República Democrática de Timor-Leste Budget Overview Book 1 Contents 2.1: Executive Summary ..................................................................................................... 4 2.1.1: Government Policy .................................................................................................. 4 2.1.2: Economic Growth .................................................................................................... 4 2.1.3: Expenditure ............................................................................................................. 5 2.1.4: Domestic Revenue ................................................................................................... 6 2.1.5: Financing .................................................................................................................. 6 2.2: Government Program 2018‐2023 ............................................................................... 7 2.2.1: Development of Social Capital ................................................................................ 7 2.2.2: Infrastructure ........................................................................................................... 8 2.2.3: Development of the Economy ................................................................................. 9 2.2.4: Government Policy and Adminsitration .................................................................. 9 2.2.5: Good Governance and Combating Corruption ...................................................... 10 2.3: Economic Overview ................................................................................................... 11 2.3.1: International Economy .......................................................................................... 11 2.3.1.1: International Growth .............................................................................................. 11 2.3.1.2: Trends in International Prices ................................................................................. 12 2.3.2: Domestic Economy ................................................................................................ 14 2.3.2.1: Timor‐Leste’s Recent Economic Performance ........................................................ 14 2.3.2.2: Non‐Oil Economy .................................................................................................... 15 2.3.2.3: Employment ............................................................................................................ 18 2.3.3: Short to Medium‐Term Prospects (2017‐2021) .................................................... 19 2.4: Monitoring Socioeconomic Indicators ...................................................................... 20 2.4.1: Sustainable Development Goals (SDG) ................................................................. 20 2.4.2: Alignment to the Strategic Development Plan (SDP) ............................................ 24 2.5: Expenditure and Development Partners’ Commitments ......................................... 25 2.5.1: Changes to Structure of Government ................................................................... 25 2.5.2: Expenditure by Fund .............................................................................................. 27 2.5.3: CFET / CFTL Expenditures ...................................................................................... 27 2.5.3.1: Salaries and Wages ................................................................................................. 28 2.5.3.2: Goods and Services ................................................................................................. 29 2.5.3.3: Public Transfers ....................................................................................................... 30 2.5.3.4: Minor Capital ........................................................................................................... 32 2.5.3.5: Capital and Development ........................................................................................ 33 2.5.3.6: Additional Costs for New Structure of Government ............................................... 33 2.5.3.7: Arrears and Contractual Obligations ....................................................................... 34 2.5.4: Infrastructure Fund ................................................................................................ 35 2.5.5: Expenditure by Loan Financed Projects ................................................................ 37 2.5.6: Human Capital Development Fund ....................................................................... 37 2.5.7: Development Partners’ Commitments.................................................................. 38 2.5.8: Classification of the 2018 Budget by Sector .......................................................... 39 2.6: Revenue ..................................................................................................................... 40 2.6.1: Overview of Revenue Projections ......................................................................... 40 2.6.2: Domestic Revenues ............................................................................................... 41 Page 1 of 67 2.6.2.1: Tax Revenues........................................................................................................... 41 2.6.2.2: Fees and Charges .................................................................................................... 4 2 2.6.2.3: Interest .................................................................................................................... 44 2.6.2.4: Autonomous Agencies ............................................................................................ 44 2.6.3: Petroleum Revenues and the Petroleum Fund ..................................................... 45 2.6.3.1: Calculating Petroleum Wealth and the ESI for 2018 .............................................. 46 2.6.3.2: Petroleum Fund Management and Projections ................................................ 51 2.7: Financing ................................................................................................................... 53 2.7.1: Definition of Financing .......................................................................................... 53 2.7.2: ESI and Excess Withdrawals .................................................................................. 54 2.7.3: Loans ...................................................................................................................... 54 2.7.4: Use of the Cash Balance ........................................................................................ 63 2.7.5: Public Private Partnerships .................................................................................... 63 4.1: Petroleum Fund Law Article 8 ................................................................................... 67 4.1.1: Requirement for Transfers from the Petroleum Fund .......................................... 67 4.1.2: Independent Reassurance Report to the Ministry of Finance .............................. 67 Page 2 of 67 Part 1 : Speech of the Prime Minister Page 3 of 67 Part 2 : Description and Analysis of the 2018 State Budget 2.1: Executive Summary 2.1.1: Government Policy The Government of Timor‐Leste’s policies as guided by Strategic Development Plan are laid out in the Annual State Budget, with the long‐term objective to become an upper middle income country by 2030. Achieving this goal, the Government is investing in infrastructure and key economic sectors including tourism, health, education and agriculture. Detail on the Government’s program is laid out in part 2.2. Budget Book 1 for 2018 summarizes the plans on pursuing these policies for the current fiscal year. Table 2.1.1.1: Combined Sources Budget 2016‐2022, $ million 2016 2017 2018 2019 2020 2021 2022 Actual Provisional Budget Combined Sources Budget 1,834.5 1,369.6 1,461.3 1,772.9 1,480.8 1,309.1 1,303.8 Government 1,629.9 1,192.9 1,279.6 1,633.9 1,365.3 1,256.7 1,303.8 Expenditures by Fund CFTL (excl. loans) 1,570.6 1,138.9 1,194.1 1,522.1 1,299.4 1,216.4 1,266.2 HCDF 28.7 23.9 23.9 24.8 25.8 26.8 27.9 Borrowing/Loans 30.6 30.1 61.6 87.0 40.0 13.5 9.7 (disbursements) Development Partner 204.6 176.7 181.7 139.0 115.5 52.4 ‐ Commitments Sources: National Directorate of Budget and Development Partnership Management Unit, Ministry of Finance, 2018 2.1.2: Economic Growth Becoming an upper middle income country by 2030 requires strong, high‐quality non‐oil economic growth. Public investment seen from 2007 to 2016 through the frontloading fiscal policy has driven growth in the non‐oil economy, averaging at 6.9% per year. This was aimed at providing necessary foundations for long‐term sustainable private sector led development. The real non‐oil GDP growth was strong in 2016 at 5.3%, up from 4.0% in 2015. In particular, household consumption increased by 6.0% suggesting that living standards are continuing to increase in Timor‐Leste. There were challenges during 2017 that have continued into 2018, and these have affected the growth forecasts. However, with the return to a normal budget situation, the growth of previous years is expected to return. Page 4 of 67 2.1.3: Expenditure Total expenditure in the 2018 budget is $1,279.6 million (excluding donor funded activities). This is lower than the allocation for the 2017 State Budget predominantly due to a sizeable reduction in the allocation for Public