Report Committee C Budget 2009

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TEXT REALEASE TO

COMMITTEE C ON THE 2009 BUDGET BILL

By Apolinar Veloz

V. ECONOMIC OUTLOOK

International financial crisis will have a significant negative impact ondeveloped and developing small open economies as well. According to theInternational Monetary Fund (IMF)1 and the World Economic Outlook (WEO)projections, the advanced economies GDP growth rate will decrease around -1.0% in 2009; this is an important setback in global demand that would reduceeconomic activities in developing countries through noteworthy exportsreductions. The WEO projections of GDP growth rate points out a slowdown from8% in 2008 to 5% in 2009. On the other hand, international oil prices (WestTexas Intermediate, WTI) would also slowdown insofar as advanced anddeveloping economies GDP growth rate levels would not be as high as they werein past recent years, affecting the main production sector of Timor-Leste.

Many countries have laid down countercyclical strategies seeking to stopeconomic crisis from spreading out. In this regard, many of them have submittedto consideration of their legislative bodies rescue fiscal packages to avoid GDPshrinking, unemployment, and higher inflation rates. Timor-Lestes authoritieswould like to take similar steps as in major developed countries; howeverdeveloping economies, especially small open ones, have not an articulateddomestic production sector; instead supply is satisfied significantly from abroad(imports), impacting negatively on trade and current accounts, as well as on GDPgrowth rate, employment, income distribution, and poverty.

The author is working for United Nations Development Program-Parliament Project as a Technical

Specialist on Budget Oversight1 International Monetary Fund: Rapidly Weakening Call for a New Policy Stimulus, World Economic

Outlook Update of the key WEO Projections, November 2008, Washington DC, pp 1.


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Figure 1. Timor-Leste: Oil Production

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

2008 2009 2010 2011 2012 2013 2014

InMillionsofBarre

ls

Oil Production (in millions of barrels)

Source: Ministry of Finace: Proposta de Lei do Orcamento Geral do Estado 2009, Livru 1.

Therefore, it is difficult that GDP growth rate keep a similar trend (8%) in2009 that TL experimented in recent years. According to the Ministry of Finance(MoF) Oil and Gas GDP would be smaller from in 2009, affecting petroleumincome for TL, having a negative results in local economy, and reducingdomestic tax collections.

VI. REVENUES

A. Domestic Revenues

The MoF is expecting that domestic taxes increase by 63.8% during 2009compared to 2008; it is assumed that real GDP would grow by 8% and inflationrate would be around 9%. In other words nominal GDP would grow around 17%for the next year. In this scenario the MoF expects that tax collections would bearound US$84 millions.

The CG has collected on domestic taxes $42 millions up to September 2008.

In previous years, the CG has collected less than US$50 millions, raging 17% ofnon-oil GDP. The GDP depends heavily on oil/gas exports, which would be lowerin 2009, due to world recession of developed economies are facing since thefinancial meltdown during the secondhalf of 2008. According to the WorldEconomic Outlook Update of the IMF2, the world GDP growth rate will slow down

2 International Monetary Fund: World Economic Outlook: An Update of WEO projections, Washington

DC, November 6, 2008, pp 1.


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to 2.2% in 2009 coming from 3.7% of 2008 and 5% of 2007; meanwhile emergingeconomies would grow around 5% in 2009, 2.9% and 3% lower than previousgrowth rates exhibited in 2007 (7.9%) and 2008 (8%). Assuming that non-oilGDP grows in 2009 in 5% and considering an inflation rate of 9%, domesticcollection should be around US$60 millions (assuming that domestic tax

collections grows at the same rate as nominal GDP), in another words US$24millions below MoF expectations.

Up to September 2008 domestic tax collections was $42.6 millions, $4.7millions per month, at this pace domestic tax collections3 would end up around$57 millions in 2008. Expecting $84.2 millions in 2009 in domestic taxes meansan increase of tax collections of $2.3 millions per month, in other words $7.0millions per month, which is a significant higher target and during a period withinwhich is expected a deceleration of GDP growth rates in Timor-Leste.

B. Petroleum Wealth

The MoF is expecting that oil and gas production declines by 7 millionsbarrel in 2009 (Figure 1), from 64 millions barrels produced in 2008 to 57 millionsbarrel in 2009. On the other hand, West Texas Intermediate oil would reduce itsprices to US$60 per barrel (p/b) during 2009 as is expecting the MoF. However,international oil prices have swung largely from US$103 p/b to around US$40and US$47 p/b; consequently the international oil market is performing as oftoday below the oil average price sets by the MoF in the 2009 Budget Bill.

