Timor-Leste's Economic Diversification: Challenges and the Way Forward

Timor-Leste is the youngest nation in Southeast Asia and the poorest country in the region. It has overcome tremendous challenges since independence but struggles with serious economic development problems.

The focus of this paper series is economic diversification, which is one of the dominant policy issues in Timor-Leste, more than 20 years after independence from Indonesia. Given the multiple and delicate challenges that the country is facing, it is viewed as an alternative path toward sustainable and inclusive economic development, reducing dependence on petroleum and seeking new economic opportunities. This paper series is the product of a collaboration of experts from Timor-Leste and is supported by Heinrich Böll Stiftung Southeast Asia Regional Office.

The first article tackles the context of economic diversification. It argues that existing political and economic settings sustained by petroleum revenues hinder the efforts toward economic diversification, since it creates a comfort zone for policymakers not to move away from dependency on fossil fuels.

The second article examines the potential of youth as a positive force for economic diversification. The majority of Timorese are below the age of thirty, and this group should not be overlooked but seen as a demographic with great potential. This article sheds light on the positive contributions made by youth, such as in the business sector. The authors outline policy choices that are needed in order to unlock the potential of young people. This includes investment in quality of schools and training, a friendly environment for business and entrepreneurship, infrastructure and, and more participation in decision-making processes.

The third article tackles one of the most important yet highly contested issue in Timor’s development process: infrastructure. It has been the most important sector that defines Timor’s front-loading fiscal policy. The article provides up-to-date data on public investment on infrastructure and financing mechanisms. The author argues that despite the high budget allocation towards infrastructure, it alone does not provide solutions for economic diversification. This needs government intervention in other sectors, such as human capital, good governance, and more investment in productive sectors.

The last part of the series advocates addressing institutional constraints to economic diversification. It argues that addressing institutional constraints is critical for economic diversification, and economic development in general. This includes a conducive environment for the private sector, improving  efficiency of public finance, and a different way of doing politics.

We thank the authors Guteriano Neves, Eliziaria Febe Gomes, Marta da Silva, and Joao da Cruz Cardoso and hope this paper series contributes to fruitful discussions and provides valuable insights for future research and initiatives.

Guteriano Neves, Development Policy Analyst

Lea Goelnitz and Fransiskus Tarmedi,

Heinrich Böll Stiftung Southeast Asia Regional Office