Professional Documents
Culture Documents
∗
The author is working for United Nations Development Program-Parliament Project as a Technical
Specialist on Budget Oversight
1
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.
Figure 1. Timor-Leste: Oil Production
70.0
60.0
In Millions of Barrels
50.0
40.0
30.0
20.0
10.0
-
2008 2009 2010 2011 2012 2013 2014
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%) in
2009 that TL experimented in recent years. According to the Ministry of Finance
(MoF) Oil and Gas GDP would be smaller from in 2009, affecting petroleum
income for TL, having a negative results in local economy, and reducing
domestic tax collections.
VI. REVENUES
A. Domestic Revenues
The MoF is expecting that domestic taxes increase by 63.8% during 2009
compared to 2008; it is assumed that real GDP would grow by 8% and inflation
rate 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 be
around US$84 millions.
2
International Monetary Fund: World Economic Outlook: An Update of WEO projections, Washington
DC, November 6, 2008, pp 1.
to 2.2% in 2009 coming from 3.7% of 2008 and 5% of 2007; meanwhile emerging
economies would grow around 5% in 2009, 2.9% and 3% lower than previous
growth rates exhibited in 2007 (7.9%) and 2008 (8%). Assuming that non-oil
GDP grows in 2009 in 5% and considering an inflation rate of 9%, domestic
collection should be around US$60 millions (assuming that domestic tax
collections grows at the same rate as nominal GDP), in another words US$24
millions below MoF expectations.
B. Petroleum Wealth
The MoF is expecting that oil and gas production declines by 7 millions
barrel in 2009 (Figure 1), from 64 millions barrels produced in 2008 to 57 millions
barrel in 2009. On the other hand, West Texas Intermediate oil would reduce its
prices 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$40
and US$47 p/b; consequently the international oil market is performing ⎯as of
today ⎯ 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$45
p/b and US$50 p/b. A relevant issue for the sake of a long run sustainable fiscal
policy is to observe the petroleum wealth (PW) and oil savings performances
over the time span in simulated scenarios to see how evolve PW, allowing an
evaluation of fiscal policy proposed. According to the Petroleum Fund Law (PFL)
the government can withdraw 3% from the PW, and this amount is considered
sustainable in the long run. Nonetheless, the 2009 Budget Bill proposes
withdrawals from the PF of 4.33%, considering an additional from this fund of
US$181.2 millions.
3
International Monetary Fund: Article IV Consultation, June 2008, ibdem, pp 26.
Figure 2. Timor-Leste Petroleum Wealth
25,000.00
20,000.00
In Millions of US$
15,000.00
10,000.00
5,000.00
-
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
4
International Monetary Fund: Democratic Republic of Timor-Leste: Article IV Consultation, June 2008,
Washington DC, pp 25.
Table 2
Nominal Petroleum Wealth
In Millions of US$
Scenario I- Scenario II- Scenario III-
$45p/b $50 p/b $60 p/b
2009 13,595.67 13,595.67 13,595.67
2010 13,913.08 14,040.37 14,239.82
2011 18,270.78 12,207.96 12,604.27
2012 17,845.62 12,570.21 13,209.79
2013 17,780.32 13,264.55 14,134.50
2014 17,750.39 13,830.93 14,898.76
2015 17,595.16 14,508.79 15,750.05
2016 17,638.27 15,127.00 16,536.76
2017 17,694.11 15,757.28 17,320.96
2018 17,762.51 16,435.12 18,133.16
2019 17,843.04 17,073.22 18,890.92
2020 17,935.52 17,717.67 19,640.61
2021 18,039.74 18,427.96 20,436.78
2022 18,155.25 19,068.50 21,148.59
2023 18,281.81 19,739.67 21,871.88
Source: Ministry of Finance. Author's calculations
25,000.00
20,000.00
In Millions of US$
15,000.00
10,000.00
5,000.00
-
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
The Figure 3 shows how the PW performs under the three scenarios described
above. The Scenario III indicates that Timor-Leste would have higher resources
at 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.
VII. EXPENDITURES
In General, the CG, according to MoF Execution Report 5 had spent –in
cash– $198.7 millions and $14.7 millions spent from the Economic Stabilization
Fund (ESF) and held outstanding commitments (or obligations) for $228.1
millions (114.5% of current cash outlays). The CG spent in total (cash plus
obligations), during the first nine months, $441.5 millions, around 57.6% of total
2008 budget allocations. Only considering cash expenses, operational
expenses 6 account for 36.1% and capital and development expenses share
8.6% of cash expenses of total budget, in other words operational expenses are
four times bigger than capital and development.