Bearing this in mind it has been built two additional scenarios for PW with US$45p/b and US$50 p/b. A relevant issue for the sake of a long run sustainable fiscalpolicy is to observe the petroleum wealth (PW) and oil savings performancesover the time span in simulated scenarios to see how evolve PW, allowing anevaluation of fiscal policy proposed. According to the Petroleum Fund Law (PFL)the government can withdraw 3% from the PW, and this amount is consideredsustainable in the long run. Nonetheless, the 2009 Budget Bill proposeswithdrawals from the PF of 4.33%, considering an additional from this fund ofUS$181.2 millions.

Assuming the government would pursue a similar expansive fiscal policy,

three basic scenarios were calculated considering different international oilprices, keeping interest rates on ten years US Treasury Bonds constant (3.7%),and using a similar discount rate as the MoF used to discount 2008 TLs futurepetroleum income.

3 International Monetary Fund: Article IV Consultation, June 2008, ibdem, pp 26.


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Figure 2. Timor-Leste Petroleum Wealth

-

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

InMillionsofUS$

Scenario I- $45p/b Scenario II-$50 p/b Scenario III-$60 p/b PW

Source: Ministry of Finance: Orcamento Geral do Estado, Livru 1. Authors calculations

The Figure 2 shows that TLs petroleum wealth would be higherconsidering an international oil price of US$45 p/b with a prudent fiscal policywhich only withdraws 3% from petroleum wealth. The black line simulates thereferred PW, meanwhile the lines green, red, and blue reflects a lower petroleumwealth with similar and higher than 3% consider in a conservative fiscal policyscenario.

As can be seen in Table 1, in 2023 TLs nominal petroleum wealth would

end up in US$17.4 bn in Scenario III considering US$60 p/b, when in averagethe MoF between 2009 and 2023 estimates an average price of US$45 p/b.However, if the oil price is US$45 p/b, Scenario I, then PW would mount, for thesame year, US$14.1 bn, in another words US$3.2 bn lower than the Scenario III.It is important to notice that the long run sustainability of fiscal policy can beseriously affected by swinging international oil prices, consequently affecting thesustainable savings path proposed by the Petroleum Fund Law (PFL). Thereforelocal authorities should be prudent setting public expenditures ceilings.


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Scenario I-$45p/b

Scenario II-$50 p/b

Scenario III-$60 p/b

2009 13,595.67 13,595.67 13,595.672010 16,115.27 18,038.56 19,975.072011 15,899.70 17,639.70 19,695.262012 15,698.62 17,211.83 19,424.642013 15,505.47 16,754.35 19,164.712014 15,322.98 16,554.33 18,930.152015 15,151.97 16,367.05 18,710.832016 14,991.73 16,191.73 18,505.832017 14,842.47 16,028.58 18,315.422018 14,703.93 15,877.33 18,139.252019 14,575.62 15,737.43 17,976.67

2020 14,457.29 15,608.61 17,827.352021 14,348.65 15,490.54 17,690.912022 14,249.22 15,382.68 17,566.682023 14,158.70 15,284.71 17,454.30

Source: Ministry of Finance. Author's calculations

Table 1Nominal Petroleum Wealth

In Millions of US$

If these three scenarios are recalculated using a more conservative fiscalpolicy (3% withdrawing from PF), the Timorese economy would have moreresources to face increasingly financing annual budget accordingly to growingneeds of one of the fastest growing population in the region (4%)4. Table 2shows that in Scenario III the PW would be around US$21 bn in 2023 and in the

Scenarios I and II, the PW is also higher than previously calculated by overUS$4.0 bn, indicating that a conservative fiscal policy lays the country in a betterposition to face future challenges.

4 International Monetary Fund: Democratic Republic of Timor-Leste: Article IV Consultation, June 2008,

Washington DC, pp 25.


