Government invests to kick start development
*Cosme
da Costa Araujo
Timor-Leste’s 2015 budget
is currently being discussed in the National Parliament. Lawmakers unanimously
approved “the generalities” last week and they will continue to discuss “the
specifics” over the next two weeks until the whole budget discussion concludes
on the 19th December 2014.
A great achievement starts with a dream
Timor-Leste once dreamt of
independence, of which then so-called “realists” saw as an impossible dream.
Now Timor-Leste dreams of development and skeptics see it as an unrealistic
dream. The truth is that every great achievement is a dream before it becomes
reality. It requires a plan, hard work and persistence to make a dream comes
true.
As with the other previous
year budgets, 2015’s budget will continue to focus on funding Government’s
strategies designed towards achieving Timor-Leste’s aspiration to transition
from a low-income to an upper-middle income country by 2030 with a prosperous,
healthy and educated population. The Strategic Development Plan (SDP) sets outs
“a pathway” to make this dream come true. In doing so, the Plan aims to develop
core infrastructure, human resources and economic development in priority sectors
such as agriculture, tourism and oil and gas.
Petroleum Fund is the
cornerstone of the Government’s policy for economic development. Most
Government’s investments were financed by Petroleum Fund with additional
financing from domestic taxes, loans and donors’ assistance. The Petroleum Fund
is a fiscal tool that helps to manage petroleum revenues wisely to benefit both
current and future generations. By doing so, it plays the roles of both saving
and stabilizing mechanisms. For the former, the Petroleum Fund ensures that
future generations have an equitable access to and share of the nation’s
wealth, and with the latter it helps to minimize budget volatility and ensure
macroeconomic stability.
Over the last ten years,
the Government executed $6.4 billion out of the total $8.6 billion budgeted.
The Petroleum Fund financed $5.5 billion of that investment (Estimated Sustainable
Income + Excess Withdrawal). Of the $1.7 billion in excess of the ESI to be
withdrawn from the Fund, $1.2 billion was executed. Not withdrawing the full budgeted
amount is not a bad thing. The Government is aware of the opportunity costs
associated with parking the unspent amount in the Treasury account, therefore
money is withdrawn only when it is needed and left in the Fund as long as
possible to earn a higher return. If none of us busy “facebooking”, the alleged
$1.7 billion unaccounted for would not have come up.
The rationale behind
withdrawing temporary excess withdrawal, which is the Government’s
“frontloading” policy, is to fast track the development of basic
infrastructure. Temporary excess withdrawals are necessary to ensure major
investments in building important basic infrastructures and human resources in
the country. Big investments in these two areas are the only way to raise
productivity and promote job growth in the long-run. Of the total $2.4 billion
budgeted for Infrastructure Fund, $1.3 billion was withdrawn from the Fund and
$1.2 billion was executed. The unspent amount was rolled over to the next
budget year.
It is a natural process
where “at the first development stage, Government takes the leading role to get
the investment going”, especially at the time when private sector was “still
fledging and not yet ready to assume its leading role as driver of the economy”.
The investments in infrastructure and human resources benefit both current and
future generations alike. Once most of the necessary infrastructures are in
place, the Government’s capital investment can then be reduced. The
Government’s fiscal policy would then be for total expenditures to equal
domestic revenues plus ESI. With Petroleum Fund’s assets diversified into
return seeking assets to earn an average long-term real return of 3%, fiscal
policy will be aligned with investment policy, leaving the Fund’s capital
intact for the foreseeable future.
A lot was done in ten years
Arguing that all of the
Government’s investments so far have gone down the drain is simply unfair and
misleading. Being independent for just 12 years old, Timor-Leste is “making
significant progress in such a short time in a post-conflict society”. Of
nearly $9 billion spent by donors in Timor-Leste between 1999 and 2009, less
than 10% benefited Timorese and what Timor-Leste left with were thousands of
unread reports and a crisis. With about two third of that amount Timor-Leste
has accomplished a lot. Ramos Horta, former President of Timor-Leste, agreed
when he observed that “not all was bad and a lot was done in ten years”.
A peaceful and stable country - Timor-Leste managed to
say “goodbye to conflict” and achieve peace and stability in just a short
period of time. Without peace and stability there can be no development.
