Country Economic Forecasts > East Timor

After a 1.5% fall in GDP in 2014, a return to growth of just over 1% is in prospect this year as investment rises helped by peaceful government change. However, this is partly due to the new administration running a wider fiscal deficit, with public spending up substantially (by 33% on the year in January-May) while lower oil prices have led to a sharp drop in revenues. Public spending has also shifted from investment towards consumption, with state-sector wages up over 11% in H1. This is at odds with Prime Minister Araujo's pledge to spend more on infrastructure, and will limit the upturn in growth in 2016-17 and lift inflation to around 5% in 2016 from about 1% this year. Access to the Greater Sunrise oil and gas field, essential for faster growth and rebuilding the Oil Fund (currently stuck around US$17bn), remains blocked by disputes with Australia over drilling rights. The government wants agreement on a new maritime border giving a roughly equal division of Timor Sea mineral resources and has sought international arbitration. Araujo's resolve to draw down the Oil Fund to maintain infrastructure spending will ensure that modest growth and GDP diversification continue, but may erode the security of national income in the long term.