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Submission of Luta Hamutuk on the Law of General State Budget of 2011 Civil Year 10 January 2011

To: Your Excellency Mr. President of Commission C, National Parliament, RDTL

Subject: Submission of Luta Hamutuk on the Law of General State Budget of 2011 Civil Year.

 


On 15 November 2010, Government submitted General State Budget Proposal for Civil year of 2011 to the National Parliament. As an Institution that during which has been monitoring General State Budget, Luta Hamutuk was invited to the meeting with your Excellency President of the Commission C and Distinguish Members of Commission on Economy, Finance and Good Governance, and presented Luta Hamutuk’s views over the Law of General State Budget 2011. In the opinion of Luta Hamutuk, would present on a framework of macro-economic, views on General State Budget 2011, and also what we had founded so far during implementing activities in the villages and districts. Luta Hamutuk will also convey some strategic opinions as fundamental base for the budget planning.  

A 2011 General State Budget Proposed Law which the Forth Constitutional Government presented with the amount of US$985 Million Dollars and another amount of US$195 Million Dollars from Development Partners. Therefore, General State Budget in the civil year of 2011, of total amount US$1.180 Billion Dollars.

MACRO-ECONOMY FRAMEWORK AND FISCAL POLICY 2011

In the following table, Luta Hamutuk would like to analyse basic data, which Government presented in the Book 1 on panorama of domestic economy in 2011.

Table 1: Framework of macro economy and fiscal policy 2011.

No

Prediction

EME & PF

1

Real Economic Growth real (%)

11.2

2

Inflation (year by year/ %)

4

3

Additional Recurrent Budget (%)

1 – 10

4

Oil Price (US$/barrel)

68

5

Oil Production (thousand barrel/day)

107 – 120

6

Discount Tax (%)

4

According to the table 1, shows a prediction of economic growth, which is very optimism and higher than Southeast Asian Countries given that Timor Leste clustered as emerging development nation.

Economic Growth in 2010 with 9.5 %, the growth is very optimistic but it does not reflect the condition of the people of Timor Leste, such as limited of jobs market, high poverty, increase life expectancy but not showed significant progress in Human Development Index (HDI). When economic growth is not indicating significant changes this growth is considered false (artificial) such a 9.5% economic growth, but what the reality every year, there are 15.000 – 20.000 job seekers and according to MDG reports 2009 showed household earning less than $0.55 per day and 42% people of Timor Leste lives under poverty line.

Prediction of inflation year by year increased 4%, this prediction is very confident because according to National Directorate for Statistic at Ministry of Finance stated inflation rate in 2009 was 0,7%, and also it is predicted in 2010 will be 4.7%. However what was the reality in June 2010 showed that the inflation rate was 14.1%. This pointed out that the Government has made changes of estimated inflation rate without presentation of national products; therefore it is may possible to consider that this prediction is false.

Luta Hamutuk thinks that Proposed General State Budget of 2011, Government increases public expenses in infrastructure in the plan for supply commodities in the country (national products), which could keep consistently high inflation rates. Therefore there is a need to have fiscal policy that could able to resolve inflation problem such as improving infrastructure, distribution of foods; for example rice distribution during which has been very problematic and also private sector investment that could prevent of high inflation. Monetary Policy is indeed needed in order to balance fiscal policy though we have not have our own currency, but Government through the Banking and Payment Authority (BPA) or future Timor Leste’s Central Bank to generate a framework for interest rates in the bank which will provide a good environment for the community and private enterprises, and also to abolish groups of private companies which hold financial amount and always wanted to consume. What the reality shows in Timor Leste when people saving their money in the bank they do not get any interest instead there is always deduction cost for different kind of items, including company that have loan at the bank with high interest rate.

STRUCTURE OF GENERAL STATE BUDGET 2011

Following, Luta Hamutuk would like to present a comparison between 2010 and 2011 General State Budget from the Government to have a basic understanding on the changes made in the budget for the two years.

Table 2. Budget Structure for 2010 and 2011 (million dollars).

