The Timorese economy is expected to grow by 4.1% in 2026, though this outlook remains insufficient to generate jobs, drive productivity gains, or increase exports, according to the Timor-Leste Economic Report released today by the World Bank.
Following a 4.5% growth rate in 2025—the highest since 2014—World Bank forecasts indicate that the economy will maintain its upward trajectory in 2026, driven by household consumption and high government spending.
“East Timor’s economic outlook remains stable in the short term, but increasingly fragile under current policies,” reads the report, titled “Raising the Bar: How ASEAN Membership Can Support East Timor’s Economic Transformation.”
The World Bank predicts that Gross Domestic Product (GDP) will grow by 4.1% in 2026, moderating to 4% in the medium term. While this is enough to preserve stability, it is deemed inadequate for job creation, productivity enhancement, or export expansion.
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Spending on wages and transfers accounts for 81% of the State Budget and, according to the report, is unlikely to decrease before the election period scheduled for 2027 and 2028 (presidential and legislative elections, respectively). Capital investments continue to face low execution rates, limiting their impact on economic growth.
Private investment is expected to remain concentrated in construction, retail trade, and hospitality due to limited access to financing. For 2026, the World Bank forecasts an increase in inflation to 2.3%, driven by rising global prices resulting from the conflict in the Middle East, though it anticipates that private consumption will remain resilient, supported by public spending.
“Private investment is likely to remain limited and concentrated in construction, retail, and hospitality, with little movement toward tradable goods or the upgrading of high-productivity sectors,” the report highlights.
