DEMOCRATIC REPUBLIC OF TIMOR-LESTE ADDRESS BY HIS EXCELLENCY THE PRIME MINISTER KAY RALA XANANA GUSMAO ON THE OCCASION OF THE PRESENTATION OF THE DRAFT 2010 STATE GENERAL BUDGET LAW NATIONAL PARLIAMENT 18 NOVEMBER 2009 Your Excellency the President of the National Parliament Illustrious Members of Parliament Illustrious Members of Government Ladies and Gentlemen
On the occasion of the new budget year, which will be upon us soon, the Government has come to this Great House to present the Annual Plan and the 2010 State General Budget. With the international financial and economic crisis that has been affecting the countries of the world, in particular during the second half of 2008 and 2009, the State General Budget for Timor-Leste is a budget that seeks to continue strengthening trust and hope in the Country.
It is a Budget directed to the future and founded on the strategic vision of this Government – a Government that is committed to setting the Nation on a new course. The challenges that lie before our young Country are great, but the results that this Government has already achieved in two years and three months give us the confidence to say that we are on the right path. Goodbye conflict, welcome Development! This is our motto, particularly in a year when we celebrate one of the most important dates in our recent history – the moment when we, with a spirit of cohesion, solidarity and courage, voted for our Nation to become Independent. Independence brings with it many responsibilities, the most urgent of which is to free our People – who fought against the odds for so many years – from Poverty, Injustice and Instability.
The only thing that we, the leaders of this Nation, are expected to do is to not let our People down! Therefore, the Budget we present here today is a Budget that seeks to make the most of this ongoing period of stability, growth and promise that Timor-Leste is currently enjoying. We are ready to walk the road towards prosperity and development! However, this is a challenge that requires the active participation of all Timorese citizens and a display of political maturity from our leaders.
Therefore, I call upon you all in the following days to conduct debate in a manner that is constructive and truly democratic. This is not a Budget by the Government and for the Government. It is not a Budget by AMP for AMP. It is a budget for all Timorese citizens, it is a budget for Timor-Leste, it is a budget confronting the difficult challenges we face as a Nation and making a sound investment in our future and that of our children.
I say it again: this is a Budget that seeks to support our Country’s transformation from a post-conflict environment to a situation of long term sustainable development with a strong and growing economy. Your Excellency the President of the National Parliament Illustrious Members of Parliament Ladies and Gentlemen, Currently the world is experiencing a situation of trouble and uncertainty – with almost all of the economies of the developed world having fallen into recession. In 2009 the world economy went through deeply troubled times; with developing countries and their people suffered greatly with the impact of the Global Economic Crisis and widespread fear of a worldwide depression.
Of course, Timor-Leste could not be immune from the damage caused by this economic storm. Asset and commodities prices fell dramatically, the price of oil dropped from a peak of $145 per barrel in July 2008 to $30 per barrel in December 2008. This massive drop in the price of oil has impacted on our petroleum revenues in 2009. In addition, the struggling American economy with the weakening value of the U.S. dollar, has affected the value of our petroleum fund, which is held primarily in US Treasury bonds.
In 2008 the Government acted with courage and determination to protect our People against the rising prices of commodities – and in particular rice – with the Economic Stabilization Fund. This Fund prevented civil disturbance and demonstrations which were experienced in other countries. It prevented food insecurity and stabilised the prices of rice and other goods. Most importantly, it addressed exploitative practises in our markets. In 2009 we successfully managed the impact of the worst global economic crisis in almost 100 years. Timor-Leste successfully overcame these two years of economic turmoil while achieving an unprecedented level of economic growth as a result of the sound economic management of the Government and confidence and trust of the People.
Ladies and Gentlemen, Obviously, Timor-Leste cannot be fully protected from the events, policies and difficulties that currently affect the whole world. Timor-Leste should and must monitor the economic responses of other countries, and it must absolutely take precautions to prevent crises that, given Timor-Leste’s still fragile state, may prove dangerous. Some countries, especially the emerging economies in Asia, are slowly recovering from the economic and financial crisis; however, the forecasts for worldwide economic recovery are mixed. As such, we are living in times of uncertainty, which will continue until the world financial system recovers.