Revenue

2010

2011

Increases/

Decreases

%

CFTL

837.9

653.4

 

 

Infrastructure Fund

-

317.3

 

 

Human Capital Fund

-

  25.0

 

 

Total General State Budget

837.9

985.0

147.1

*17.56%

Development Partners

256.8

195.0

(61.8)

 

Combine source of Fund

1,094.7

1.180,0

85.3

7.79%

In the 2010 and 2011 General State Budget comparison in the table 2, highlighted there is a increasing of amount *US$147.1 millions, (increasing of 17.56%.). However, what important Government needs to present is about what had been achieved with the budget of last year. So that we all should know that the coming budget will reflect priorities program of 2011. In the 2011 budget structure, indicated two special funds, which allocated with total amount of 342.3 million dollars according to book 1, under Prime Minister with provision of help from National Development Agency (ADN).

These two funds are indeed strategic, but Luta Hamutuk asks National Parliament for details explanation of funds utilization because in the general presentation was not indicated what to achieve, including what is the volume of the projects and others. There was also no detail explanation of why was development capital funds from each ministry were moved to infrastructure and human capital development fund. Because we are very concern on the roles of competent ministries, which obviously should has the competency to implement these two funds. There is very strong indication that these Ministries may have not been functioning well. And as such, it is no longer necessary to maintain Ministers whom have not bee doing well what they supposed to do under their duties.

Specific Funds and National Strategic Development Plan (PEDN)

In relation to implementation of National Strategic Development Plan, and Government will propose establishment of the two specific funds which is a huge of money, such as fund of human capital development total amount of UFSD 25 million dollars under services category and infrastructure fund of total amount USD 317.306 million dollars under capital development expenses. According to explanation from the Government the funds aimed to implement National Strategic Development 2011-2030. Within this proposal the Government will create national development agency to control and administrative council will regulate and decide projects priorities.  

It is true that under the provision of article 32 of budget and financial management law allows Government to create specific funds. In regards to long-term interest, Luta Hamutuk appreciates the two specific funds, as the creation of the funds is indeed for the long term strategic to ensure sustainability of national development. Luta Hamutuk also calls upon the Government and National Parliament for serious attention on this investment to ensure whatever expenses made from the State should have a long-term spirit as well as guarantees its sustainability. Nevertheless, Luta Hamutuk also would like to express that Government should bring the National Strategic Development Plan to the National Parliament for approval prior to use National Strategic Development Plan as basis for nation development and will be used for budget planning. And after all Luta Hamutuk would like to express that the funds which have logical implication from National Strategic Development has not been able to permit as fundamental policy for national development.

Luta Hamutuk is also concern over the responsible entities to manage this specific fund which has been mentioned in the law of financial management and budgeting (article 32 chapter 4.6). Based on the Government’s plan will create National Development Agency (ADN) will have the responsibility of evaluation, monitoring and supervision on project implementation. What is being the concern of Luta Hamutuk is that the agency’s regularity to do its function. Because although the agency has been planned in the budget plan but there has not been a proper law to regulate its functioning. Therefore Luta Hamutuk also has concern this national development agency has raised irregularity.

Luta Hamutuk would like to ask National Parliament to have the Government’s clarification and details explanation over human capital development fund which is allocated of USD $ 25 million dollars, in particular about USD$ 3.668 million dollars for other types of formation. Government should explain clearly on this formation program in what areas. Because the budget allocated to this program has the same value or amount that allocated to other formation program such as technical formation. Above all, Luta Hamutuk would like to express that Government should not create budget or fund without having detail description.

OPINION OF LUTA HAMUTUK ON THE PROPOSAL OF GENERAL STATE BUDGET 2011

Revenue of the General State Budget 2011:

2011 General State Budget proposal its real revenue is USD$ 844.1 million dollars, it means 86%, composition of revenue shows there is negative variant of USD$ 140.9 millions (-14%) which it will be completed from consolidated fund of USD$ 141 million dollars. Within this revenue source will also highlight strong dependent to petroleum fund with 75%.

Table 3: 2011 General State Budget Revenue Source.

