The Executive Board of the International Monetary Fund (IMF) has concluded its 2025 Article IV Consultation with Timor-Leste. The review highlighted that economic growth in Timor-Leste reached an estimated 4.1 percent in 2024, supported by increased government spending and strong credit expansion. Inflation decreased from 8.4 percent in 2023 to 2.1 percent in 2024, largely due to lower global food prices and a reversal of previous tax increases, and dropped further to -0.2 percent year-on-year by May 2025.
Looking ahead, the IMF projects that growth will remain robust at 3.9 percent in 2025, underpinned by fiscal stimulus and continued credit growth. Growth is expected to moderate to 3.3 percent in 2026 as the country’s accession to ASEAN supports foreign direct investment and non-oil exports, but this will be partially offset by tighter fiscal policy. Inflation is forecasted to rise slightly, averaging 0.9 percent in 2025 and reaching 1.8 percent in 2026 as global food prices increase.
The IMF noted balanced risks for Timor-Leste’s medium-term outlook but emphasized challenges related to the end of oil production in 2025 and significant fiscal and external imbalances.
"Executive Directors noted that growth is expected to remain robust in 2025 and inflation to remain contained, with balanced risks to the medium-term outlook. However, considering the cessation of oil production in 2025, and the substantial fiscal and external imbalances, Directors underscored the importance of gradual fiscal consolidation and growth-enhancing structural reforms to avoid depletion of the Petroleum Fund, secure fiscal and external sustainability, and promote needed economic diversification. They welcomed Timor-Leste’s WTO accession and forthcoming accession to ASEAN, which are expected to boost trade and attract more foreign investment."
Directors agreed on the need for better public spending practices and increased revenue collection as part of broader fiscal consolidation efforts. They acknowledged recent steps taken by authorities to control recurrent expenditures while calling for further reductions in untargeted transfers and restraint on public sector wages. The IMF also welcomed plans for implementing a value-added tax (VAT) by 2027 alongside measures aimed at improving tax administration.
Regarding natural resources development, Directors commented: "While noting prospects offered by the Greater Sunrise gas field, Directors called for carefully managing the risks associated with its development." They also encouraged ongoing reforms targeting public financial management and procurement processes.
On financial sector developments, Directors observed that despite rapid credit growth recently, overall financial system depth remains limited: "They welcomed ongoing legal reforms in the financial sector, and called for accelerating the issuance of land titles and developing a national digital ID to address structural impediments to lending and support growth." The Board stressed close supervision given fast credit expansion as well as addressing deficiencies within anti-money laundering frameworks.
Structural reforms were identified as key for supporting private sector development: "Directors emphasized that advancing structural reforms is crucial to boost private sector development, enhance financial inclusion, and support sustainable growth." They urged continued work on governance improvements including strengthening rule of law mechanisms.
Finally, Directors welcomed capacity-building projects underway between Timor-Leste authorities and international partners: "Directors welcomed ongoing capacity development projects and noted that continued engagement with the Fund would help support Timor-Leste’s reform agenda."
Timor-Leste’s non-oil GDP was reported at US$1.947 billion for 2024 with a population estimate of approximately 1.39 million people.
For additional background on Article IV Consultations see http://www.IMF.org/external/np/sec/misc/qualifiers.htm.