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
  • Sovereign wealth fund (1200% of GDP)
  • Total dollarization limiting the inflationary risk
  • Support from the Community of Portuguese Speaking Countries
  • Attractive tourist destination (protected natural sites, rich cultural heritage)
  • 44th out of 167 in the EIU Democracy Index 2020 (5th Asian country/ 7th with Australia and New Zealand)


  • Vulnerability to natural disasters (landslides, typhoons, floods), underdeveloped infrastructure (health, education, transportation)
  • Very high dependence on oil revenues and food imports (low agricultural development)
  • Deficit in human capital
  • Almost half of the population lives below the poverty line
  • High unemployment rate among young people (40%)
  • Weak banking intermediation

Current Trends

Economic growth supported by the rebound in public investment 

Driven by a partial recovery in consumption and higher oil revenues, economic activity rebounded in 2021, regaining its pre-crisis growth rate. Growth will accelerate in 2022 with the gradual lifting of the state of emergency and the recovery of agriculture after Cyclone Seroja and the flash floods of 2021. After consumption growth (1.5% in 2021) was limited by the resurgence of COVID-19 cases and flooding in many areas, it is expected to pick up in 2022. The economy will be boosted by significant public investment in partnership with the private sector, mainly in infrastructure improvements, focusing on road construction, social housing, port development (Dili, Tibar) and tourism infrastructure (Cristo Rei), as well as the development of offshore fields (the Greater Sunrise gas project). The oil sector will also boost GDP growth through the infill drilling campaign led by the Australian oil company Santos. Scheduled to be completed in 2022, this project is expected to develop additional natural gas reserves to extend the life of the Bayu-Undan field, which is forecast to run out of resources by 2023. Oil production increased by 30.7% year-over-year in the second quarter of 2021 and is expected to continue on this upward trend in 2022. In addition, subject to the completion of the Tibar Bay deep water port, scheduled for 2022, the country will benefit from improved access to the global market, enhancing its trade. This public-private partnership, awarded to the French company Bolloré Ports, will invest nearly USD 500 million over 30 years. While the agricultural sector will contribute massively to the rebound in exports (coffee) and imports (rice and corn), the services sector will still be severely impacted by international travel restrictions. Growth prospects in 2022 are subject to threat from climate-related risks (floods, deadly floods, typhoons) that could jeopardize crops and destroy infrastructure. In April 2021, for instance, floods destroyed 12% and 9% of the area planted with rice and corn, respectively.  


Twin deficits financed by the Petroleum Fund

The government's stimulus plan, which calls for a 30% increase in public spending over three years, will increase the public deficit. Modelled on the 2021 budget, the 2022 budget, estimated at USD 1.7 billion, will emphasize investment in agriculture, tourism and social policy (increased budget for the construction of secondary schools and improved training for health personnel). All of these projects will be financed mainly by the Petroleum Fund (PF) and international aid, which provide 75% and 20% of government revenues, respectively. Although withdrawals from the fund are limited to 3% of estimated wealth (fund assets and anticipated hydrocarbon revenues), excess withdrawals are allowed and do take place. The government's management of the fund, which is financed by investment income and hydrocarbon revenues, is unsustainable, as it uses the fund to finance a large part of public spending. However, this approach also allows it to maintain a low level of debt.

The current account deficit will increase in 2022 due to the large trade deficit. The import bill for capital goods, which will be driven by public investment, and for cereals (representing about 40% of the country's total food needs), which will be pushed higher by the increase in global prices, will more than offset oil and gas revenues (95% of export earnings). The balance of services will also remain in deficit, with tourism not set to return to pre-crisis levels. Despite a decrease in the amounts from the PF, these funds, coupled with an increase in external public debt, which is entirely concessional and multilateral and which remains small, will finance the deficit.


A fragmented political scene featuring periodic power-sharing arrangements

In 2020, following the breakup of the governing coalition, Prime Minister José Maria de Vasconcelos, also known as Taur Matan Ruak, formed a new, quadripartite coalition, comprising the People's Liberation Party, the Revolutionary Front (Fretilin), to which President Francisco Guterres elected in 2017 and the prime minister both belong, the Democratic Party and the KHUNTO party. The new coalition’s control of the majority of seats in parliament helped restore calm on the political front and ensure the implementation of reforms essential for economic recovery. However, the next presidential election in 2022, which will be followed quickly by a parliamentary election, is expected to be hotly contested between Fretilin and the main opposition party CNRT, and could mark a return to political instability and a fractious power-sharing arrangement, should the CNRT candidate win.

After numerous disputes over the maritime border with Australia, the two countries adopted a treaty in 2019 resolving the matter of the Greater Sunrise oil and gas field in favor of Timor-Leste. The allocation of the bulk of the field's revenues to Timor-Leste then eased tensions. The country’s application to join ASEAN, submitted in 2011, is still under negotiation.


Coface (02/2022)