 

Revenue Source

Amount

(US$ millions)

%

Total amount in the proposal  (US$)

1

Petroleum Fund

734

75%

 

2

Domestic Tax

91.2

9%

 

3

Financial autonomy Agencies

18.9

2%

 

 

Total real revenue (US$ million)

844.1

86%

 

 

Variant  (negative/-)

-140.9

-14%

 

 

Total (US$ millions)

844.1

100%

985.0

Revenue resource of financial autonomous agencies, in particular Equipment Management Institutions were generate revenues since 2008-2010 (zero) to the State, and therefore State provides subside (100%). In the Proposed budget 2011, Government allocates subside of total amount USD$ 1.318 millions. Although we all knew that Equipment Management Institutions provide rent for the State equipment to the private sectors. We would like National Parliament to ask Inspector General to hold investigation on Equipment Management Institutions.

 

Luta Hamutuk asks National Parliament to give serious attention to the consolidated fund, and asks where the money was coming from. Because Government should not consider unexpended money from 2010 budget as source of revenues. Whereas these revenues obviously come from economic activities or other source of revenues, which reflected multilateral and bilateral funds. So, if the money is coming from the efficiency execution from 2010 budget it needs comprehensive explanation of activities or projects that gained efficiency and how much money as returns.

Change of Methodology for a calculation of Estimated Sustainable Income (ESI) will affect sustainability of the fund; commenced in 2010 General State Budget, Government had changed methodology for calculation of ESI, the changes made created new methodology for calculating oil price from West Texas Intermediate (WTI), to Information Energy Administration (IEA), which has been used by the Government. The changes affect oil prices from low case anterior calculation to interval between low and reference case, of which USD$ 68/barrel (IEA). The changes had also affected oil and gas reserve from Bayu Undan well, which was from USD$ 16 billion dollars increased to USD$ 24.47 billions including another USD$ 4 million from Kitan. So far Luta Hamutuk has not been able to get information from the Government on the increasing of oil production, therefore Government has been taken lots of money from the change of methodology for calculating, which in the past it was said has been use from WTI (low case oil price). It is to mention that when we use IEA will increase of discount rates from anterior of 2.6% to 4%.

As of this changes, Government in the proposed General State Budget 2011 will draw 3% from petroleum fund with total amount of USD$ 734 million dollars.

Luta Hamutuk is very concern on this change of methodology that affected oil price and discount rate. The change based of the input from International Monetary Fund (IMF) and Ministry of Finance explained that change of calculation pattern is Sufficient Prudent. The law of petroleum fund underlined it should prudent when doing calculation. What it means is that whatever changes made it should be accordance to international best practices and protection of petroleum fund sustainability. Adding to this, raising further preoccupation or concerns that in 2010 when Government had made changes of methodology and drawing-above ESI it is also making new calculation of ESI such as from USD$ 13 millions dollars (book 1, pg 47). When the changed not achieved based on estimated price, will give huge impact into ESI and oil resources in the future. Therefore, Luta Hamutuk recommends maintaining the methodology, which was used, in 2010 General State Budget.

Expenses of the General State Budget 2011:

Accordingly, based on the Government statement that this year will reduce expenses in services (please ready overseas travel); so that members of Government particularly Ministers and Secretary of States to exercise full attention to domestic travel, including members of National Parliament. But in the contrary, what is showed in the table 4, we had found budget for services is increased to USD$ 1.7 million dollars compare to 2010, and it is absolutely overseas travel will increase. 

Table 4: Expenses of the General State Budget 2011.

 

Types of Expenses

Amount

(US$ millions)

%

1

Salaries and Wages

115.909

12%

2

Services

270.459

27%

3

Public Transference

164.456

17%

4

Capital Minor

28.252

3%

5

Capital Development

405.924

41%

 

 Total (US$ millions)

985.000

100%

Because of that, Luta Hamutuk doubts of next year budget execution as Ministers, Secretary of States, including National Parliament will have quite sufficient budget for overseas travelling. What we think off is that it is much better to give sufficient power to ambassadors to exercise more duties and facilitate the head of the Government to establish cooperation along with Ministry of Foreign Affairs and Cooperation and our President of Republic. As so there is no reason why Ministers and Secretary of States and directors are doing overseas travel and signing various agreements without commitment to uphold MoUs which have been signed with other countries where they had visited.

