Timor-Leste’s economy is expected to grow 5% in 2026, up from 4.6% in 2025, with inflation rising to 1.2% due to food and energy price instability, according to forecasts published today by the country’s central bank.
“Real GDP growth is projected to reach 5% by 2026, sustained by an expansionary fiscal policy, enhanced absorption capacity, positive effects on private consumption and investment, as well as ongoing structural reforms aimed at boosting private sector-led growth,” reads the 2025 annual economic report of the Central Bank of Timor-Leste (BCTL).
The document warns, however, that the economy remains “highly dependent on public spending and consumption, with limited contribution from private investment and tradeable sectors.” In 2025, growth was driven by public consumption, which rose 9.5%, and public investment, which grew 14.5%, mostly in infrastructure. Household consumption also increased 3.6% and imports grew 5.7%, reflecting the economy’s dependence on imported goods.
Non-petroleum exports remained modest, with coffee accounting for most export revenue at around $35.8 million. The economy continues to be dominated by public administration, representing around 34.2% of GDP, while manufacturing and financial services “remain marginal, highlighting the narrow productive base and limited economic diversification.” Agriculture accounted for only 19% of GDP.
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The current account deficit widened to $701.4 million at end-2025, up 16% year-on-year. Inflation, which fell to 0.5% in 2025 due to falling global commodity prices, is expected to rise to 1.2% in 2026 due to food and energy price volatility. The BCTL also warns that the state budget remains heavily dependent on transfers from the Petroleum Fund, raising long-term fiscal sustainability concerns.
“Although short-term growth prospects are favourable, the current growth model presents growing risks to fiscal sustainability, external resilience and inclusive job creation, underlining the need for a gradual but decisive rebalancing towards private sector-led, investment-oriented growth,” the BCTL concludes.
