Country Risk Rating

A high-risk political and economic situation and an often very difficult business environment can have a very significant impact on corporate payment behavior. Corporate default probability is very high. - Source: Coface

Business Climate Rating

The business environment is difficult. Corporate financial information is often unavailable and when available often unreliable. Debt collection is unpredictable. The institutional framework has many troublesome weaknesses. Intercompany transactions run major risks in the difficult environments rated C.


  • Oil and gas reserves in the Timor Sea
  • Support from the Community of Portuguese Language Countries
  • Attractive tourist destination (protected natural sites, rich cultural heritage)
  • 41/167 in the EIU Democracy Index 2019 (fourth-ranked Asian country)


  • Vulnerable to natural disasters (landslides, typhoons, floods); underdeveloped infrastructure (health, education, transportation)
  • Heavily dependent on oil revenues and food imports (underdeveloped agriculture)
  • Human capital deficit
  • Nearly half of the population lives below the poverty line
  • High unemployment among young people (40%)
  • Weak bank intermediation

Current Trends

Expected recovery from the 2020 recession

Timor-Leste is one of the few countries that successfully contained the spread of COVID-19, with only a few dozen cases officially recorded in 2020. This was achieved through the implementation of distancing measures (including travel restrictions and school closures) between March and June 2020. However, these measures hurt the economy, which experienced a severe recession in 2020. In 2021, buoyed by a rise in oil prices and a rebound in consumption, activity will pick up again.

Consumption, which represents 38% of GDP, fell by 1% in 2020. The decline was mitigated by the implementation of a support plan providing USD 200 transfers to the most vulnerable households, as well as 60% coverage for short-time work. In 2021, consumption is expected to grow by 5%, even though it will still be hampered by structural problems in a country where 67% of employees earn less than USD 2 a day. Moreover, despite the almost 30% drop in public investment in 2020 after parliament blocked the budget, public spending still represented about 60% of GDP. In addition, although some private projects, such as the USD 500 million Tibar port project, were able to continue during the health crisis, several projects in the 2011-2030 Strategic Development Plan were temporarily suspended or delayed. These projects, which include road upgrades and water supply infrastructure, will resume in 2021.

The economy will remain heavily dependent on hydrocarbons (98% of exports). Although oil production is expected to end in 2022, the Greater Sunrise gas project offers hope to the country, which is counting on production from this offshore field to continue Timor-Leste’s development.


Public and current accounts show large deficits

As political tensions prevented the budget vote in early 2020, public spending decreased by 7% in the first half of 2020, leading to a tiny reduction in the huge public deficit. The drop in spending mainly concerned investments, which cannot be financed without a vote. However, a USD 220 million stimulus plan was implemented through the creation of a COVID-19 fund in April. The adoption of the budget, which finally went through at the end of the year, resulted in a public spending increase in November-December 2020. As usual, the 2021 budget will focus on investments in agriculture, tourism and social policies (increased budget for the construction of secondary schools and improved training of health personnel, among others). The country has a Petroleum Fund (PF), which was valued at USD 19 billion as of June 2020. Withdrawals from the fund are limited to 3% of estimated wealth (fund balance plus expected hydrocarbon revenues), although excess withdrawals are allowed. The government manages the fund in an unsustainable manner and uses it to finance a large portion of public spending. However, this also allows it to maintain a low level of debt.

The current account showed a substantial deficit in 2020. This was because the trade deficit (excluding oil exports, as these are included in primary income) widened as the collapse of imports due to weaker domestic demand failed to offset the steep decline in tourism and transport (70% of total exports) and the decrease in coffee exports. In 2021, the resumption of investment will increase imports of capital goods while tourism is unlikely to return to its pre-crisis level, which will further widen the deficit. The current account deficit is also due to the collapse in primary income earned from the PF's investments abroad, but especially from oil, as income fell by 43% in the first half of 2020, but should increase in 2021. Although reserves provided by the PF fell, the reserves, coupled with an increase in external debt (which now stands at 14% of GDP), will make it possible to finance the deficit.


Power-sharing arrangements

Timor-Leste is a democratic republic that has been led by President Francisco Guterres since May 2017. Following early elections in 2018, Prime Minister Taur Matan Ruak's government was supported by the Alliance for Change and Progress coalition, which comprised three parties: President Guterres' CNRT, the People's Liberation Party and the KHUNTO Party. But in early 2020, disagreements with the CNRT caused the vote on the 2020 budget to be blocked and led to the formation of a new coalition comprising the People's Liberation Party, the Revolutionary Front (Fretilin), the Democratic Party and the KHUNTO Party. Although the coalition has considerably reduced the risk of political crisis, the situation in the country remains complex, as the presidency, which is not powerless, is held by a party that is not in government.
Relations with Australia eased with the drafting of a treaty that resolved the issue of the Greater Sunrise oil and gas field in favor of Timor-Leste by allocating the bulk of the field's revenues to it.


Coface (01/2020)