Allocation of districts expenses; Luta Hamutuk would like to present reports on following projects which will affect from the proposed General State Budge of 201 to each of district. When we are doing project mapping, it shows that there are quite few districts still have limited of health and education facilities.

Table 5: Expenses Mapping by each Districts.

District

Pop.

Loc develpt Projects

(US$.000)

Decentralized Develpt Package (PDD I

& II (US$.000)

EP

EPS

ES

Univ

Hosp

CHC

Health Post

San.

Post

Private Clinic

 

SISCa

Aileu

45.512

165

2.145

64

9

4

 

 

4

 

9

1

33

Ainaro

63.206

216

2.491

64

13

4

 

 

1

7

 

3

30

Baucau

111.484

405

2.782

134

29

9

1

1

6

24

 

1

60

Bobonaro

89.787

324

2.478

12

9

4

 

1

6

19

 

2

50

Covalima

60.063

218

3.694

84

13

4

 

1

7

12

 

 

 

Dili

234.331

565

6.044

No data

2

6

9

 

5

30

Ermera

114.635

414

1.28

101

13

4

1

 

6

11

 

4

52

Lautem

65.355

225

5.904

77

9

3

 

 

5

18

 

4

34

Liquica

63.329

152

3.937

51

8

2

 

 

3

17

 

4

23

Manatuto

43.246

157

3.548

48

9

4

 

 

6

18

 

 

29

Manufahi

48.894

183

2.228

65

13

5

 

 

4

11

 

 

29

Oecusse

65.524

236

2.532

46

6

3

 

1

4

12

 

 

18

Viqueque

70.177

101

3.22

86

15

8

 

 

5

17

 

2

 

Total

1.075.543

3.361

42.283

832

146

54

2

6

63

175

9

26

388

In this table: 5 indicates some limitations which districts are facing from universities, hospital, health posts, sanitation and also integrated community health system. We thought with the mapping exercise Government and National Parliament need to give serious attention on public facilities that are still limited in 13 districts.

For example: there is no health post in Aileu District, but there are 9 sanitation posts. There is no explanation of why there are 12 districts do not have sanitation posts. As of that we are calling National Parliament to call attention from the Government particularly Ministry of Health to generate plan for 12 districts that do not have sanitation posts.

In regards to basic necessity (health post) in the table shows that Dili District which have the most habitant in Timor Leste (234.331), but up until now there are only 9 health posts. Based on research of Luta Hamutuk in 2009 showed that health infrastructure facilities in Dili District far from sufficient, therefore with the General State Budget in 2011, Luta Hamutuk recommends to Ministry of Health to allocate budget for more health post based on the necessity of the community to access maximum of health assistance.

In the table also highlighted there are two districts still have no program of community health integrated system such as District of Viqueque and Covalima. And therefore Luta Hamutuk recommends to the Ministry of Health to create budget for Community Health Integrated System in those two districts.

In relations to overseas medical treatment, starting from civil year 2009 Ministry of Health has been allocated total budget of USD$ 1.674 millions dollars and in the following year 2010 also allocated total amount of USD$1.2 million dollars, meanwhile in 2011 will allocate USD$ 3.million dollars. According to Luta Hamutuk Government needs to explain why every year overseas medical treatment is constantly increasing significant. Luta Hamutuk recognises that medical treatment domestically still far from sufficient of facilities and human resources in the specific areas, as of that we certainly still need overseas medical treatment. However, Luta Hamutuk asks Government to start seeking alternative ways of how to completing health facilities in the country at the same enhance human resource capacity in the specific areas (specialist doctor) so that TL should not dependent to medical overseas.  As the projection from the Government in from 2009-2012 with total amount of USD$ 4.924 million dollars create system in the country should had been well developed. But however, the realities showed otherwise, and it is just 3 years only the Government had expended over the projection of total amount USD$ 5.874 millions but Health system in the country system still has not been progressed well.

