08 November 2015

2016 budget proposal puts fantasies before people's needs

On 29 October, Timor-Leste's Government sent Parliament a budget proposal which would spend $1.56 billion during 2016, essentially the same amount as in 2015. Spending for the ZEESM special economic zone in Oecusse grew 63% to $218 million, while appropriations nearly doubled for roads, ports, airports and the Tasi Mane project.

The 27% increase on spending for physical infrastructure is financed by cuts across the public service, including health (14%), education (7%, notwithstanding many more school-age children), the judicial system (36%), veterans' benefits (22%), security forces (19%) and other sectors. Agriculture, which receives less than 2% of state spending but is the livelihood for most Timorese families, will be cut by 20%.

Although Government's stated priorities have changed in the last few years, infrastructure remains dominant. High expenditures in 2011-2013 for the power plants and electricity grid have been replaced by money for ZEESM and Tasi Mane, whose benefits for most people are less clear.  According to the budget documents, public spending on ZEESM from 2015 through 2020 will exceed $1.1 billion, while Tasi Mane (including Suai Supply Base, Suai airport and part of the Suai-Beacu Highway, but not construction of the Betano refinery, Beacu LNG plant or Sunrise pipeline) will absorb more than $1.4 billion, although both amounts are likely to increase.

Last Friday, Timor-Leste's Central Bank issued its latest quarterly report on the Petroleum Fund, which finances more than 80% of the state budget. Between June and September 2015, the Fund's investments lost $450 million in value, and the Government withdrew $194 million to finance its activities during the same period. The balance in the Fund is lower than it has been in sixteen months.

Oil and gas revenues to the Fund totalled $218 million in the third quarter, -- less than half the average during 2014 and 63% lower than in 2013. Although this is partly because world oil prices are low, it is also because Timor-Leste's producing oil and gas fields are more than three-quarters used up. They produced 27% fewer barrels during the first eight months of 2015 than during the same period in 2012, the peak year of production. The Kitan field is already shutting down, and extraction from Bayu-Undan will cease in 2021.  Although it is possible that Greater Sunrise or yet-to-be discovered fields could provide more money in the future, the likelihood is low and it would be foolhardy to enact spending policies based on wishes.

Unfortunately, Timor-Leste's non-oil ("domestic") revenues remain small and are not growing fast enough to fill the gap left by vanishing oil revenues. For 2016, the Government projects domestic revenues (taxes and user fees) to increase by only 0.6%. Although inflation and population growth have slowed down (each is estimated at 1.8% in 2016), inflation-corrected per capita domestic revenues will drop more than 3% in 2016.

Although the Petroleum Fund may have passed its peak, the proposed 2016 State Budget continues to withdraw far more than the Estimated Sustainable Income (ESI). The 2015 budget will take $689 million more than the "3%" ESI, but the proposal for 2016 is to spend $739 more than ESI. That would be more than 7% of the nation's petroleum wealth, the highest percentage ever. The proposal expects even higher future withdrawals -- 8% in 2017, 11% in 2018 and in 2019.

The budget proposal also expects Timor-Leste to borrow $821 million during the next three years and more after that.  The largest loans are for Dili airport, the Suai Supply Base, and part of the Suai-Beacu Highway.  For the first time, the budget includes $0.25 million to repay loans, but understates how much debt will cost in future years and does not discuss where the repayments will come from after the oil and gas are gone.

Although total expenditure planned for 2016 will be as much as in 2015, spending for "goods and services" has dropped, perhaps due to the strong US dollar and improved public service efficiency. These savings have been shifted to Public Transfers (payments to individuals and institutions) and Development Capital (physical infrastructure).

Public Transfers are not broken down in the budget or in any of the Government's transparency mechanisms, so we do not know what they pay for or how much is carried over from one year to the next. However, it is clear that ZEESM and payments to veterans get the largest share, with smaller amounts for other pensions, public welfare, and subsidies for state institutions like TimorGAP.

We are concerned that programs which benefit most people -- such as health care, education, agriculture, rural roads and water --  are being cut, while projects which will be mainly used by the affluent and powerful -- airports, highways, oil processing -- get a larger share. As Parliament proceeds to analyze, discuss, amend and enact the state budget over the next six weeks, we urge the Distinguished Deputies to consider equity, sustainability, transparency and democracy.

Many factors -- world oil prices, foreign exchange rates, international stock markets and the non-renewable nature of oil and gas reserves -- are impossible for Timor-Leste to control. But we do have the power and the responsibility to manage our limited resources wisely, and not to squander them on wasteful spending or throw them away on projects with dubious economic or social benefits.

Timor-Leste's finite petroleum wealth is the birthright of every citizen, not only a few leaders, advisers and contractors. We hope that it will be allocated fairly and equitably, as the Constitution requires, respecting the rights of current and future generations.

Note: All data in this article is from official sources. Links to the documents and  more analysis are on La'o Hamutuk's web pages on the 2016 State Budget and the Petroleum Fund. They are also on the websites of Timor-Leste's Central Bank, Ministry of Finance, National Petroleum Authority, General Directorate of Statistics and Transparency Portal. Many publications from these and other sources are linked to from La'o Hamutuk's Reference page.


  1. Obrigadu wain for analize ida ne'e.

  2. Parliament held a seminar on the proposed Budget on 10 November. You can download La'o Hamutuk's presentation from http://www.laohamutuk.org/econ/OGE16/parl/LHParlSemin10Nov2015en.pdf and others, in Tetum and English, from http://www.laohamutuk.org/econ/OGE16/15OGE16.htm#sib

  3. Hi, the total infrastructure fund of 2016 is 376m, how do you get the number 697m? Thanks.

    1. Our analysis is sectoral, not according to the budget structure. So in addition to the Infrastructure Fund, we include the costs of managing and maintaining infrastructure (Ministry of Public works, TimorGAP, generator fuel, etc.), local infrastructure not paid through the fund (small projects, PDID, PNDS, etc.), and the $170 million out of ZEESM's $218 million that will be used to build infrastructure in Oecussi. However, we did not include projects paid through the infrastructure fund which have a dedicated public purpose for another sector, such as schools, hospitals or ministry offices, as these are allocated to the sector which will use them.

  4. Hi, why donor support fund is reduced almost half in 2016?

  5. Donors often don't plan very far in advance (or at least make their plans available), so they sometimes end up spending more than they announced the year before. However, the world has many places which demand more attention than this peaceful, "normal" country. Government Budget Book 5 has more details on donor programs and planning; you can download it from http://www.laohamutuk.org/econ/OGE16/BksOct2015/PropOJE16Bk5Oct2015en.pdf