While we have large budget deficits and growing debt in America and a number of European countries, we cannot assume that the world economy has stabilised. What does this mean to Timor-Leste? As you know, Timor-Leste is a Country that remains extremely dependent on the import of foreign goods. While fluctuations in prices may be moderating, it is not yet possible to guarantee that Timor-Leste will be completely unaffected. Indeed, the changing price of the American dollar and its worldwide repercussions is in its self destabilizing. And it also encourages a second destabilising effect: market price speculation.
While the crisis began with events that took place in the US housing market, it has spread around the entire globe with serious consequences for world trade, investment and growth. Poorer countries were left in an even more fragile situation, jeopardizing the achievement of the Millennium Development Goals. As an exact result of this, Timor-Leste is already reviewing and resetting goals and targets, reflecting on what can actually be achieved by 2015. And so, Timor-Leste has established a Secretariat under the Ministry of Finance dedicated to this task. Given this, we must regret that the Economic Stabilization Fund was held to be unconstitutional, because it is in times of crisis that States must seek solutions and develop policies to respond – rather than simply wait for the worst to occur.
And therefore, so-called “stimulus packages” were adopted in many countries to prevent the worst that could happen: social instability. Timor-Leste cannot afford irresponsible economic policy. It is the development of policies, reviews and annual forecasting models that give us a level of macroeconomic stability, as was proved during 2009.
In order to overcome the difficulties inherent in our young Nation, so that we may truly have stable and sustainable development, we must have the humility to acknowledge changes and trends caused by internal and external factors, and most of all the need to apply corrective measures in good time. It is regrettable when, due to political or partisan interests, the intrinsic frailties of our Country are used for populist propaganda that in no way benefits our People.
Illustrious Members of Parliament Ladies and Gentlemen, The State General Budget that we have presented here today remains faithful to our commitment when we came to office in 2007. We continue working to make Peace and Prosperity a reality in our Country. This Government is proud of the fact that our Country today is very different from the one in 2007. Unfortunately, the first few years of the history of an Independent Timor-Leste will be remembered as years of a declining economy and increasing poverty and instability. Between 2002 and 2006 we had poor economic performance and negative growth rates. Extreme poverty in Timor-Leste increased from 38% of the population in 2001 to 49% in 2007. I will not describe once more the enormous challenges we had to deal with when we entered into office, but I do recall that during a certain period there were many references to Timor- Leste as a failed State, in which it was said that the Timorese dream – dreamt by us as well as the international community – was becoming a nightmare. But this Government’s spirit is strong and determined.
Our determination in August 2007 was to set a new course for the Country. Under our leadership, we have begun recovery and transformation:
• We have restored stability and security in the Country – streets are no longer deserted at dark, with whole families enjoying a true feeling of freedom and security, both in Díli and in the districts. This stability and public trust provides a security environment that allows a staged transfer of the policing responsibilities from UNPOL to our PNTL. And it also allows the staged withdrawal of soldiers from the International Stabilisation Force in Timor-Leste.
• We have made the people trust State Institutions again – we have improved the living conditions of our heroes, widows and orphans, as well as of the IDPs, and we have improved the purchasing power of our population in a way that while small is already very significant. The Government is providing dignity to our People through the provision of pensions to our veterans, as well as to our elderly and vulnerable citizens. In 2009 the Government spent $38 million on pensions, and in 2010 it will spend $52 million to support even more Timorese.
• We have established a framework for good governance in the public sector, in order to ensure that public funds are spent in a manner that is effective and that benefits the People, as well as to change the mindsets in our Public Administration. We never intended to replace people, but rather to change the way civil servants think and act, so that they may become good Public Servants, good Servants of the People. The resetting of the systems used in the past has been most effective, as well as the legislative and technical reforms that we are implementing.
The establishment of the Civil Service Commission will depoliticise the civil service and instil a culture of professionalism and merit-based promotion, which will result in better service provision to our communities. And the Anti-Corruption Commission will be an independent body reporting to the National Parliament, with strong powers to fight corruption. The Anti-Corruption Commission has been allocated $1.045 million, because investing in this area is investing in good governance.