Local Development Program (PDL)

According to General State Budget proposed for 20111 (no. 3) stressed that Government allocates budget total amount of USD$ 3.5 millions dollars for PDL, but the calculation of budget allocation for PDL based on projects budget allocation for 13 districts only showed amount of USD$ 3.361 million dollars. These budget has showed total variety as of amount USD$ 139 which had no clarification.

In regards to implementation of Local Development Plan at Village level, during Luta Hamutuk’s monitoring had identified implementation of PDL program will not achieve its objective (failure) as Government does not have sincere in the implementation process. Therefore, before to continue PDL, Government needs to make revision for implementation mechanism of PDL, which local authority so far has been facing mechanism of decision making on priorities for the villages, discussion process and decision making. Publicly speaking, it has always been top down decision as limited of budget and also not to abolish priorities coming from villages. Local authorities also have been very concern about transparency in projects implementation; there is no project accountability to the community as there has been no cooperation from community and project executors.  

In the planning process local authorities create their own plan, and Luta Hamutuk asks Government to have technical accompany to village chief and sub-village in process of budget planning as part of capacity building for the local authority to prepare for decentralization when it is implemented in 2014. As local authorities so far they have not had sufficient to make technical plan and therefore it resulted proposal from villages not passed because they do not have a good planning. Asks also to the Government to have sincerity to control the implementation of PDL projects. Because according to Luta Hamutuk in its research on the implementation of PDL in District Aileu and Lautem identified lots of projects have poor quality, no transparency and accountability as lack of control from national.

Decentralized Development Package (PDD)

In conjunction with PDD projects which will implement from Ministry of State Administration and Territorial Management from the capital development that will be allocated to sub-districts and Villages and Sub-village total amount of USD$ 15.5 million dollars and USD$ 28.8 million dollars to Districts that has been proposed in General State Budget 2011. In this proposal there is no clear explanation on authorities at Districts, Sub-Districts and Villages and Sub-village to involve, including what roles they should play for projects management.

Therefore, Luta Hamutuk asks Government to present clear explanation on PDD management projects in particular the engagement of local authorities. We also asks Government through Ministry of State Administration and Territorial Management to presents clear description on PDD’s continuation with total amount of budget USD$ 11 million dollars, that was under transference item. Luta Hamutuk sees the budget structure in particular when doing allocation to Districts to Sub-village has unidentified plan to make public confuse.

RECCOMANDATION FROM COMMUNITY

By this submission Luta Hamutuk would like to convey some recommendations to the competent Ministries in order to get consideration in budget discussion in the National Parliament. Those recommendations Luta Hamutuk identified when realized discussion with community in Liquisa District, Lautem, Suai and Oecusse.

Following recommendations, Luta Hamutuk would like to pass the necessity of the community that has not been covered in the 2011 General State Budget:

 1.      Ministry of Agriculture and Fisheries; ask ministry to create budget for irrigation:

  • District of Lautem, Sub-District of Moro, Village of Ililai. 
  • District of Covalima, Sub-distritu Zumalai, Village of Raimea. 
  • District of Covalima, Sub-district of Suai, Village of Camanasa. 

 2.      Ministry of Education:

  • Pre-Secondary School of Filial in Fatumasi, Sub-district of Bazartete.
  • Additional class rooms at Primary School of Filial Fahilebo, Sub-district of Bazartete.
  • Pre-Secondary School in Village of Leorema Sub-district of Bazartete.

 3.      Ministry of Infrastructure:

  • Electricity in Pairara Village, Aldeia Puno, District of Lautem.
  • Bridges from Pantai Makasar to Usitasaé, District of Oecusse.
  • Clean Water in Usitasaé Village, District of Oecusse.
  • Clean Water to School, Clinic and Villages of Usitasae, District of Oecusse.
  • Clear Water pipe to Bobometo Village, District of Oecusse.
  • Road rehabilitation from Bobometo to Pantai Makasar, District of Oecusse
  • Infrastructure and Facilities for Primary and Secondary Schools in Naemeco Village, District of Oecusse.
  • Road construction in Naemeco, District of Oecusse.                             

Thank you very much!

 

 

                                                              Dili: 15 December 2010

 

                                                                                         Mericio Akara

                                                             Director of Luta Hamutuk

                                                               Tel: (+670) 7263783