Timor-Leste is an isolated agrarian country covering 15,000 km2, with 1.07 million inhabitants. The rural areas are mountainous, prone to soil erosion and land degradation, and produce very low yields of rice, maize, and roots and tubers. Timor-Leste has a population of 1.07 million people with 70 per cent living in rural areas. In 2007 nearly 50 per cent of the population was living below the poverty line, 52 per cent and 45 per cent in rural and urban areas, respectively. Poverty is far more severe in the central (58 per cent) and western regions (55 per cent), compared with the eastern region (27 per cent). Recent estimates point to a possible decline in the poverty incidence from 50 per cent to 41 per cent between 2007 and 2009. However Timor-Leste’s Human Development Index (HDI) was 0.502 in 2010, a rank of 120 out of 169 countries. When adjusted for inequality, the HDI was 0.334, representing a decline of 33 per cent since 2005.

About 70 per cent of the workforce is engaged in agriculture, with the majority working on subsistence farms. Households commonly experience up to three months without sufficient rice or maize – the ―hungry season‖. These shortfalls are offset by government imports and distribution of heavily subsidized rice. A quarter of all women and half the children in the country are malnourished, and poverty remains endemic. Low crop productivity, high on-farm grain storage losses, lack of infrastructure and rapid population growth are major contributors to the food insecurity situation. Attempts to create an export-oriented economy have not yet succeeded, except in the case of petroleum products.

Since the restoration of independence in 2002, Timor-Leste has made significant progress. However, the country still faces many challenges: a stagnant non-oil economy; fragile security characterized by weakened social cohesion; high unemployment (particularly in urban areas and among young people); weak public and private sector capacity; and limited non-oil economic development opportunities. The sluggish economy and resulting high unemployment rate among youth represent a potential security risk that threatens the process of democratization and construction of a viable state.

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