Significant progress made to date would not be possible without the
Government’s effort to consolidate peace and stability. Timor-Leste cannot
afford to lose the momentum and the benefits forgone while dwelling with
resolving the conflict. Therefore, the Government will continue to maintain
peace and stability at whatever cost.
An impressive economic growth - Timor-Leste’s economy
has continued to show impressive double-digit growth since 2007, which prompted
the Economist to name Timor-Leste among the nine fastest growing economies of
the world in 2011. In addition, Timor-Leste has one of the world’s most investment
friendly environments. Apart from lower tax rate and business costs, the ease
of doing business improved considerably as evidenced by the recent 2014’s WB
Doing Business Report. The improvement was attributed to the creation of SERVE
– the one-stop-shop for starting up a business.
A private sector starts to take hold - the Government has
issued 163 certificates of investment for 112 foreign investors and 51 national
investors. Investors from 18 countries are investing in construction,
hospitality, trade, transportation, tourism and many other industries, creating
4,524 jobs for the Timorese. Private sector growth has translated into domestic
revenue that has grown strongly in recent years. A total $900 million was
collected from domestic tax in the last ten years, averaging about $100 million
per year. The amount forecasted to be collected in 2015 amounts to $170
million, 62% higher than the amount collected in 2011. Agriculture production,
measured in real term, increased from 0.30% in 2008 to 14% in 2012.
An improved living standard - the 2011’s UNDP Human
Development Report placed Timor-Leste in the medium human development category.
Timor-Leste ranked 120 out of 169 countries and moved ahead of other countries
in the region like Cambodia, Lao, and Myanmar and ranked higher than PNG, and
most Sub-Saharan African countries. Household consumption increased from 22% in
2007 to 53% in 2013 and further compounded as inflation falls to a record low
averaging at 1.3% in the first 2 quarters of 2014. Average
life expectancy increased from 57 in 2005 and 67 in 2014.
An improved health service - infant and child
mortality had been halved. Incidences of malaria and dengue decreased
significantly and the World Health Organization (WHO) honored Timor-Leste’s
success in 2014. The same world organization also considers Timor-Leste to be
free from leprosy. The percentage of children with below average weight fell from
46% in 2001 to 38% in 2013. The
ratio between medical staffs and patients also improved. About
710 Timorese medics work in districts, of which 442 were allocated to Sucos and
Aldeias and the rest were distributed to regional hospitals. In the next 2-3
years, Timor-Leste will have more medics than any country in Asia. In term of
infrastructure, 122 health facilities across 13 districts were built and
rehabilitated.
An improved education accessibility and professional development -
the percentage of children attending school increased considerably from 66% in
2007 to 92% in 2013. By the end of the decade, 60% of young children from the
poorest families were in school. As of 2014 Government provided scholarships to
about 2,571 Timorese to study in various universities in the country (52%) and
overseas. In addition, about 16,931 Timorese attended professional technical
trainings provided by training centers in the country (96%) and overseas. A
total 311 schools across 13 districts were rehabilitated and a set of 50,000
chairs and tables were purchased and distributed and the remaining 50,000 will
be distributed earlier next year.
A better accessibility - more
than half of the population has access to electricity, which often make people
in the other side of the borders are jealous of. Household access to
electricity improved from 22% in 2007 to 53% in 2013. Numerous irrigations
schemes, water and sanitation, kilometers of national and rural roads, bridges,
markets were rehabilitated and constructed and preliminary studies were done
for the construction of ports and airports.
Governments’ social programs start to pay dividend -
many recipients can now afford to send their children to schools, even to
private schools in and out of the country, rebuild their houses, and improve
their daily dieta.
A bumpy road still lies ahead
Despite all of the significant
progress made to date, the quality of the investment still needs to be
improved. As a dollar spent cannot be spent twice, we therefore need to make
sure every dollar spent counts. The Government has taken necessary measures
through “organization of procurement and oversights of procedures to ensure
better quality minimize waste”.
The ride towards achieving
the dream of becoming an upper middle-income country with a prosperous, healthy
and educated population will be a bumpy one. But just like the road to Maliana,
things are improving and our journey is becoming smoother. A lot of challenges
still lie ahead and they cannot be overcome in a single generation. Just like
Rome, Timor-Leste cannot be built overnight. It may not be us but our children
and grand children that will enjoy the full fruit of the development. The
Government’s budgets and Strategic Development plan meet our responsibility to
ensure that they have the best for themselves.