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Scenario I-$45p/b

Scenario II-$50 p/b

Scenario III-$60 p/b

2009 13,595.67 13,595.67 13,595.672010 13,913.08 14,040.37 14,239.822011 18,270.78 12,207.96 12,604.272012 17,845.62 12,570.21 13,209.792013 17,780.32 13,264.55 14,134.502014 17,750.39 13,830.93 14,898.762015 17,595.16 14,508.79 15,750.052016 17,638.27 15,127.00 16,536.762017 17,694.11 15,757.28 17,320.962018 17,762.51 16,435.12 18,133.162019 17,843.04 17,073.22 18,890.922020 17,935.52 17,717.67 19,640.612021 18,039.74 18,427.96 20,436.782022 18,155.25 19,068.50 21,148.592023 18,281.81 19,739.67 21,871.88

Source: Ministry of Finance. Author's calculations

Nominal Petroleum Wealth

In Millions of US$

Table 2

Figure 3. Timor-Leste Petroleum Wealth

-

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

InMillionsofUS$

Scenario I- $45p/b Scenario II-$50 p/b Scenario III-$60 p/b Source: Ministry of Finance: Orcamento Geral do Estado, Livru 1. Authors calculations

The Figure 3 shows how the PW performs under the three scenarios describedabove. The Scenario III indicates that Timor-Leste would have higher resourcesat the end of this period and withdrawing each year more than US$400 millions,amount that the whole government has shown is incapable to spend efficiently.


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VII. EXPENDITURES

A. Budget Execution 2008

In General, the CG, according to MoF Execution Report

5

had spent incash $198.7 millions and $14.7 millions spent from the Economic StabilizationFund (ESF) and held outstanding commitments (or obligations) for $228.1millions (114.5% of current cash outlays). The CG spent in total (cash plusobligations), during the first nine months, $441.5 millions, around 57.6% of total2008 budget allocations. Only considering cash expenses, operationalexpenses6 account for 36.1% and capital and development expenses share8.6% of cash expenses of total budget, in other words operational expenses arefour times bigger than capital and development.

Setting aside outstanding CG obligations, the most important expense

items are salaries and wages (57.9%), followed by goods and services (49.4%),and transfers (38.9%). Therefore, operational expenditures are far moreimportant than capital and development outlays. Bear in mind that recurrentexpenses have once and for all impact on domestic global demand, whichcontrasts with capital and development that has a long lasting effect on theeconomy due to the fact that enhances capacity production, creating newproductive jobs, and increasing demand.

Current

Appropriation

Actual

PaymentsObligations Total

Actual as %

of

Appropriation

Salaries and Wages 57.3 33.2 - 33.2 57.9

Goods and Services 194.4 96.1 50.5 146.6 49.4

Minor Capital 40.8 9.2 29.0 38.2 22.5

Transfer 132.0 51.4 62.8 114.2 38.9

Sub-Total 424.5 189.9 142.3 332.2 44.7

Capital and Development 101.5 8.7 85.8 94.5 8.6

Economic Stabil. Fund 240.0 14.7 - 14.7 6.1

Source: Ministry of Finance: Budget Execution Report to Third Quarter, Jan-Sept, 2008, pp 6

Table 3

Timor-Leste: Budget Execution Report

January-September, 2008

In Millions of US$

The CG spent 6.1% (14.7 millions) of the ESF, between June andSeptember, from the total appropriations approved for 2008. The currentexecution level confirms previous finding of low budget execution performance

5 Ministry of Finance: Budget Execution Report Up to Third Quarter, January-September 2008,

Democratic Republic of Timor-Leste, Dili, Timor-Leste, pp 6.6 Operational expenditures encompass, in the case of Timor-Leste and according to MoF classification,

wages and salaries, goods and services, minor capital, and transfers.


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highlighted by international institutions (IMF 2008, UE 2007). Although, if oneconsiders government obligations, which are pending to be spent, then budgetexecution shows a better performance, reaching 78.3% of total appropriations.

The National Elections Commission (93.9%), Ministry of Foreign Affairs (91.1%),

and the Ministry of State Administration and Territorial Planning (85.3%) have anoutstanding budget execution performance in 2008. In average, CG institutionsspend around 56.6% of their approved budget, setting aside obligations.

BudgetActual

ExpenditureObligations Total

% of

Budget

approved

President of the Republic 4.98 2.30 1.33 3.63 63.38

National Parliament 8.73 3.90 2.29 6.18 63.03

Prime Minister and C of M 70.90 34.57 15.78 50.35 68.67

Ministry of Security and Defence 53.85 19.55 21.57 41.12 47.54

Ministry of Foregin Affairs 9.42 6.47 0.63 7.10 91.08

Ministry of Finance 11.29 4.91 4.23 9.14 53.68

Ministry of Justice 9.79 2.26 5.28 7.54 29.95

Ministry of Health 30.80 13.15 9.17 22.31 58.92

Ministry of Education 51.37 23.05 14.34 37.39 61.65

Ministry of State Adm and TP 13.74 9.47 1.63 11.10 85.29

Ministry of Economy and Develop 7.32 3.93 1.80 5.73 68.62

Ministry of Social Solidarity 27.24 15.00 9.01 24.01 62.46

Ministry of Infrastructures 67.69 10.84 49.37 60.21 18.00

Ministry of Turism, Trade and Ind 18.53 5.73 11.84 17.57 32.59

Ministry of Agriculture and Fisheries 30.68 9.45 18.12 27.57 34.27Courts 2.13 0.46 0.75 1.21 37.93

