East Timor's foreign minister countered claims that his tiny country was riddled with graft and burdened by poverty that could one day lead to civil conflict.

The Australian newspaper quoted a World Bank report as saying that newly independent East Timor was at a "crossroads".

However, East Timor's Foreign Minister Jose Ramos-Horta downplayed some concerns raised in the restricted report entitled: The International Development Association: Country Assistance Strategy for the Democratic Republic of Timor Leste.

"If you read it thoroughly, the World Bank report is very optimistic about Timor," said Ramos-Horta, a Nobel peace prize winner.

"They warn about dangers, but that's all. The Prime Minister (Mari Alkatiri) is furious. We are doing very well, the country is very much at peace. We have a very dynamic multi-party system – 12 parties in parliament."

Ramos-Horta admitted Timor had problems. But he remained optimistic about the future. "Overall the situation is fragile because we are new, three-years-old. The institutions are fragile," he said.

Ramos-Horta said an April meeting of international donors had ticked off on East Timor's political and economic direction.

"Every single one of them, including World Bank, including the International Monetary Fund, praise my government's performance," said Ramos-Horta, who is Laos for an ASEAN meeting.

"Now we have a surplus, we (are) increasing the budget by 30 per cent because of the windfall from oil and gas." Recently Australia and East Timor agreed to a deal to carve up oil and gas reserves in the waters between the two countries.