Ladies and Gentlemen, Sometimes words are not enough, so please allow me to provide some figures. In 2008 our economic growth was the second highest in the world, with a rate over 12%. This positive record continued in 2009, with a forecast growth rate of between 7 and 8%. And we know that we need to maintain an annual growth rate of at least 8% in order to lift our People from poverty. As a strong indication of private development, the business tax revenue increased by 50% between 2007 and 2008 – despite the tax reductions implemented in mid 2008.
These figures represent actual and substantial improvement in the quality of life of our People. These figures represent growth in our villages and districts; employment creation and the improvement of agricultural productivity; the emergence of our tourism industry; the construction of houses, roads, schools and health clinics and the opening of shops and small businesses. In 2009 we began an ambitious but urgent examination of our infrastructure needs. Infrastructure projects are demanding and are long term tasks carried out by Governments throughout the world.
No Timorese Government has yet been courageous enough to present such an ambitious plan, or had the courage to adopt bold measures to develop our Country’s infrastructure needs. These figures also represent the emergence of our private sector, which is the future of the Country’s economic development. To support the development of the private sector, the Government implemented important reforms to lighten the tax burden and stream line business compliance procedures.
The World Bank’s Doing Business Better Report 2010 recognized Timor-Leste as the World’s top performer in the area of “Paying Taxes” with our global ranking moving from 75th to 19th place over 12 months. And we also moved up 9 positions in the overall doing business better ranking. Lastly, Illustrious Members of Parliament, this Government’s spirit is evident in great achievements regarding budget execution rates. The Government’s capability to execute the Budget has been increasing steadily since 2007, as is shown by the payments made up until now. Comparing 2007 with 2008, budget execution has tripled, reflecting stronger financial management and strategic planning systems in the Ministry of Finance and in other Ministries. In 2008 the Government executed a total of $439.9 million in cash. And by 17 November this year, the Government has already executed a total of $478.1 million in cash.
This shows the growing professionalism and the increasing capability of our staff to ensure that the funding allocated in the Budget is translated into effective service delivery to the People. Ladies and Gentlemen, In anticipation of one of the primary issues of this coming debate, which will be regarding the National Strategic Plan, I can inform you that it is currently being currently finalised before its release for public consultation. As I have said several times, building a prosperous Nation is not achieved through words in a document. A medium to long term sustainable development plan must be considered within an integrated approach, assessing both the interdependency of the parties and their relationship with the whole. This is the only way we can ensure harmonious development for our Country.
Therefore, we have been presenting Annual Action Plans that are compatible with the national circumstances and our most pressing needs. I must say that we can consider ourselves to be living in a transitional stage. We are moving from past Governments that produced a raft of documents but that could not improve the quality of life of the Timorese People, to a Government that is truly committed to national development. We have “cleaned our house”, we have implemented crucial reforms, we have ensured stability and security in the Country and, starting next year, we will be ready to present a strategic vision with five-year development plans.
The Census in 2010 will also contribute significantly to discussions regarding the Plan. This is because we are still relying on 2004 data, which hinders our ability to determine with exactness the current reality of our Country, particularly in regard to the precise characteristics of the Timorese People and their primary needs. There are no shortcuts in the road to prosperity and development. It is necessary to walk the longest and hardest path to be able to respond to our People’s needs: the reduction of poverty, economic growth and sustainable development.
Your Excellency the Speaker of the National Parliament Illustrious Members of Parliament Ladies and Gentlemen, What I can say with confidence is that the People believe that we are moving in the right direction. Clear evidence of this was the Suco elections which were successfully conducting without problems or incidents. Our People not only demonstrated their well developed political maturity, they also provided a lesson in civic duty and democracy. The 2010 Budget will consolidate the successes already achieved and make the most of our current opportunities. In a time of world crisis, containing public expenses, strengthening the economy, promoting productive sectors that create employment and reducing our dependence on imports and from our petroleum sector are the goals that guide our policies and our action. As such, this Budget is focused on the most important aspects of our future – good governance, infrastructural development, public and food safety, human resource development and decentralized access to justice, health and education, particularly in rural areas. Above all, this is a financially responsible Budget.