Office of the Prosecutor 2.25 0.67 1.30 1.97 34.06

Ombudsman of Rights and Justice 0.55 0.30 0.12 0.41 71.43

Public Broadcasting System of TL 2.08 1.40 0.36 1.75 79.75

National Elections Commission 1.61 1.33 0.09 1.41 93.91

Funds Administered by Ministry 101.03 29.94 59.07 89.01 33.64

Total 525.96 198.65 228.07 426.72 46.55

Average 56.66

Standard Deviation from the Mean 21.62

Source: Ministry of Finance, Budget Execution Report, Jan-Sept, 2008, pp 43-48

Table 4

Timor-Leste: Institutional Budget Execution

January-September 2008

In Millions of US$

Six of CG institutions out of twenty one (28.6%) had a budget execution(in cash) that exceed 60% of their approved budget in 2008. The 23% of CGinstitutions have an execution around 30% of their appropriations for the sameyear. The Ministry of Infrastructure has the lowest budget execution (18%),followed by the Ministry of Justice (29.9%). Only 35% of the institutional budgetexecutions are nearby the execution average (56.7%), and 65% are under orover the average executed budget. For those institutions reporting budgetexecution over the average (56.6%), in general, have spent two thirds of the


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approved budget at the time the MoF is reporting nine months of budgetexecution; considering proportional expenditure during the year these ministriesshould have spent around 75% of their budget by the time of this report from theMoF, however they are under this amount.

For those that spent below the average (43%) their performance ranges20% to 50% in 2008. The standard deviation from average budget execution is21.62, which is high; pointing out that institutional budget execution shows a widediversity (Figure 6), affecting government compliance with its annual institutionalobjectives and annual targets.

Figure 4. Central Government Budget Execution, 2008

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10.00

20.00

30.00

40.00

50.00

60.0070.00

80.00

90.00

100.00

Preside

ntof

theRep

ublic

NationalP

arliam

ent

PrimeMini

sterand

Cof

M

Mini

stryofS

ecuritya

ndDefe

nce

Ministry

ofFo

regin

Affai

rs

Mini

stryo

fFina

nce

Mini

stryo

fJustice

Mini

stryo

fHeal

th

M

inistryo

fEdu

catio

n

Mini

stryofS

tateA

dmandT

P

Mini

stryo

fEconom

yand

Develo

p

Ministr

yofS

ocial

Solid

arity

Ministry

ofInfra

structur

es

Mini

stryofTu

rism,

Trad

eand

Ind

Mini

stryo

fAgricultu

reandF

isheries

Court

s

Office

oftheP

rosecu

tor

Ombu

dsmanof

Righ

tsandJ

ustice

Publi

cBroadc

asting

Syste

mofTL

NationalEl

ectio

nsCom

missi

on

FundsAdm

iniste

redby

Mini

stry

InMillion

Source: Ministry of Finance. Budget Execution Report, September 2008.

The 47.5% of the CG institutions have a budget execution rangingbetween 36.7% and 86.7% of their appropriations for 2008 budget7. There aresome institutions that perform far beyond of the average budget execution, suchas Ministry of Foreign Affairs, Ministry of State Administration and TerritorialManagement, and the National Elections Commission, these institutions can beconsidered as outliers. Doing so and recalculating the sample mean as well as itsstandard deviation, budget execution overview changes as follow: 44.3% of theCG institutions should have a budget execution raging 30% and 70%.

7 Calculating a z-score

=

sxx

z i for institutional budget execution, it is obtained that z = 1.38, in

another word the 47.49% of the budget execution range between 36.7% and 86.7% executed budget. See

Anderson, Sweeny and Williams: Statistics for Business and Economics, Thompson, South-Western,

Australia, 10th Edition, 2008, pp 96 and 97.


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The ratio between obligations and actual expenditures (O/CE) gives an

idea of the capacity of spending of central government institutions. According toour calculations, 38% of the institutions have a ratio bigger than one, soobligations were currently larger than expenditures in cash, 28% of CG has an

O/CE ratio over 0.50, less than one, meaning that obligations represented atleast 50% of their cash expenditures (Table 5).

