Cosme da Costa Araujo
2014's budget and its objectives. The Government of Timor-Leste's 2014 budget was approved by the National Parliament in January 2014 with an unanimous vote, the country's ever "concensus budget approval" since 2002. The PM in his closing remarks stated that the budget will serve one common objective - promoting an inclusive, equitable and sustainable growth in Timor-Leste. The total budget approved for the year totaled US$ 1.5 billion. This amount, the Government argued, reflected the needs spelled out in the Timor-Leste National Development Plan. These needs included (1) investing in capital development (health, education and professional training, (2) developing basic infrastructure, (3) achieving an integrated, inclusive and sustainable economic growth (in agriculture, tourism, petroleum industry), (4) consolidating institutional framework for good governance, peace and estability.
Budget execution is basically the "mobilisation" of scare resources (budget = money) to achieve the long-term aforementioned "one common objective" addressed to by the PM and disaggregate short to medium terms "needs" spelled out in the Timor-Leste NDP. It is clear that budget execution is neither one of the "common objectives" nor "the needs". Budget execution is actually the mean to achieve the common objective. It is the mobilisation of resources to achieve the Government's objective. The problem arises when budget execution is seen as an objective per se, not as a mean towards an end and worsen when performance is measured on the execution rate. If it is the case, decision makers and managers will be short-sighted and lost sight of the bigger picture - common objective.
A disappointed execution rate. The PM Xanana Gusmao, has recently convened an extraordinary meeting with members of his government, in Timor Plaza, to discuss the progress on the 2014's budget execution. The meeting was widely reported on the evening news in TVTL and local newspapers.
The meeting was highlighted by a presentation delivered by the Ministry of Finance on the progress of the 2014's budget execution. As it was widely expected, the report pointed out that the overall Government's spending, as of first quarter 2014, was only 15% of the total approved budget of $1.5 billion. Budget Law clearly states that if the execution rate is less than 80% by the end of July, the Government has to submit a rectification budget. The PM realised that rectification budget will likely to take place and he insisted on not allowing for any increase.
The PM was obviously furious. He, in a mix of diplomacy and sarcasm, asked those who did not perform well, in term their poor budget execution, to volutarily tender their resignation. Well if he is in charge, obviously he is, he should have just fired them.
The usual execuse presented by the ministries was that the Ministry of Finance, in particular the free balance system, slowed down the payment process and therefore affected their execution. The blame, as they argued, lied in the Ministry of Finance, not them. The PM, of course, did not buy it. The line ministries should not blame others, but themselves.
The usual execuse presented by the ministries was that the Ministry of Finance, in particular the free balance system, slowed down the payment process and therefore affected their execution. The blame, as they argued, lied in the Ministry of Finance, not them. The PM, of course, did not buy it. The line ministries should not blame others, but themselves.
Execution rate - a wrong performance measurement. I guess members of the goverment left the meeting trembling. They had their second chance after Dare retreat. They are now under pressure to impress their boss and prove to him that they "can" do the job they are tasked to do, not on their respective portfolio, but on the budget execution.
In the context of what I have just described, budget execution was seen as one of the targets/goals/objectives. The government not often, but always, measures its peformance on the budget execution. A good execution rate means a good performance and vice versa.This is, in my view, a wrong performance measurement. The problem is once execution rate is set as a goal, the line ministries will focus all their efforts on the quantity rather than the quality of the execution. As members of the government is under pressure, especially after been repriminded by their boss, they will spend the still unspent money on anything (quantity) as long as the execution rate is met, regardless of whether or not such spending bring benefits and sustainable (quality). When a wrong performance measure is used, it is the quality of spending that suffers, despite the execution rate is good. Such performance measurer does not capture the quality of the performance (output). In the theory of principle and agent problem, if the existing performance measurer is continued to be used, it could cause disastrous consequences, with managers, in this case, ministers maximising their own benefits, and sacrificing their clients's needs or the wellbeing of the people of Timor-Leste. This is what we should try to avoid.
Facing dilemma - pressure to spend reclessly. If there is no concensus on a good performance measurement, and facing with the risk of being fired for not executing the budget, members of the Government would be opted, for various reasons, to spend recklessly on anything as long as their targeted budget execution is met. In fact, in the last few days, I started see some ministers started to do "funny things". A lot of meetings, seminars, and workshops are being taken place. Thousands dollars of cash are being handed out and spent on organising "events". Local newspapers are being filled with not news, but advertisements for more recruitments, and projects tendering and even some, I read on today's paper proposing to buy more BMWs. And I just saw a banner yesterday on my way home informing the public to participate in the upcoming parade or carnavals (well another one Carnaval after the crappy one few months ago?). And I expect that more "funny things" will happen in the next few weeks. I gave all of these examples just to point out that when facing with dilema, and since there is no concensus on a proper performance measurement, ministers are under presssure and will be more incline to spend, even reclessly, on anything, as long as the targeted execution rate is met.
Facing dilemma - pressure to spend reclessly. If there is no concensus on a good performance measurement, and facing with the risk of being fired for not executing the budget, members of the Government would be opted, for various reasons, to spend recklessly on anything as long as their targeted budget execution is met. In fact, in the last few days, I started see some ministers started to do "funny things". A lot of meetings, seminars, and workshops are being taken place. Thousands dollars of cash are being handed out and spent on organising "events". Local newspapers are being filled with not news, but advertisements for more recruitments, and projects tendering and even some, I read on today's paper proposing to buy more BMWs. And I just saw a banner yesterday on my way home informing the public to participate in the upcoming parade or carnavals (well another one Carnaval after the crappy one few months ago?). And I expect that more "funny things" will happen in the next few weeks. I gave all of these examples just to point out that when facing with dilema, and since there is no concensus on a proper performance measurement, ministers are under presssure and will be more incline to spend, even reclessly, on anything, as long as the targeted execution rate is met.
A change on performance measurement. The ideal solution to this problem is to change the existing performance measurement (execution rate) to a more appropriate measure (quality of the output). Well it might take time to adjust when performance is measured on the quality, not the quantity of the job performed. I would rather prefer to see a few well done jobs than a thousands "crappy" jobs.
Scarce resources should be wisely spent. What the ministers (who play the role of both decision makers and managers) should do is how to allocate scare resources that they are given to their best use, taking into account institutional constraints that they are facing. Making sure that every dollar spent is count and worth. Going forward, ministers' budget planning has to be more realistic in term of adjusting to their execution capacity and most important of all the absortive capacity of the economic as a whole. This year experience should be a reference point and lesson learned for next year budget.
The threat of resource curse is eminent if we continue the current path including not changing the existing performance measurement. We do not want to waste our precious and scare resources. What we really want is to make sure that every dollar spent is worth and sustainable so that it can benefit not only current, but future generation as well.
