The economy of East Timor is ranked as a low income economy by the World Bank. It is placed 133th by Human Development Index, indicating a medium level of human development. 20% of the population is unemployed, and 52.9% live on less than US $1.25 a day. About half of the population is illiterate.
According to data gathered in the 2010 census, 87.7% of urban and 18.9% of rural households have electricity, for an overall average of 36.7%.
In 2007, a bad harvest led to deaths in several parts of East Timor. In November 2007, eleven subdistricts still needed food supplied by international aid.
There are no patent laws in East Timor.
Prior to and during colonisation, the island of Timor was best known for its sandalwood. The Portuguese colonial administration granted concessions to Oceanic Exploration Corporation to develop the deposits. However, this was curtailed by the Indonesian invasion in 1976. The resources were divided between Indonesia and Australia with the Timor Gap Treaty in 1989. The treaty established guidelines for joint exploitation of seabed resources in the area of the "gap" left by then-Portuguese Timor in the maritime boundary agreed between the two countries in 1972. Revenues from the "joint" area were to be divided 50%-50%. Woodside Petroleum and ConocoPhillips began development of some resources in the Timor Gap on behalf of the two governments in 1992.
In late 1999, about 70% of the economic infrastructure of East Timor was destroyed by Indonesian troops and anti-independence militias, and 260,000 people fled westward. From 2002 to 2005, an international program led by the United Nations, manned by civilian advisers, 5,000 peacekeepers (8,000 at peak) and 1,300 police officers, substantially reconstructed the infrastructure. By mid-2002, all but about 50,000 of the refugees had returned.
East Timor inherited no permanent maritime boundaries when it attained independence, repudiating the Timor Gap Treaty as illegal. A provisional agreement (the Timor Sea Treaty, signed when East Timor became independent on 20 May 2002) defined a Joint Petroleum Development Area (JPDA), and awarded 90% of revenues from existing projects in that area to East Timor and 10% to Australia. The first significant new development in the JPDA since East Timorese independence is the largest petroleum resource in the Timor Sea, the Greater Sunrise gas field. Its exploitation was the subject of separate agreements in 2003 and 2005. Only 20% of the field lies within the JPDA and the rest in waters not subject to the treaty (though claimed by both countries). The initial, temporary agreement gave 82% of revenues to Australia and only 18% to East Timor.
The government of East Timor has sought to negotiate a definite boundary with Australia at the halfway line between the countries, in accordance with the United Nations Convention on the Law of the Sea. The government of Australia preferred to establish the boundary at the end of the wide Australian continental shelf, as agreed with Indonesia in 1972 and 1991. Normally a dispute such as this would be referred to the International Court of Justice or the International Tribunal for the Law of the Sea for an impartial decision, but the Australian government had withdrawn itself from these international jurisdictions (solely on matters relating to maritime boundaries) shortly before East Timorese independence.
Nevertheless, under public and diplomatic pressure, the Australian government offered instead a last-minute concession on Greater Sunrise gas field royalties alone. On 7 July 2005, an agreement was signed under which both countries would set aside the dispute over the maritime boundary, and East Timor would receive 50% of the revenues (estimated at A$26 billion or about US$20 billion over the lifetime of the project) from the Greater Sunrise development. Other developments within waters claimed by East Timor but outside the JPDA (Laminaria-Corallina and Buffalo) continue to be exploited unilaterally by Australia, however.