Timor-Leste's economy will slow down and grow by an average of 3.7% in 2025, 2026 and 2027, compared to 4.1% in 2024, according to the World Bank's (WB) biannual economic report.
"That growth will be driven mainly by public investment in infrastructure, the expansion of the service sector and improvements in digital connectivity and transport," the WB said in the report.
According to the document, the development of fibre optics will "support the digital economy", while "tourism and remittances" from immigrants will provide an additional boost.
Membership of the Association of Southeast Asian Nations (ASEAN) in October will also offer " growth and integration opportunities".
Regarding inflation, the World Bank predicts that it will gradually slow to around 2.1% in 2027, although "food prices and external shocks continue to pose significant risks in the context of limited monetary policy instruments".
The World Bank stresses that Timor-Leste faces "several significant risks that could undermine economic stability and growth prospects".
"Structural constraints, including an undiversified export base, high import dependence, and underdeveloped institutions continue to limit the expansion of the non-oil economy and accentuate external vulnerabilities," the financial organisation points out.
"Institutional instability and delays in policy implementation further exacerbate these challenges, increasing the risk of macroeconomic imbalances. At the same time, limited economic diversification leaves the country vulnerable to external shocks, such as commodity price volatility and geopolitical disruptions," the document states.
The World Bank also considers that the fiscal outlook will remain "fragile" in 2025 and 2026, with the deficit remaining at around 50.7% of GDP, "driven by high public spending and continued withdrawals from the Petroleum Fund".
"This heavy dependence highlights the urgent need to strengthen domestic revenues, improve the efficiency of public investment and gradually reduce dependence on oil revenues," it advises.
For the financial institution, Timor-Leste should move forward with fiscal reforms, including, for example, the introduction of Value Added Tax (VAT), and in the wage bill, which should be more sustainable.
At the structural level, the World Bank advises Timor-Leste to accelerate economic diversification, which is crucial for job creation.