I am not sure if Timorese have drivers licences, but I know as a foreigner, any old licence is good enough. The traffic in Dili is really quite mild and one should give thanks to the fact that they have not picked up the Asian habit of driving with hand on the car horn.
In general, it is pretty difficult to wind up to more than 40kph around town. I think the speed limit is 45kph everywhere. The main limiting factors are potholes, stray animals and other unpredictable pedestrians, cyclists, motorcyclists and cars. With no car insurance, it is best to accept it and just putter around.
As I have occasional access to a LandRover Defender, it is pretty hard to wind up too fast and it can get pretty uncomfortable thumping over potholes. After a while, you even start to remember the locations of bigger potholes.
Yes, on-coming traffic does cross the centre-line, but this has not been a big issue yet. In general, driving is significantly more sedate than China, for instance, where aggression and staking one’s claim on asphalt territory is very important.
I don’t believe that Timor Leste has any traffic lights anywhere. But it does have traffic police and unlike many other traffic police in Asia, they actually look less imposing and treat cars and drivers quite reasonably. They give everybody a chance and do it well.
There is no doubt the quality of the roads is deteriorating. New and larger potholes have appeared even in the 2.5 weeks since arrival. I understand that money for road maintenance is almost zero and I have never seen any sign of road maintenance gangs and some of the roads sure need it.
Your typical 4 cylinder sedan cops a pounding on some of the rough bits, but if you live in Dili or surrounds, you are within 15 minutes drive of everything. And if you don’t have a car, a taxi will cost USD1 for almost any trip up to that 15 minutes. Taxis are everywhere.