The Budget forecasts total expenditure by the State of Timor-Leste of $637 million in 2010. This is a decrease of $44 million, or 6.9%, from the 2009 Budget. This can be attributed to one-off costs in the 2009 Budget for the F-FDTL patrol boats, which will ensure surveillance of our territorial waters and fight illegal fishing, as well as the costs of the successful return of IDPs. During this year’s Budget process, Ministers were also asked to critically review their expenditure to make sure that Government funds are being used effectively for the benefit of the people. This process resulted in savings and efficiencies. The 2010 Budget estimates that total revenue will be $1.48 billion, which is below last year. This is due to reductions in oil revenues. While domestic revenue is projected to increase in the future, as a result of our economic growth, it will drop from $90 million in 2009 to $83 million in 2010, as a consequence of the Government’s successful tax reforms.
Ladies and Gentlemen, In 2010 the spending on public sector wages will remain stable, moving from $94 million in 2009 to $98 million in 2010. This small change results from an 8% salary increase in the education sector, with the introduction of a new career regime to improve the quality of teaching. Expenditure on goods and services will also drop from $247 million in 2009 to $208 million in 2010 with a $23 million reduction in the cost of importing rice. Minor capital will decrease from $38.1 million in 2009 to $29 million in 2010. This is largely because of and a reduction in car purchases and a reduction in the purchase of tractors for agricultural use, as the government shifts its focus to improving and expanding cultivation techniques and productivity. An additional $10 million will, however, be provided for heavy equipment to assist with the Government’s infrastructure projects. Importantly, the Government is continuing its investment in infrastructure with $216.8 million allocated for capital development.
This will support a broad program of public works including roads, bridges, power, water, education and health projects. Ladies and Gentlemen, The 2010 Budget will be funded by the Estimated Sustainable Income, Domestic Revenues and Reserves. The Estimated Sustainable Income, which is 3% of our petroleum wealth, is presently forecast as $502 million in 2010. By the end of the year, the petroleum fund is expected to be $5.27 billion and by the end of 2010 it is expected to have a value of $6.16 billion. These calculations for the wealth of the petroleum fund are conservative. They are based upon a low production scenario for the Bayu-Undan field and an oil price of $60 per barrel. The calculations do not include expected future revenue from the Kitan field from 2011 to 2016 and they not include the Greater Sunrise field.
This Government and the Timorese People are also fully and firmly committed to the pipeline from the Greater Sunrise field coming to the south coast of Timor-Leste. This development would promote economic activity, increase State revenue and provide jobs and opportunities for Timorese citizens. Ladies and Gentlemen, The 2010 Budget prioritises investing in infrastructure . The future of our country depends upon the building of basic infrastructure. We need basic infrastructure to develop a modern and prosperous Timor-Leste and to achieve the dreams we have for our country. The 2010 Budget provides $217 million for capital development that will include:
• $73 million for road and bridge projects;
• $68 million for electricity and power;
• $11 million for clean water projects;
• $10 million for school construction and rehabilitation;
• $10 million for health facilities;
• $7.7 million to support tourism projects and cooperative facilities;
• $2.2 million for law and justice facilities, primarily in the districts;
• $2.9 million for projects to improve agricultural productivity.
Roads are central to our economic development and for connecting our People and our communities. They allow for the delivery of education and health services and are essential for district agricultural and industrial development. The building and rehabilitation of road and bridges will also create jobs for our People. The plan in this sector will involve the construction, within the next few years, of 190 kilometres of national roads and 100 kilometres of urban roads, as well as the rehabilitation of a further 3,000 kilometres of rural roads, connecting the Sub-Districts to the Sucos. It will also include the construction of 14 bridges throughout the Country.
This Government will also continue to invest in electricity and power generation to ensure that all the districts of Timor-Leste have power all day, every day. This investment is critical for our economic development and is necessary to attract business investment. As such, in 2010 we will be investing $50 million in the “Project for Constructing Power Plants” under the contract already established and reviewed for the Country’s electrification. This is not just based on the needs of the existing population, but also takes into account the long term sustainable development plan. Pursuing this goal does not exempt the Government from having to invest in alternative energies.
Consequently, the Government has doubled the funds allocated to alternative and renewable energies in 2010. This Budget also allocates $11 million for clean water projects. Sickness, ill health and poor child development caused by lack of clean water and sanitation result in incalculable social and economic costs for our People and for our Country. Less the 50% of the Nation’s urban population have access to safe water supplies. The majority of people living in district centres only have access to water for a few hours per week. Half our Nation’s schools and a third of our health clinics do not have running water for sanitation. Less than 10% of our rural population have access to adequate sanitation. Water is a basic human need, which is why we cannot allow this situation to continue.