Actual

Expenditure (I)

Obligations

(II)

Obligations/

Cash

Expenditures

II/I

President of the Republic 2.30 1.33 0.58National Parliament 3.90 2.29 0.59

Prime Minister and C of M 34.57 15.78 0.46

Ministry of Security and Defence 19.55 21.57 1.10

Ministry of Foregin Affairs 6.47 0.63 0.10

Ministry of Finance 4.91 4.23 0.86

Ministry of Justice 2.26 5.28 2.34

Ministry of Health 13.15 9.17 0.70

Ministry of Education 23.05 14.34 0.62

Ministry of State Adm and TP 9.47 1.63 0.17

Ministry of Economy and Develop 3.93 1.80 0.46

Ministry of Social Solidarity 15.00 9.01 0.60

Ministry of Infrastructures 10.84 49.37 4.55

Ministry of Turism, Trade and Ind 5.73 11.84 2.07

Ministry of Agriculture and Fisheries 9.45 18.12 1.92

Courts 0.46 0.75 1.64

Office of the Prosecutor 0.67 1.30 1.94

Ombudsman of Rights and Justice 0.30 0.12 0.40

Public Broadcasting System of TL 1.40 0.36 0.25

National Elections Commission 1.33 0.09 0.06

Funds Administered by Ministry 29.94 59.07 1.97

Source: Ministry of Finance, Budget Execution Report, Jan-Sept 2008. Author's Calculations

Table 5

Timor-Leste: Institutional Budget Execution

January-September 2008

Actual Expentidure/Obligations

The 33% of CG institutions have an O/CE smaller than 50% and cashexpenditures are bigger than obligations, which reflects a better budget executionperformance, it is important to mention that obligations might or not be executedup to 31 of December 2008, according to the MoFs Circular8. Most of funds not

8 Ministry of Finance: 2009 General Budget of the State, MoF, Minister Cabinet, August 27, 2008, Dili,

Timor-Leste.


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spent by the December 31 of 2008 will not be carryover as it was the previouspractice, except for some capital projects.

Another way to look at the budget execution is through the relationshipbetween initial appropriation and expenditure. It is expected that institution which

has higher appropriation execute higher amount. In this regard, it was confirmedthere is a positive and lineal relationship between budget appropriation andbudget executed9; consequently higher appropriations conducive to higherexpenditures (Figure 9). However, this relationship seems to get relativelyweaker as the size of budget allocation grows bigger. The Figure 9 that relatesappropriations and budget execution shows a concentration of points at lowerexecution levels, suggesting that smaller institutions perform relatively better thanthose which have bigger budget allocations.

One could say that institutions that having smaller budgets means having abetter administrative management than bigger institutions. However, the lack of

capability, identified by various international organizations, points out that notonly small budgets appropriations but also larger ones have difficulties to spendin all public sector. Consequently, lower and higher budget appropriations aredifficult to spend due to a lack of management and administrative support.

Figure 5. Appropriation and Expenditure

-

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

- 20.00 40.00 60.00 80.00 100.00 120.00

Appropriations

ActualExpenditure

InmillionsofUS$

Source: Ministry of Finance, Budget Execution Report, September 2008

9 The correlation coefficient is 90.2% between budget allocations and budget execution, the institutions that

gets more appropriation spends more resources. This indicator of a lineal relationship can be calculated

usingyx

xyxy ss

sr = .


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In the Tables 8 and 9 show that smaller institutions (less than ten millionsdollars appropriation) have stronger lineal and positive relationship (CC = 85%)between budget appropriation and expenditure for 2008; in turn larger institutionshas a weaker positive and linear relationship between the two above mentionedvariables (CC = 54.1%). It is important to determine if it is easier to spend smaller

budget allocations than larger ones, if administrative procedures are the same,bidding process follows exactly the same steps, among others10.

BudgetActual

Expenditure

% Cash

Expenditure/

Appropiation

President of the Republic 4.98 2.30 46.24

National Parliament 8.73 3.90 44.64

Ministry of Foregin Affairs 9.42 6.47 68.64

Ministry of Justice 9.79 2.26 23.05

Ministry of Economy and Develop 7.32 3.93 53.71

Courts 2.13 0.46 21.54

Office of the Prosecutor 2.25 0.67 29.80

Ombudsman of Rights and Justice 0.55 0.30 53.83

Public Broadcasting System of TL 2.08 1.40 67.34

National Elections Commission 1.61 1.33 82.27

Average 4.88 2.30 49.11

Standard Deviation 3.61 1.95 20.27

Correlation Coefficient 73.89 84.99 41.27

(*) These institutions having less than $10.0 millions in appropiations are considered small institutions.

