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 on

developed and developing small open economies as well. According to the
International 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 reduce
economic activities in developing countries through noteworthy exports
reductions. The WEO projections of GDP growth rate points out a slowdown from
8% in 2008 to 5% in 2009. On the other hand, international oil prices (West
Texas Intermediate, WTI) would also slowdown insofar as advanced and
developing economies GDP growth rate levels would not be as high as they were
in past recent years, affecting the main production sector of Timor-Leste.

Many countries have laid down countercyclical strategies seeking to stop

economic crisis from spreading out. In this regard, many of them have submitted
to consideration of their legislative bodies rescue fiscal packages to avoid GDP
shrinking, unemployment, and higher inflation rates. Timor-Leste’s authorities
would like to take similar steps as in major developed countries; however
developing economies, especially small open ones, have not an articulated
domestic production sector; instead supply is satisfied significantly from abroad
(imports), impacting negatively on trade and current accounts, as well as on GDP
growth rate, employment, income distribution, and poverty.

∗
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

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%) 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.

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% of
non-oil GDP. The GDP depends heavily on oil/gas exports, which would be lower
in 2009, due to world recession of developed economies are facing since the
financial meltdown during the second half of 2008. According to the World
Economic Outlook Update of the IMF 2 , 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.
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.

Up to September 2008 domestic tax collections was $42.6 millions, $4.7

millions per month, at this pace domestic tax collections 3 would end up around
$57 millions in 2008. Expecting $84.2 millions in 2009 in domestic taxes means
an increase of tax collections of $2.3 millions per month, in other words $7.0
millions per month, which is a significant higher target and during a period within
which 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 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.

Assuming the government would pursue a similar expansive fiscal policy,

three basic scenarios were calculated considering different international oil
prices, 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 TL’s future
petroleum income.

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

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. Author’s calculations

The Figure 2 shows that TL’s petroleum wealth would be higher

considering an international oil price of US$45 p/b with a prudent fiscal policy
which only withdraws 3% from petroleum wealth. The black line simulates the
referred PW, meanwhile the lines green, red, and blue reflects a lower petroleum
wealth with similar and higher than 3% consider in a conservative fiscal policy
scenario.

As can be seen in Table 1, in 2023 TL’s nominal petroleum wealth would

end up in US$17.4 bn in Scenario III considering US$60 p/b, when in average
the 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 the
same year, US$14.1 bn, in another words US$3.2 bn lower than the Scenario III.
It is important to notice that the long run sustainability of fiscal policy can be
seriously affected by swinging international oil prices, consequently affecting the
sustainable savings path proposed by the Petroleum Fund Law (PFL). Therefore
local authorities should be prudent setting public expenditures ceilings.
 Table 1
Nominal Petroleum Wealth
In Millions of US$
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 16,115.27 18,038.56 19,975.07
2011 15,899.70 17,639.70 19,695.26
2012 15,698.62 17,211.83 19,424.64
2013 15,505.47 16,754.35 19,164.71
2014 15,322.98 16,554.33 18,930.15
2015 15,151.97 16,367.05 18,710.83
2016 14,991.73 16,191.73 18,505.83
2017 14,842.47 16,028.58 18,315.42
2018 14,703.93 15,877.33 18,139.25
2019 14,575.62 15,737.43 17,976.67
2020 14,457.29 15,608.61 17,827.35
2021 14,348.65 15,490.54 17,690.91
2022 14,249.22 15,382.68 17,566.68
2023 14,158.70 15,284.71 17,454.30
Source: Ministry of Finance. Author's calculations

If these three scenarios are recalculated using a more conservative fiscal

policy (3% withdrawing from PF), the Timorese economy would have more
resources to face increasingly financing annual budget accordingly to growing
needs of one of the fastest growing population in the region (4%) 4 . Table 2
shows 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 over
US$4.0 bn, indicating that a conservative fiscal policy lays the country in a better
position to face future challenges.

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

Figure 3. 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

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

Source: Ministry of Finance: Orcamento Geral do Estado, Livru 1. Author’s calculations

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

A. Budget Execution 2008

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.

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 more
important than capital and development outlays. Bear in mind that recurrent
expenses have once and for all impact on domestic global demand, which
contrasts with capital and development that has a long lasting effect on the
economy due to the fact that enhances capacity production, creating new
productive jobs, and increasing demand.

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.

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

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

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

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 CG
institutions have an execution around 30% of their appropriations for the same
year. The Ministry of Infrastructure has the lowest budget execution (18%),
followed by the Ministry of Justice (29.9%). Only 35% of the institutional budget
executions are nearby the execution average (56.7%), and 65% are under or
over the average executed budget. For those institutions reporting budget
execution over the average (56.6%), in general, have spent two thirds of the
approved budget at the time the MoF is reporting nine months of budget
execution; considering proportional expenditure during the year these ministries
should have spent around 75% of their budget by the time of this report from the
MoF, however they are under this amount.

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.

Figure 4. Central Government Budget Execution, 2008

100.00
90.00
80.00
70.00
In Millions

60.00
50.00
40.00
30.00
20.00
10.00
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Source: Ministry of Finance. Budget Execution Report, September 2008.

The 47.5% of the CG institutions have a budget execution ranging

between 36.7% and 86.7% of their appropriations for 2008 budget 7 . There are
some institutions that perform far beyond of the average budget execution, such
as Ministry of Foreign Affairs, Ministry of State Administration and Territorial
Management, and the National Elections Commission, these institutions can be
considered as outliers. Doing so and recalculating the sample mean as well as its
standard deviation, budget execution overview changes as follow: 44.3% of the
CG institutions should have a budget execution raging 30% and 70%.

⎛ xi − x ⎞ for institutional budget execution, it is obtained that z = 1.38, in

Calculating a z-score ⎜ z =
s ⎟⎠
7

⎝
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.

Another way to look at the budget execution is through the relationship

between initial appropriation and expenditure. It is expected that institution which
has higher appropriation execute higher amount. In this regard, it was confirmed
there is a positive and lineal relationship between budget appropriation and
budget executed 9 ; consequently higher appropriations conducive to higher
expenditures (Figure 9). However, this relationship seems to get relatively
weaker as the size of budget allocation grows bigger. The Figure 9 that relates
appropriations and budget execution shows a concentration of points at lower
execution levels, suggesting that smaller institutions perform relatively better than
those which have bigger budget allocations.

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.

Figure 5. Appropriation and Expenditure

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

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
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.

On the other hand, in the Budget Execution Report, January-September,

2008, there is not indicators that can be used to determine if public investments
are 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 properly
forward 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 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.

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 in
expanding domestic production capability, instead the fiscal policy is devoted to
stimulate consumption. Wages and salaries and goods and services as well
represent 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.
 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

1. Bearing in mind the 2008 institutional execution levels reveal a significant

lack of an efficient capacity of spending of the Timorese public sector, the
financing 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 to

withdraw lesser amount from the PF. Therefore, for this year the PF
withdrawal should be US$229.6 millions instead of US$407.8 millions.

3. It is highly recommended that the government should devote efforts in

gathering international experts in development economics and poverty
reduction 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 to

spend efficiently. In this respect it is crucial to train each financial
department of each ministry to achieve properly an annual budget
accordingly to NDP.