Therefore, the Government is embarking on a program of clean water projects throughout Timor-Leste. Together with our spending on roads and bridges, electricity and power and clean water, this Budget will also improve Dili’s port and airport, build schools and health facilities and invest in our justice system and our tourism industry. Today, in this place, we must all agree that our People deserve that we provide them with better lives! We will not address all our country’s needs in one year or even in a few years, but unlike others we are determined to meet them, and for that we must start now.
Illustrious Members of Parliament Ladies and Gentlemen, Rural development is a key priority of this Government. All Timorese citizens deserve access to quality services and infrastructure in all Districts and Sub-Districts. Therefore, we will also give priority to broader service delivery and to administrative decentralization. Timor-Leste is a diverse nation and it is important that budget expenditure is allocated across the Country in a fair manner. Our Government is committed to improving our schools, our health facilities, our roads and our agricultural sector throughout the Country. This is the second State Budget in which this Government has provided a district by district breakdown of proposed budget expenditure.
The capital budget for 2010 is $216.8 million, with $90.7 million of this allocated for projects that benefit the whole nation, and the remaining $125.8 million provided for projects at a district level. Public investments in capital development include:
• $1.5 million in Aileu , for the rehabilitation of four primary schools and the construction of one pre-secondary school and one maternity clinic.
• $2 million in Ainaro , including the rehabilitation of five schools and the construction of a new health post.
• $7 million in Baucau , including the construction of four maternity clinics and one primary school, as well as the rehabilitation of two primary schools.
• $7 million in Bobonaro , including the construction of eight schools and three maternity clinics.
• $18 million in Cova-Lima , including the construction of eight schools and four maternity clinics.
• $7 million in Ermera , including the construction of five primary schools and two maternity clinics. • $10 million in Lautem , including the construction of eight primary schools and two maternity clinics.
• $8 million in Liquica , including the construction of five primary schools and one maternity clinic.
• $1.6 million in Manatuto , including the construction of seven primary schools and three maternity clinics.
• $2.6 million in Manufahi , including the construction of six primary schools and three maternity clinics.
• $11 million in Oecussi , including the construction of five primary schools and three maternity clinics.
• $7.6 million in Viqueque , including the construction of eight schools and three maternity clinics. Ladies and Gentlemen, This Budget also invests strongly in education and training, which are vital for the development of our Country.
We are implementing a new special career structure for teachers. This new structure will be the cornerstone in ensuring that our teachers possess the necessary skills to provide our students with good education. We will be expanding our Literacy Campaign to eliminate illiteracy all over the Country, and we will be focusing on providing training and school books to teachers. This year His Excellency the President of the Republic launched pilot programs of intensive literacy courses in Oecussi and Atauro. These programs will enable us to declare Atauro an illiteracy-free zone by the end of the year, and we expect to be able to do the same in Oecussi by March 2010. If we want to eliminate illiteracy in the short term, we will need a total of $8 million, to be spent in two years.
I sincerely hope that the National Parliament adopts the Literacy campaign as a National Cause! This budget also extends our ambitious school rehabilitation and building program with a further $10.4 million for capital expenditure. And we are just as committed to higher education, with the Budget providing $3.793 million for the National University of Timor-Leste. And we will also be constructing two polytechnics - one in Suai and one in Los Palos – as well as building an Engineering Faculty at Hera.
Ladies and Gentlemen, We are also investing heavily in our health system. This Budget provides $10.3 million in capital expenditure to the Ministry of Health, towards the construction and refurbishing of hospitals and health clinics throughout Timor-Leste. We are also providing $6 million to purchase medical drugs for our health system, $1.8 million to cover expenses related to the Cuban Medical Brigade and approximately $3 million to provide cleaning services, sanitation, meals and security to all hospitals and health centres. We will also be employing more staff in critical areas to cover the expertise gaps that we currently face in our health services. We are funding programs to increase our immunization rates against measles, polio, tuberculosis and other diseases. And we will be improving our mental health and our dental health care services.
