Timor-Leste’s Strategic Path in ASEAN
Turning Accession into Impact

At the 46th ASEAN Summit in May 2025, Timor-Leste was formally granted full membership in the Association of Southeast Asian Nations (ASEAN), and accession is set to be finalized at the 47th ASEAN Summit in October. This decision not only marks a diplomatic milestone for Asia’s newest country but also presents a critical test for Timor-Leste’s economic resilience and ASEAN’s capacity for inclusive integration. While ASEAN offers a platform for regional economic cooperation and multilateral trade, Timor-Leste’s narrow economic base, fiscal fragility, and institutional weaknesses could constrain its ability to seize this once-in-a-generation opportunity. To overcome these challenges and maximize the benefits of ASEAN integration, Timor-Leste must prioritize investments in human capital, institutional capacity, and economic diversification while strategically leveraging support from development partners.

The Timorese Socioeconomic Context

Timor-Leste’s entry to ASEAN goes beyond symbolic diplomacy; it represents a critical opportunity to advance the country’s long-term socioeconomic transformation. Yet, Timor-Leste’s current economic structure remains fragile. The Timor-Leste Petroleum Fund, which finances 80% of the country’s public spending, is projected to be depleted within the next decade due to excessive withdrawals and declining oil production. Without alternative revenue sources, Timor-Leste risks facing a fiscal cliff—a circumstance in which collapsing government revenues force sharp spending cuts and thus threaten overall economic stability and disrupt the growth trajectory.

The country’s trade dynamics further highlight its vulnerabilities. Between 2004 and 2022, 60.2% of Timorese imports came from ASEAN markets, and domestic production and export capacity remain limited. This continued trade deficit signals high dependence on external supply chains, low levels of productive entrepreneurship, and limited circulation of capital within the national economy.

Compounding these challenges are long-standing structural issues, including inadequate infrastructure, poor access to education and healthcare, and a lack of broad-based economic opportunity. Without urgent domestic reforms, ASEAN integration could reinforce rather than resolve these vulnerabilities, especially by deepening Timor-Leste’s dependence on imports and increasing its vulnerabilities to external shocks.

ASEAN Integration as a Strategic Lever for Timor-Leste’s Policy Reform

With a small population of just 1.34 million people, Timor-Leste could benefit significantly from ASEAN membership by participating in multilateral trade agreements such as the ASEAN Free Trade Area (AFTA) and Regional Comprehensive Economic Partnership (RCEP). Access to the large markets of AFTA and particularly RCEP members could attract FDI, promote economies of scale, and support the development of local industries.

AFTA, implemented in 1993, is aimed at reducing intra-ASEAN tariffs to below 5%. Additionally, RCEP, which includes ASEAN and its free-trade partners, accounts for nearly 50% of the world’s population and around 30% of global GDP. Both agreements aim to lower trade barriers, improve market access, and support small and medium-sized enterprises. They also emphasize ASEAN’s central role in shaping the region’s economic future while promoting inclusive and balanced growth that benefits all member states.

As Timor-Leste faces the limitations of a narrow, resource-dependent economy, ASEAN membership may serve as a catalytic force for reform, enabling the country to diversify its economic base, attract private-sector investment, and improve its institutional governance. Yet, even though ASEAN is committed to advancing development equity within its member states and Timor-Leste has cultivated robust people-to-people relationships with ASEAN member states, particularly in healthcare, education, and labor mobility, the benefits of integration are not automatic. Successful integration into the ASEAN economic community will require more than diplomacy or signing up to trade agreements; it demands structural preparedness and strategic alignment with ASEAN norms. Without addressing its bureaucratic inefficiencies, political instability, and continued reliance on oil revenues, Timor-Leste is at risk of remaining dependent on imports of ASEAN goods and services.

To benefit economically from ASEAN integration, Timor-Leste must focus on areas where it holds latent comparative advantage, such as sustainable agriculture, ecotourism, and the blue economy, and seek to leverage its relatively abundant labor force. Public policy therefore must transition from rent distribution to productivity-led development and economic diversification. This means reallocating resources from consumption subsidies toward infrastructure, education, and the development of small and medium-sized enterprises. It also entails formalizing the tax base to reduce dependency on the Petroleum Fund.

Moreover, premature liberalization without domestic readiness could lead to economic disruptions. In particular, Timor-Leste’s underdeveloped legal and regulatory institutions risk falling short of ASEAN’s norms on investment governance, service liberalization, and trade facilitation. These gaps may disincentivize investors and isolate Timor-Leste from regional supply chains, leading the country into a passive consumer role within AFTA rather than empowering it as a productive contributor.