Table 3
Timor-Leste: Budget Execution Report
January-September, 2008
In Millions of US$
Actual as %
Current Actual
Obligations Total of
Appropriation Payments
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
The CG spent 6.1% (14.7 millions) of the ESF, between June and
September, from the total appropriations approved for 2008. The current
execution 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.
highlighted by international institutions (IMF 2008, UE 2007). Although, if one
considers government obligations, which are pending to be spent, then budget
execution shows a better performance, reaching 78.3% of total appropriations.
Table 4
Timor-Leste: Institutional Budget Execution
January-September 2008
In Millions of US$
% of
Actual
Budget Obligations Total Budget
Expenditure
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 34.27
Courts 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
For those that spent below the average (43%) their performance ranges
20% to 50% in 2008. The standard deviation from average budget execution is
21.62, which is high; pointing out that institutional budget execution shows a wide
diversity (Figure 6), affecting government compliance with its annual institutional
objectives and annual targets.
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50.00
40.00
30.00
20.00
10.00
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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.
The ratio between obligations and actual expenditures (O/CE) gives an
idea of the capacity of spending of central government institutions. According to
our calculations, 38% of the institutions have a ratio bigger than one, so
obligations 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 at
least 50% of their cash expenditures (Table 5).
Table 5
Timor-Leste: Institutional Budget Execution
January-September 2008
Actual Expentidure/Obligations
Obligations/
Actual Obligations Cash
Expenditure (I) (II) Expenditures
II/I
President of the Republic 2.30 1.33 0.58
National 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
The 33% of CG institutions have an O/CE smaller than 50% and cash
expenditures are bigger than obligations, which reflects a better budget execution
performance, it is important to mention that obligations might or not be executed
up to 31 of December 2008, according to the MoF’s Circular 8 . Most of funds not
8
Ministry of Finance: “2009 General Budget of the State”, MoF, Minister Cabinet, August 27, 2008, Dili,
Timor-Leste.
spent by the December 31 of 2008 will not be carryover as it was the previous
practice, except for some capital projects.
One could say that institutions that having smaller budgets means having a
better administrative management than bigger institutions. However, the lack of
capability, identified by various international organizations, points out that not
only small budgets appropriations but also larger ones have difficulties to spend
in all public sector. Consequently, lower and higher budget appropriations are
difficult to spend due to a lack of management and administrative support.
40.00
35.00
30.00
Actual Expenditures
In millions of US$
25.00
20.00
15.00
10.00
5.00
-
- 20.00 40.00 60.00 80.00 100.00 120.00
Appropriations
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
s xy
using rxy = .
sx s y
In the Tables 8 and 9 show that smaller institutions (less than ten millions
dollars appropriation) have stronger lineal and positive relationship (CC = 85%)
between budget appropriation and expenditure for 2008; in turn larger institutions
has a weaker positive and linear relationship between the two above mentioned
variables (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 others 10 .
Table 6
Timor-Leste: Appropriation and Institutional Cash Expenditures
For Small* Institutions, In Percentage
2008
% Cash
Actual
Budget Expenditure/
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.
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.
Table 7
Timor-Leste: Appropriation and Institutional Cash Expenditures
For Large** Institutions, In Percentage
2008
% Cash
Actual
Budget Expenditure/
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.
The NSB mounts US$681.1 millions for 2009; financed by US$588.8 millions
transfer from the PF; $407.8 according to ESI calculations done by MoF and an
extraordinary transfer from of US$181.2 millions 11 . In addition, the MoF
estimates domestic tax collection of US$84.2 millions plus US$6.9 millions stem
from transfers of autonomous agencies. In another words the 86.5% of the
resources that finances the 2009 NSB are coming from the PF and 12.5% from
domestic taxes and transfers. The MoF reports that at the end of 2008 the
Treasury shows a balance of US$212.9 millions, and the 2009 Budget would
include US$178.2 millions.
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.
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 local
marine, among others. The Ministry of Infrastructure would spend US$85 millions
on the construction of a new electric power plant, transmission lines,
transmission network and supervision.
VIII. RECOMMENDATIONS