Ladies and Gentlemen, The Government is committed to responsible economic management, building on our economic growth and grasping the opportunities that our Country and our People offer, while actively promoting the development of the private sector. The Private Sector should become a Strategic Partner of the Government in the creation of employment, the increase of national productivity and revenue, the strengthening of the Country’s business capability, and the creation of industries that will enable us to sell our products in local and international markets. Until now public investment by the State has been the primary driving force for economic growth, however, in the current world economic environment this is not sustainable.
The strategy of the past, where companies were dependent on Government projects, has proved not to be the best way to develop a strong economy. Therefore, with awareness of the vital role that the private sector must play in the Country’s development, the Government has been in discussions with business, with particular focus over the last few months, to support the development of a modern private sector, with the capacity to become involved in future investment projects. I must underline that the goal here is to enable the training and consolidation of businesses or business groups that are prepared to organise and improve their management capacity, to have proper accounts and to provide quality services.
Taking into consideration the difficulty of accessing credit in Timor-Leste, particularly long term credit, the Government will be investing $8 million to establish a National Development Bank. This financial instrument will support the Country’s sustainable development model and enable Timorese businesses to compete on an equal footing with foreign businesses. The establishment of the National Development Bank will prove to be a milestone in the economic development of Timor-Leste.
And so, we are already working on the model and the structure of the future Bank, taking into consideration the requisite legal requirements for its creation and its operation. Details will be duly provided to the Illustrious Members of Parliament when the process is better consolidated and the institution is in a position to make an application to the Banking and Payments Authority. However, I can already say that it will be:
• A Bank that is proud to be Timorese, and that as soon as possible will seek to have representation in all district capitals, starting with branches in Dili, Baucau, Maubisse, Bobonaro and Oecussi;
• A Bank that meets the demands of the Timorese private sector, granting credit and guarantees to feasible Timorese projects, according to prudent technical and legal criteria;
• A Bank that is managed in a manner that is prudent and sustainable, complying with the most rigorous bank practises, as set by the Banking and Payments Authority.
The Government is also responding to the commitment and leadership shown by our private sector, supporting the initiative to establish a Chamber of Commerce and Industry, the leaders of which will be elected democratically. The Chamber of Commerce and Industry will represent the Timorese private sector and advocate for its interests, working alongside the Government so as to overcome obstacles to development. Importantly, it will provide support, services and advice to our businesses, in order to allow them to become more productive and to grow.
Lastly, it will allow for a greater decentralisation of the procurement system, through assisting businesses meet the necessary formal, technical and legal requirements and prepare the Country for the establishment of Municipalities. This initiative is also based on the need to speed up procurement processes so that we can have more effective delivery throughout the Country. The Chamber of Commerce and Industry will, therefore, work directly with a specific procurement Committee established to achieve this aim. This Committee will also include representatives from the Ministry of Finance, the Ministry of Infrastructure and other Ministries relevant to the projects in question. Procurement for Major projects will, however, be undertaken at central level, as they are most likely to involve international participation.
Illustrious Members of Parliament Ladies and Gentlemen, Ten years after the liberation of our Country, and after much struggle and recurrent trouble, Timor-Leste is emerging as a nation of hope and of promise. We have also had signs of confidence in our economic growth potential from foreign countries, such as Portugal, which is willing to open an aid credit line to Timor-Leste of up to 500 million euros. The United States Government also signed a Bilateral Assistance agreement with our Government on 30 October 2009, to the value of $103.1 million over six years, so as to support investment in people, good governance, democracy and economic growth. These are votes of confidence in this Government by foreign States that believe we are truly capable of maintaining Peace. And today we present to you a Budget that acts on this hope and seeks to deliver on the potential provided by our Country and our People. With this Budget we invest in our future and continue along the path to becoming a peaceful and prosperous Nation enjoying true freedom. With this Budget we will work to make the Timorese dream a reality for our People.
Your Excellency the Speaker of the National Parliament Illustrious Members of Parliament, The 2010 State General Budget is the entrance gate to the path towards prosperity and development. All Timorese citizens are called upon to walk through this gate, and in the first stages of our walk we will rely on the observations and criticisms from the Illustrious Members of Parliament, to ensure that all Timorese join this national journey towards Development. Thank you very much! Kay Rala Xanana Gusmão 18 November 2009
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