Given these considerations, Timor-Leste’s accession must be understood as a policy lever, not a development guarantee. Its success depends on regulatory coherence, institutional alignment, and political will. ASEAN’s frameworks—particularly in competition policy, investment protection, and service liberalization—offer templates for reform, but implementation requires the government’s commitment across electoral cycles and beyond elite political and economic interests. To ensure that Timor-Leste’s ASEAN membership yields strategic and economic dividends, the following policy measures could be particularly impactful.

Foundational Reforms

Institutional capacity and readiness. Building a competent, professional, and politically neutral bureaucracy that aligns with ASEAN standards must be a national priority regardless of which political party is in power. Civil service recruitment and promotion should be based solely on merit and free from political interference. Equally important is continuous professional development to ensure that public officials not only are able to translate policy into effective action and deliver programs with integrity and efficiency but also remain responsive to evolving technological advancements. Given Timor-Leste’s limited fiscal space, these capacity-building efforts will require strong support from development partners. Programs funded by Australia, Japan, New Zealand, the United States, China, and other ASEAN partners can play a vital role in strengthening institutional readiness and accelerating alignment with ASEAN frameworks on public administration, trade facilitation, and investment governance.

Security, legal, and property rights. As highlighted in an interview with the former minister of the presidency of the Council of Ministers Fidelis Magalhães, Timor-Leste must ensure a safe environment for businesses and individuals through improved professional law enforcement and consistent public safety measures to fully maximize the benefits of ASEAN integration. In addition, civil and commercial disputes must be addressed efficiently in a timely manner through improved courts and alternative mechanisms like commercial arbitration. It is also essential to establish a transparent and reliable land-tenure system that protects investors from political interference, ensures long-term trust, and addresses persistent land conflicts arising from family or inheritance disputes, government expropriations, and multiple claims over the same parcels.

Street addresses, postal codes, and house numbers. A reliable addressing system is an essential component of national connectivity and effective governance. The absence of standardized street names, postal codes, and house numbers hinders service delivery, emergency response, business operations, and infrastructure planning. The government should prioritize the development of a comprehensive national address framework in parallel with land reform and urban planning initiatives.

Education and healthcare. To fully benefit from ASEAN labor mobility—both by preparing Timorese workers to compete regionally and by unlocking the economic potential of its large labor force—Timor-Leste must invest in high-quality education and healthcare. Current statistics on child nutrition in the country are concerning, with nearly half of children under five reported as stunted. Chronic undernutrition undermines future workforce productivity and long-term development. Education, healthcare, and technical and vocational training systems should be aligned with international standards to build a skilled and competitive workforce, enabling Timorese citizens to contribute productively within the country or to pursue meaningful opportunities across the ASEAN region.

English language. While recognizing that Tetun and Portuguese are the official Timorese languages and English and Indonesian serve as working languages, the importance of strengthening English proficiency must not be overlooked. As the working and business language of ASEAN, English plays a critical role in regional integration. Expanding English instruction within the national education system would broaden Timorese citizens’ access to professional, educational, and economic opportunities, while enhancing the country’s capacity to engage effectively within the ASEAN community.

Conditions for Growth and Modernization

Digitalization and e-governance. Timor-Leste stands at a pivotal moment in its digital transformation. The long-awaited 607-kilometer subsea fiber-optic cable—directly linking Timor-Leste’s capital Dili to Darwin, Australia—is expected to come online in 2025, providing the country with high-capacity, direct access to the global internet backbone. Combined with expanding satellite internet coverage (such as Starlink), this connectivity leap offers a great opportunity to address long-standing challenges of high internet costs, poor service quality, and limited rural access. Supported by the Timor Digital 2032 strategy, improved infrastructure can unlock business opportunities, expand e-commerce, create jobs, and modernize public services. To maximize these gains, the government should invest in digital literacy, cybersecurity, and public-private partnerships while accelerating the digitalization of administrative systems, such as tax collection, licensing, and service delivery. As ASEAN moves toward finalizing the Digital Economy Framework Agreement, Timor-Leste must align its digital regulations and data governance with regional standards to benefit from cross-border digital trade and innovation. At the same time, Timorese efforts to regulate the online space—such as the proposed Cybercrime Law and forthcoming Data Protection Law—must strike a careful balance between addressing online harms and safeguarding civic space, privacy, and freedom of expression. Given persistent digital literacy gaps across government, law enforcement, and civil society, any regulatory framework must uphold Timor-Leste’s democratic values and reputation as one of Southeast Asia’s most open societies.

