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Since independence in 2002 Timor-Leste has emerged from instability and significant erosion of development gains to successfully graduate from fragility status, meet the least developed country (LDC) graduation per-capita income criterion in 2015 since the country was added to the list of LDC in 2003, and become the most democratic nation in the Southeast Asia region.

The Strategic Development Plan 2011-2030 outlines the overall strategies to transform Timor-Leste to an upper-middle income country by 2030 through a diversified economy and productive human capital. However, the persistent structural challenges (such as public spending that is still highly dependent to oil and gas revenue, low private sector investment as the consequence of poor business environment, and inadequate infrastructure for growth and connectivity) and the unprecedented shocks of the economic recessions in the last four years (-3.8 per cent in 2017, -0.8 per cent in 2018 and -6 per cent in 2020) and the impacts of the COVID-19 pandemic pose significant challenges to the country to graduate from LDC and meet SDGs aspirations.

While the current framework for economic diversification that prioritizes development of agriculture, tourism, petroleum and manufacturing is sound in principle, it can be further shaped with concrete strategies and actions for structural transformation and economic diversification. Possible strategies could include, for example: transforming traditional farming and fishing to commercial through increasing production and productivity of niche products such as coffee, candlenut, coconut and beef; developing eco- and marine, cultural and historic, adventure and sports, religious, and convention tourism services and integrating tourism to the green and blue economic initiatives; developing a more value-added downstream industry in the south coast to capture the maximum benefits through income, jobs, and multiplier effects to other sectors (such as agriculture and manufacturing to supply foods and equipment to the industry); and improving business environment to attract FDI for export-oriented industry and supporting the growth of small scale and low skills manufacturing processes.

Strategies and actions to underpin economic diversification for LDC graduation and beyond also include establishment of  a “National Committee for LDC Graduation” – led by the Ministry of Foreign Affairs and supported by United Nations Economic and Social Commission for Asia and the Pacific (ESCAP); creating more fiscal spaces for human capital development, agriculture, and tourism through the rationalization of expenditure, the domestic resource mobilization and a well-coordinated use of development partners support; implementing a whole-government approach (including establishment of an “Investment Promotion Board”) to improve a friendly-environment for private sector investments; ensuring inclusiveness through active participation of women and youth in development – including in MSMEs; introducing e-service platform to improve public services across the country; and promoting evidence based-policy making process through investment in and management of data, research and analyses.

Macroeconomic Policy and Financing for Development Division +66 2 288-1234 [email protected]