Dili, 23 Mar 2026 (Lusa) - Timor-Leste's economy is expected to grow by 5% in 2026, compared to 4.6% in 2025, with inflation rising to 1.2% due to instability in food and energy prices, according to forecasts released on Monday by the country's central bank.
"Real GDP (Gross Domestic Product) growth is projected to reach 5% by 2026, sustained by an expansionary fiscal policy, the strengthening of absorption capacity, positive effects on private consumption and investment, as well as ongoing structural reforms aimed at stimulating private sector-led growth," reads the 2025 annual economic report from the Central Bank of Timor-Leste (BCTL).
The document warns, however, that the economy remains "highly dependent on public spending and consumption, with a limited contribution from private investment and tradable sectors."
In 2025, according to the BCTL, growth was driven by public consumption, which increased by 9.5%, and by public investment, which grew by 14.5%, the majority of which was in infrastructure.
Household consumption also increased by 3.6%, and imports grew by 5.7%, underscoring the economy's reliance on imported goods.
"Non-oil exports remained modest, with coffee accounting for the majority of export revenues," at US$35.8 million.
Economic activity remains dominated by public administration, accounting for about 34.2% of GDP. The construction sector expanded, but agriculture accounted for only 19% of GDP due to public infrastructure projects.
"Manufacturing and financial services remain marginal, highlighting the narrow productive base and the limited diversification of the economy," the report reads.
That scenario contributed to "persistently high" trade and current account deficits, the BCTL reported.
The current account deficit of Timor-Leste increased to $701.4 million at the end of 2025, up 16% from the previous year.
Regarding inflation, which fell to 0.5% in 2025, it is expected to be 1.2% in 2026 due to the volatility of food and energy prices, the document reads.
The reduction in 2025 was due to the fall in global raw material prices.
"While low inflation has contributed to restoring purchasing power and confidence, it also reflects limited domestic supply responses and the continuous dependence on imports in an economy fully dependent on the dollar," stated the BCTL.
The report also warned that the State Budget remains dependent on transfers from the Petroleum Fund, raising concerns about long-term fiscal sustainability.
"In general terms, although short-term growth prospects are favourable, the current growth model presents increasing risks to fiscal sustainability, external resilience, and inclusive job creation, underlining the need for a gradual but decisive rebalancing toward private sector-led and investment-oriented growth," the BCTL concluded.
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