E-finance. ASEAN is advancing efforts to standardize and integrate QR code payment systems across member states. As Timor-Leste prepares to join this regional ecosystem, it must adapt its financial infrastructure to emerging digital trends. The recent discussions around establishing the National Development Bank of Timor-Leste are a step in the right direction, aimed at mobilizing productive investments and supporting long-term economic growth. The Central Bank of Timor-Leste has also announced plans to launch a national QR code payment system by the end of this year, alongside ambitious efforts to expand mobile banking services. To complement these positive initiatives, the Timorese government must ensure that the business sector is prepared to adopt financial technologies such as cross-border QR code payment systems and other digital payment methods, including debit and credit cards.

Public transportation. Timor-Leste must match its road-building progress with the development of safe, accessible, and efficient public transportation systems. In Dili, small buses (mikrolet) and taxis remain the most common modes of public transport; however, their small capacity limits their ability to meet growing mobility needs, while poor oversight contributes significantly to congestion and safety risks. Sexual harassment is also commonly reported by women taking taxis alone. To address these challenges, the government should work with the private sector to modernize and better regulate bus and taxi services, expand bus networks, and explore complementary options such as ride-sharing platforms like Uber, while improving traffic enforcement, road signage, and driver training and licensing.

Youth engagement. Nearly three-quarters of Timor-Leste’s citizens are under the age of 35. The country must leverage its youthful population to unlock a potential demographic dividend—an opportunity for faster economic growth that arises when the working-age population is larger than its dependent population. To achieve this, the government should not only invest in education and early childhood nutrition but also expand civic education, entrepreneurship support, digital literacy, women’s empowerment programs, family planning, and youth-led and -focused initiatives. These efforts are essential to cultivate a generation of proactive and healthy leaders equipped to address societal challenges and drive innovation. Creating a safe, inclusive, and supportive environment where young people can freely express their views, participate in decision-making, and access resources is vital for building a resilient, future-oriented nation.

Sectoral and External Engagement

Sectoral specialization and labor market formalization. Timor-Leste should prioritize key growth sectors such as agriculture, tourism, and the blue economy to integrate into ASEAN’s regional supply chains and expand exports. Increasing the country’s export capacity in these sectors would help reduce its trade imbalance and make the economy less vulnerable to external shocks (especially oil price shocks), while also creating employment, particularly for unskilled workers, and reducing the country’s reliance on oil revenues. Achieving this requires close collaboration between the government and the private sector to develop comprehensive sectoral strategies that are competitive in regional and global markets. Simultaneously, the government should expand formal employment opportunities, strengthen labor protections, and modernize workplace regulations to streamline business licensing and support inclusive, sustainable economic growth.

Strategic diplomacy and public-private coordination. ASEAN is a dynamic regional bloc with ambitions to become the world’s fourth-largest economy by 2045. Timor-Leste’s integration enhances the country’s diplomatic visibility, elevates its international credibility, and opens new pathways for deeper regional economic engagement. To seize this opportunity, strong coordination between the government and private sector is essential. Timorese diplomats must work proactively with business leaders, particularly through the Chamber of Commerce and Industry, to attract investments, facilitate trade dialogues, and advance cross-border partnerships. A streamlined mechanism should be established to address the time-consuming bureaucratic and legislative system and support both inbound investment and the participation of Timorese businesses in ASEAN markets. All relevant ministries and agencies, such as those responsible for investment, business licensing, land allocation, and taxation, must be accessible, responsive, and aligned in their efforts to create an enabling environment for economic diplomacy and sustainable growth.

Development partner coordination. Timor-Leste must adopt a strategic approach in working with its development partners to support sectors where it holds comparative advantage and to address institutional capacity-building and societal challenges. Aligning technical and financial assistance from key bilateral as well as multilateral institutions is essential to advance national development priorities, including infrastructure upgrades, digital connectivity and infrastructure, education and cultural exchange programs, trade facilitation systems, and modern regulatory frameworks. These foundational investments are critical to fostering a robust business ecosystem, driving private-sector growth, and attracting long-term investment.

Conclusion

Timor-Leste’s accession to ASEAN marks both a symbolic diplomatic milestone and a substantive policy test. For ASEAN, it reinforces the bloc’s commitment to inclusivity and equitable development. For Timor-Leste, it presents a unique opportunity to transition from an oil-based economy toward deeper regional integration—but only if accession is pursued with urgency, discipline, and strategic vision.

ASEAN membership will not automatically transform Timor-Leste’s economy. To fully realize the country’s potential, Timorese accession and integration to the bloc must be accompanied by a comprehensive national development strategy that engages the government, private sector, and development partners; sustained efforts to modernize its institutions; and most importantly political leadership committed to placing national interests and the well-being of the population at the heart of all decision-making processes.

Ivo Ribeiro is a 2025 Bridge to Asia Fellow at the National Bureau of Asian Research and a recent alumnus of The Fund for American Studies Program. He is also a United States Timor-Leste Scholar, currently pursuing a BS in Economics at the University of Minnesota, Twin Cities.