2013 State Budget moves toward sanity

This week, Timor-Leste’s Government will send its proposed General State Budget for 2013 to Parliament for approval. La’o Hamutuk appreciates that Timor-Leste will no longer have the second-fastest-growing state budget in the world. The appropriations in the new budget are more consistent with Timor-Leste’s limited oil and gas reserves. As we await the Budget Books which will contains the details, we examine the overall picture.

The Government issued a press release yesterday, summarizing the Council of Ministers meeting which approved the proposed 2013 Budget, which appropriates $1,798 million, as follows:

• $160.3 million for Salaries and Wages
• $461.7 million for Goods and Services
  (including $42.4 million through the Human Capital Development Fund, $8.5 million of which is carried over from 2012)
• $236.5 million for Public Transfers
• $  47.2 million for Minor Capital
• $891.9 million for Development Capital
  (including $752.9 million through the Infrastructure Fund, $444.4 million of which is carried over from 2012).

New appropriations and loans add up to $1.34 million, a significant and welcome moderation of rapid budget escalation.

The above graph shows that the total size of the 2013 budget will be $1.8 billion, about the same as the final rectified 2012 budget. Executed expenditures during 2012 will probably be less than $1.4 billion, so 2013 is still a significant increase in spending.

The biggest change is on the revenue side. Instead of withdrawing $1.5 billion from the Petroleum Fund as was done in 2012, the 2013 budget will withdraw only $1.2 billion. This is 4.6% of Timor-Leste's anticipated petroleum wealth, and is still more than the 3% Estimated Sustainable Income, although it is less unsustainable than the 6.7% the Government withdrew from the Petroleum Fund during 2012. La'o Hamutuk appreciates this move in the direction of fiscal responsibility, and we hope it will continue.

The remainder of the non-oil "budget gap" will be filled with $453 million carried over from unspent money in the Infrastructure and Human Capital Development Funds at the end of 2012. The Infrastructure Fund began operation in 2011 and had $132 million left at the end of that year, which was carried over to  2012. During 2012, the Government appropriated $707 million more for the Fund to finance ambitious, multi-year, mega-projects. However, only about 14% of the non-electricity Infrastructure Fund allocations for 2012 had been spent by mid-December, with another 25% committed.

On the expenditure side of the 2013 State Budget, salaries and purchases of goods and services will go up significantly compared with 2012. Public transfers (pensions, veterans' benefits, etc.) were recently increased in the October budget rectification and will continue at this higher level. Capital expenditure will get smaller, perhaps in recognition that some of the most unrealistic proposed projects will not benefit Timor-Leste or are impossible to implement on ambitious schedules.

Note: This blog entry, including the first graph, was revised on 19 December to reflect information in the budget books, which we posted on La'o Hamutuk's web page on the 2013 budget on 2 January. We will continue to provide updates, analysis and documents on that page.  
The first graph shows the Government's figure for Timor-Leste's non-oil GDP as a green line with squares.  From 2009 on, the Government and IMF have revised the method by which this is calculated, and it is not comparable with values before 2009.

Perceiving corruption accurately

Click here for the Transparency International and MCC scores published in late 2013.

Transparency International just reported that Timor-Leste moved up 30 places in their annual Corruption Perceptions Index, the biggest climb up the index of any country in the world. Last month, Timor-Leste’s ranking dropped seven places on the U.S. Government’s Millennium Challenge Corporation’s Control of Corruption indicator. Why are they so different? Is corruption here getting worse or better?

As a new, small country struggling to develop its state and economy, Timor-Leste pays a lot of attention to its ratings on international indicators, but these indicators are often misleading, ignoring unique characteristics of our extremely petroleum-export-dependent economy or misrepresenting the rapid changes Timor-Leste is going through.  We should understand these scorecards before we use them to shape policy, and we should give greater weight locally-produced, country-specific data (such as the Government’s not-yet-released Household Income and Expenditure Survey) to really know Timor-Leste’s situation.

Transparency International (TI) calculates a Corruption Perception Index (CPI) for nearly 200 countries every year and publishes them in early December. As with the MCC scorecard, the CPI uses data which is up to two years old, so the new scores represent the situation during 2010-2012.

