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Timor-Leste: an uncertain future and an unsettled boundary

Energy resources Maritime law Treaties Economic development Australia Timor-Leste

Timor-Leste is the fourth-youngest country in the world, having achieved formal independence on 20 May 2002. The transition to independence was not smooth, as Indonesia claimed the territory for itself while suppressing the independence movement after colonial power Portugal withdrew in 1975. Since independence, the country has come a long way, creating an environment for successful development and achieving lower-middle income status in 2011. GDP has grown strongly since 2006 from $600 million to $1.88 billion in 2015, averaging an annual growth rate of 13.5 per cent. Despite that strong growth, the country suffers from high poverty rates, poor infrastructure and fragile food security. With billions of dollars’ worth of natural gas and oil on its doorstep, Timor-Leste needs to successfully utilise those resources and invest in sustainable economic growth if it is to continue development in the medium- to long-term future.

Key points

  • The economy of Timor-Leste is dependent on revenues from oil and gas reserves, which are beginning to run out.
  • The government will continue to over-withdraw from its petroleum revenues fund to pay for the infrastructure that is needed to grow the non-oil sector, meaning that the fund could be virtually empty by 2027.
  • The Greater Sunrise area contains oil and natural gas deposits, the income from which will be essential to funding infrastructure needs of Timor-Leste, but there are concerns that the money will be wasted on unsustainable projects.
  • The termination of the Certain Maritime Arrangements in the Timor Sea agreement means that Timor-Leste and Australia will have to negotiate a maritime boundary and, possibly, negotiate a new revenue split for the Greater Sunrise area.
  • From a realist perspective, it is in Australia’s economic interests to secure as much of the Greater Sunrise area as possible in future negotiations, but there are other important strategic factors that must also be taken into consideration.
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