Poverty-Growth-Inequality Triangle in Timor-Leste

Poverty-Growth-Inequality Triangle in Timor-Leste

*Cosme da Costa Araújo

April 2017

The President of Timor-Leste recently criticized the executive arm of government’s development strategy. He argued that it is contributing to the “widening gap between the rich and the poor”. He said it is unsustainable and therefore it has to be changed. The President’s concern is understandable. China’s experience has showed that despite growth that helped lift hundreds of millions of people out of poverty (Wan, 2008), the benefits have not been shared fairly by everyone. Inequality has risen at a much faster pace than anticipated (Wan, 2012).

However, the evidence suggests otherwise. The recent Timor-Leste Living Standard Survey (2015) showed that over the period 2007 - 2014, poverty has reduced by 9% using the national poverty line or by 16% using the international standard. Inequality, measured by Gini Coefficient, is relatively low by international comparison. It was estimated at 0.29 for 2014. Multidimensional poverty measurers also showed improvement in access to basic services, education, health, housing, sanitation facilities and drinking water.

Coincidently, the 9% poverty reduction, albeit small but not insignificant, seemed to coincide with the double-digit economic growth Timor-Leste experienced in the past few years since 2007. It indicates that that the current development strategy (e.g. frontloading policies and social transfers) helped increase the purchasing power of the poor households. Government expenditure on human capital and infrastructure has also had a positive impact on poverty reduction in Indonesia (Juswanto, 2010).

No one knows this country better than the President himself.  His criticisms could be based on the realities he encountered during his visits to the 442 Sucos. And these realities are often not fully captured by the scientific research. But the President’s concern is a wakeup call for us to learn from the mistakes of the other countries.

While much is currently being done to address poverty and inequality, to ensure that no Timorese is “left behind” as the President put it, the Government needs to create an enabling environment for business. Investments in education and health need to be increased. Todaro and Smith (2006) found that such investments will generate higher future income. It equips people with the skills they need to fully participate in the economy and in society (World Bank, 1995). To put it simply, education helps the poor break out of the of the poverty trap. To avoid the Indonesian experience of subsidizing the rich through spending on higher education, these investments, including other social policies, need to be targeted, conditional and sustainable.