In the new 2012 CPI, Timor-Leste scored 33 out of 100, ranking 113rd best out of 176 countries rated. In last year’s CPI, our score was worse, and we ranked 143rd out of 183 countries. Great news: Timor-Leste reduced corruption more than every other country in the world! But is it true? We  have a rapidly growing state budget, a minister facing prison, reports about corruption in the media every day and falling scores from other rating agencies. Published international perceptions should be consistent with the country itself.

La'o Hamutuk looked into how Transparency International calculated their figures. We learned that perceptions of corruption in Timor-Leste did not change significantly since last year, but our score got better for four reasons:

1. Transparency International included seven fewer countries/territories in the 2012 CPI that had been included in 2011 – Macau, Samoa, Vanuatu, Kiribati, Tonga, Solomon Islands and Maldives – because not enough data was available.  All of these had scored better than Timor-Leste in 2011, so removing them automatically moved us up seven places – from 143 to 136.
   
   
2. This year, TI has updated the methodology by which the calculate the CPI, and are using fewer data sources to construct the index overall (17 in 2011 and 13 in 2012). For Timor-Leste, TI used only three indicators for Timor-Leste, down from five last year. This year, they no longer included data from the Asian Development Bank, which had ranked Timor-Leste in a three-way tie for lowest score among 31 countries in 2011. Without the ADB indicator, our ranking automatically improved significantly.
   
   
3. Many countries have corruption perceptions about the same as Timor-Leste, so a very small change in score can result in a large change in ranking. Last year, Timor-Leste was tied for rank 143 with nine countries, so that a tiny improvement would move us up nine ranks. This year, we are in a five-way tie for rank 113, and the score difference between rank 113 and rank 130 (about where we would be without the two prior methodology changes) is only 5 out of 100.
   
   
4. The three indicators TI used this year for Timor-Leste are from the World Bank (Country Policy and Institutional Assessment score on “Transparency, Accountability and Corruption in the Public Sector”), the World Economic Forum (Executive Opinion Survey, two questions on corruption), and Global Insight (Country Risk Ratings). The World Bank publishes their data, and Timor-Leste’s score got slightly worse, from 3.0 to 2.5.  World Economic Forum scores are not published in detail, but Timor-Leste improved slightly, from 3.05 to 3.3. The difference – and almost all of the improvement -- is from the Global Insight score. Neither TI nor IHS (the company which produces Global Insight) would share raw data with La’o Hamutuk, but Timor-Leste apparently improved significantly.

In an email to La’o Hamutuk, Transparency International Research Manager Deborah Hardoon explained why Timor-Leste moved up in the rankings: “The improvement in rank number results from several aspects of comparing countries/territories on a relative index, where position is determined by the assessment of other countries as well as your own. Timor-Leste’s gain in rank comes from the combination of fewer countries this year, the decline of perceptions of corruption for other countries, fewer data sources used to construct Timor-Leste’s score and a small net increase of the raw underlying data sources. We would not say this was an ‘improvement’ per se, as one of three data sources moved in the opposite direction and the change in CPI score is less than the margin of error. Moreover, Timor-Leste still scores worse than nearly 2/3 of all countries – a score of 33 out of 100 clearly demonstrates that much remains to be done to clean up the public sector in Timor-Leste.”

Nevertheless, La’o Hamutuk joins others in appreciating that some international agencies perceive that corruption here is declining compared with other countries. In this year’s CPI ranking, Timor-Leste did better than 19 countries which had scored better than us last year (Dominican Republic, Ecuador, Egypt, Indonesia, Madagascar, Mozambique, Sierra Leone, Vietnam, Lebanon, Nicaragua, Guyana, Honduras, Iran, Kazakhstan, Pakistan, Bangladesh, Cameroon, Syria and Eritrea), many of whose scores fell drastically. Rather than celebrating, Timor-Leste should redouble our efforts to make this improvement significant and permanent.

Timor-Leste needs to do a lot more to reduce and prevent corruption in this country. Wishing and indicators won’t make it happen – and neither will speeches, dialogues and conferences alone.