Is East Timor Now a Rich Country?

Superficial rankings should not distract from the significant obstacles the country is yet to overcome.

Timor-Leste’s Ministry of Finance issued a press statement claiming that the small Southeast Asian nation is already among the richest countries in the world. It cited a report of the Global Finance magazine which ranked Timor-Leste’s GDP per capita on a purchasing power parity basis as the 87th highest in the world. The global survey involved 184 countries. In Southeast Asia, Timor-Leste ranked fifth behind Singapore, Brunei, Malaysia, and Thailand.

Global Finance also factored the relative cost of living and the inflation rates of countries. It used figures from the International Monetary Fund’s World Economic Outlook database for April 2013

But La’o Hamutuk, a non-government organization, made a simple fact-checking and discovered that the statistics used for Timor-Leste were already outdated. It made reference to the latest IMF World Economic Outlook published in April 2015 which gave Timor-Leste a rank of 122nd (not 87th) in the world in 2013. Furthermore, the country’s ranking is expected to decline by six places in 2014.

“We all wish that Timor-Leste’s people were less poor, but wishing doesn’t make it so. We encourage policy-makers to base their decisions on evidence, and not to believe their own public relations. It will take smart thinking and hard work to bring Timor-Leste out of poverty,” La’o Hamutuk wrote on its website.

The group added that using the GDP to measure the country’s wealth is not consistently reliable. “The citizens of the Democratic Republic of Timor-Leste – especially impoverished rural residents whose lives are not reflected in these statistics – deserve better,” it reminded the government.

For many years, La’o Hamutuk and even foreign analysts have been urging Timor-Leste to diversify its economy, which is mainly dependent on petroleum exports. For its part, the government acknowledged the need to invest in other sectors and has committed to embark on non-oil ventures by realigning its state budget priorities.

A more detailed review of Timor-Leste’s economy is provided by Pacific Economic Monitor, a magazine of the Asian Development Bank. Its July 2015 issue analyzed the spending of the government, the country’s oil revenues, and consumer spending. It noted that government expenditure continues to be the biggest component of the country’s non-petroleum economy. This year’s government spending is reported to have increased by 33.4 percent. Total spending on public sector wages has risen but expenditures on goods and services and capital investment decreased. The report attributed the decline to the transition in government when a new Prime Minister was sworn into office last February.

The report revealed that the country’s total revenues fell 46.4 percent in the first quarter of 2015. Petroleum revenues declined due to lower global oil prices. Oil production also slowed down. But business activities improved as indicated by rising electricity consumption of the commercial sector, expansion of private sector borrowing, and higher volume of international flights.

The report also highlighted the continuing vulnerability of Timor-Leste to the harsh impact of climate change. It mentioned a 2011 study which estimated that in terms of economic impact, Timor-Leste could lose $5.9 million annually in the next 50 years because of earthquakes and cyclones.

It is clear that Timor-Leste faces various economic challenges – diversifying its economy, raising the productivity of its petroleum sector, collecting more revenues, eradicating poverty, and enhancing climate readiness. The government has the right to make a claim that Timor-Leste is already included in the league of the global rich. But it should not forget that there are serious obstacles to overcome if it wants to remain a wealthy country. By Mong Palatino for The Diplomat