3 million
  • GDP (PPP):
    • $4.5 billion
    • -6.8% growth
    • -1.4% 5-year compound annual growth
    • $3,382 per capita
  • Unemployment:
    • 5.1%
  • Inflation (CPI):
    • 0.5%
  • FDI Inflow:
    • $72.0 million

Timor-Leste’s economic freedom score is 46.3, making its economy the 164th freest in the 2022 Index. Timor-Leste is ranked 37th among 39 countries in the Asia–Pacific region, and its overall score is below the regional and world averages.

Over the past five years, economic growth has been hard to come by in Timor-Leste. A five-year trend of lackluster economic freedom has continued. With higher scores for rule of law offset by a plunge in the score for government spending, overall economic freedom in Timor-Leste is now where it was in 2017, and the country remains in the “Repressed” category. Monetary freedom and trade freedom are relatively strong, but fiscal health and financial freedom are poor.

IMPACT OF COVID-19: As of December 1, 2021, 122 deaths had been attributed to the pandemic in Timor-Leste, and the government’s response to the crisis ranked 93rd among the countries included in this Index in terms of its stringency. The economy contracted by 6.8 percent in 2020.

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Background

The Democratic Republic of Timor-Leste gained independence from Indonesia in 2002 and has struggled to achieve political stability. U.N. peacekeepers were required until 2012. Current President Francisco Guterres and Prime Minister Taur Matan Ruak have clashed as they maneuver for power. Timor-Leste remains one of the poorest countries in East Asia and is heavily dependent on foreign aid. Economic liberalization has largely stalled. Oil and gas account for more than 95 percent of government revenue, which is consigned to a Petroleum Fund that had assets of $19.5 billion at the end of June 2021. The technology-intensive oil industry has done little to create jobs.

Rule of Law

Property Rights 30.8 Create a Graph using this measurement

Judicial Effectiveness 35.3 Create a Graph using this measurement

Government Integrity 38.2 Create a Graph using this measurement

Property rights are complicated by past conflicts and the unclear status of communal or customary land rights. Numerous claims are unresolved because of conflicting statutes from the Portuguese, Indonesian, and post-independence eras. The overly complex legal framework reflects the same confusing pedigree. In response to the public perception that officials frequently engage in corrupt practices with impunity, a new anticorruption statute was implemented in 2020.

Government Size

The top individual income and corporate tax rates are 10 percent. Most government revenue comes from offshore petroleum projects in the Timor Sea. The overall tax burden equals 6.3 percent of total domestic income. Government spending has amounted to 76.7 percent of total output (GDP) over the past three years, and budget deficits have averaged 25.5 percent of GDP. Public debt is equivalent to 12.2 percent of GDP.

Regulatory Efficiency

The development of offshore oil and gas resources has enhanced government revenue, but it also has created few jobs. Efforts are underway to build skills and train Timorese in welding, nondestructive testing, painting, coating inspection, and health and safety environment services. Consumer prices have been increasing, driven by accelerating food prices and sustained increases in the transport category.

Open Markets

Timor-Leste’s average tariff rate is 2.5 percent, but overall trade freedom is hampered significantly by nontariff barriers and institutional shortcomings. Timor-Leste is not a member of the World Trade Organization. Foreign ownership of land is not allowed, and investment in other sectors of the economy is screened. The financial sector is still at a nascent stage of development, and access to credit is challenging for a new company.

Country's Score Over Time

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Regional Ranking

RANK COUNTRY OVERALL CHANGE
1Singapore84.4-5.3
2New Zealand80.6-3.3
3Taiwan80.11.5
4Australia77.7-4.7
5South Korea74.60.6
6Japan69.9-4.2
7Samoa68.36.4
8Malaysia68.1-6.3
9Brunei Darussalam64.8-1.8
10Indonesia64.4-2.5
11Kazakhstan64.4-6.7
12Mongolia63.91.5
13Thailand63.2-6.5
14Vanuatu62.92.4
15Philippines61.1-3.0
16Micronesia6110.6
17Tonga60.83.3
18Vietnam60.6-1.1
19Bhutan59.31.0
20Kiribati59.214.8
21Cambodia57.1-0.2
22Solomon Islands56.50.0
23Fiji56.4-5.8
24Kyrgyz Republic55.8-7.9
25Uzbekistan55.7-2.6
26Papua New Guinea54.6-4.3
27India53.9-2.6
28Sri Lanka53.3-2.4
29Bangladesh52.7-3.8
30Tajikistan49.7-5.5
31Nepal49.7-1.0
32Burma49.6-5.6
33Laos49.2-4.7
34Pakistan48.8-2.9
35China48-10.4
36Maldives47.3-7.9
37Timor-Leste46.31.6
38Turkmenistan46.2-1.2
39North Korea3-2.2
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