Table 6

Timor-Leste: Appropriation and Institutional Cash Expenditures

For Small* Institutions, In Percentage

2008

10 The discrepancy on how perform a small and large institution in their execution was also calculated

considering cash expenditures over appropriation ratio, and conclusions on this matter do not change. See

Tables 8 and 9, last columns.


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BudgetActual

Expenditure

% Cash

Expenditure/

Appropiation

Prime Minister and C of M 70.90 34.57 48.76

Ministry of Security and Defence 53.85 19.55 36.30

Ministry of Health 30.80 13.15 42.68

Ministry of Education 51.37 23.05 44.88

Ministry of Social Solidarity 27.24 15.00 55.04

Ministry of Infrastructures 67.69 10.84 16.01

Ministry of Turism, Trade and Ind 18.53 5.73 30.90

Ministry of Agriculture and Fisheries 30.68 9.45 30.80

Funds Administered by Ministry 101.03 29.94 29.64

Ministry of Finance 11.29 4.91 43.46

Ministry of State Adm and TP 13.74 9.47 68.89

Average 50.23 17.92 37.23

Standard Deviation 26.50 9.70 11.88

Correlation Coefficient 52.76 54.13 31.91

(**)These institutions have appropriations over 10.0 millions aere consider large.

Table 7

Timor-Leste: Appropriation and Institutional Cash Expenditures

For Large** Institutions, In Percentage

2008

On the other hand, in the Budget Execution Report, January-September,2008, there is not indicators that can be used to determine if public investmentsare cost-effective and also if every institution is reaching out their annual targets.It is advisable, for 2009 budget that a set of performance indicators are properlyforward to the MoF, to allow the NP members to exercise their oversight tasks.

B. 2009 Budget Bill

The NSB mounts US$681.1 millions for 2009; financed by US$588.8 millionstransfer from the PF; $407.8 according to ESI calculations done by MoF and anextraordinary transfer from of US$181.2 millions11. In addition, the MoFestimates domestic tax collection of US$84.2 millions plus US$6.9 millions stemfrom transfers of autonomous agencies. In another words the 86.5% of theresources that finances the 2009 NSB are coming from the PF and 12.5% fromdomestic taxes and transfers. The MoF reports that at the end of 2008 theTreasury shows a balance of US$212.9 millions, and the 2009 Budget wouldinclude US$178.2 millions.

The government plans to spend 69% in current expenditures and 31% in

capital and development. In another words, most of the PW would not be spent inexpanding domestic production capability, instead the fiscal policy is devoted tostimulate consumption. Wages and salaries and goods and services as wellrepresent 64.4% of the total current expenditures.

11 The PFL allows CG to withdraw over the ESI complying with various conditions, such as specifying the

ESI for the fiscal year in which the transfer is made, specifying the ESI for the preceding year, and

presenting a certification from an independent auditor of the previous ESI calculations. See PFL, Article 9.


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On the other hand, capital and development expenditures are estimated in

US$205 millions; US$85 millions would be spent on new schools (US$12 MM),roads (US$16.2 MM), local clinics (US$7.4 MM), as well as municipality buildings(US$1.5 MM). There is a project to support agriculture productivity (US$5.6 MM),

improvement of sea ports (US$8.1 MM), food, water, and boats for the localmarine, among others. The Ministry of Infrastructure would spend US$85 millionson the construction of a new electric power plant, transmission lines,transmission network and supervision.

VIII. RECOMMENDATIONS

1. Bearing in mind the 2008 institutional execution levels reveal a significantlack of an efficient capacity of spending of the Timorese public sector, thefinancing from the PF should be kept at the 3% level and non additional

withdrawal is necessary to satisfy population needs.

2. It should also be considered the starting balance of US$178.2 millions towithdraw lesser amount from the PF. Therefore, for this year the PFwithdrawal should be US$229.6 millions instead of US$407.8 millions.

3. It is highly recommended that the government should devote efforts ingathering international experts in development economics and povertyreduction to help local authorities to set up a national development plan(NDP) as the main guideline of future annual budgets.

4. Meanwhile the government needs to increase institutional capability tospend efficiently. In this respect it is crucial to train each financialdepartment of each ministry to achieve properly an annual budgetaccordingly to NDP.

Report Committee C Budget 2009

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Transcript of Report Committee C Budget 2009