Regions and Countries

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p. 3 of 5 BACK | NEXT I. Country Strategy II. Current Development Trends and Issues III. Implementation of the Country Strategy and Program IV. Portfolio Management Issues V. Country Performance and Assistance Levels

Country Strategy and Program Update 2005-2006: Timor-Leste

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III. Implementation of the Country Strategy and Program

A. Progress in Poverty Reduction

19. The Government and ADB signed a poverty reduction partnership agreement in October 2003. This stipulated that ADB assistance would be based on careful analysis and consideration of priority activities to address poverty and the Millennium Development Goals (MDGs).

20. Poverty remains pervasive, and is estimated at 44% in rural areas and 25% in urban areas. The rural poor rely on subsistence agriculture. Food insecurity increases the vulnerability of the poor. The latest poverty assessment³ was undertaken jointly by the Government, ADB, World Bank, and United Nations Development Programme (UNDP), and was based on household surveys and participatory poverty assessments. The first national census was conducted in mid 2004, and is expected to result in a significant improvement in poverty and population data.

21. The Government’s first report on the MDGs issued in February 2004 took stock of the current situation on MDG targets and indicators. Adaptation of the MDGs to the national situation through the establishment of national benchmarks, targets, and indicators will be accomplished through an intensive exercise to be carried out in conjunction with the preparation of the second National Human Development Report of Timor-Leste.

22. The UNDP Human Development Index placed Timor-Leste in the “low human development category,” ranking it 167th among 191 countries. The literacy level is about 48%. Enrollment in primary and secondary schools is low compared to other developing member countries. The current teacher-student ratio is 1:62. Timor-Leste’s population is young, with 35– 40% below the age of 18. In education, much progress has been made in terms of rehabilitation of school buildings and the next challenge is in education quality, particularly in teacher training and curriculum development. Health indicators are still poor but have improved slightly, with notable advances in assisted births and childhood vaccination programs. The under-five mortality rate has fallen from 204.6 (per 1,000 live births) in 1993 to 143.5 in 2001, and the maternal mortality rate from 800 (per 100,000 live births) in 1990 to 600 in 2000. Malaria remains a serious health issue. Life expectancy is about 57 years. About 50% of the population has no access to safe drinking water, proper sanitation, or electricity. Timor-Leste also ranks low among 191 countries on the gender development index. Households headed by women are estimated at around 14% of the total number. Female literacy is low at 35%. Women constitute an insignificant proportion of the labor force and are mostly concentrated in lower-skilled jobs. The Government’s target for participation of women in public decision-making bodies is 30%.

B. Progress in the Country Strategy and Program Focus Areas

1. Economic and Financial Management Capacity Building

23. The Government has identified concerns about public expenditure management, including difficulties in controlling agency expenditures in travel and overhead costs, poor compliance with expenditure procedures, and a continuing inability to recover costs in the power sector. The emergence of corrupt practices, such as inappropriate use of public assets for private benefit, diversion of public funds from their intended purposes, and abuse of power particularly in procurement, is of concern. The Government has expressed its clear intention to address these issues and do what it must to prevent their occurrence.

24. The Government still relies heavily on international advisors, and is facing a particular challenge with the ending of UNMISET. The successor mission will be considerably smaller and comprise about 50 advisors, primarily in the justice and security sectors.

25. ADB has supported considerable capacity building in two technical assistance (TA) projects in 2003. The TA for Economic Policies and Strategies for Development Planning has provided expertise to the Government in various areas, including the issue of Timor Sea revenues through the Petroleum Fiscal Advisor to the Prime Minister. This TA also assisted the SIP exercises in the energy, transport, communications, and water sectors. The Ministry of Planning and Finance is also being helped to improve monitoring implementation of the NDP in 2004.⁴

2. Microfinance Development and the Private Sector

26. The financial sector as a whole remains underdeveloped and is hampered by a lack of human resources, among other things. The Government has made considerable progress in preparing the enabling legislation for the private sector, including legislation on commercial societies, domestic and foreign investment, insurance, and bankruptcy. Microfinance development in Timor-Leste remains in a very basic state. There has been some limited provision of microfinance by local nongovernment organizations (NGOs) and some reemergence of credit unions. The commercial banks have not attempted to expand their operations outside Dili.

27. The Microfinance Development Project⁵ established the Instituição de Microfinanças de Timor-Leste (IMTL), a finance institution operating two rural branches and one Dili branch. The IMTL has provided, cumulatively, loans amounting to $1.76 million to some 6,500 borrowers and has nearly $1 million in deposits from 5,750 depositors. While its rural operations have been useful in the two district centers, its main impact has been in Dili. A significant proportion of its customers are now salaried employees. The IMTL is a young institution with inexperienced management and staff. Its procedures and systems require bedding in for future sustainability. It needs to expand its operations in rural areas to more effectively achieve its mission of providing the poor with access to microfinance. A number of critical decisions and actions relating to ownership, control, and ongoing management, need to be taken for this next development phase.

28. ADB has provided support to the IMTL with the TA Microfinance Information Technology System⁶ and proposes additional TA in late 2004 to further strengthen the microfinance sector.

3. Infrastructure Development

29. Since 2000, ADB has focused on rehabilitation of infrastructure with efforts directed at the urgent needs of the roads, ports, water, and rural power supply sectors. In all activities, ADB prioritized building of local capacity that was severely affected in the violent aftermath of the 1999 referendum. Currently, most of the ADB-managed TFET projects are at an advanced stage of implementation, and all, except one project (Emergency Infrastructure Rehabilitation Project, Phase 2 [EIRP-2]), have been substantially completed. ADB will ensure that projects are fully completed and sustained, and the respective ministries and beneficiaries will undertake long-term operation and maintenance.

30. Evaluation of the completed and ongoing infrastructure projects indicates substantial impact in terms of building local capacity, stakeholder ownership, and benefits to the community in Timor-Leste. Road rehabilitation under EIRP-1 reduced the isolation of many rural communities. EIRP-2 will maintain access and improve transportation through reduced road closures, and lower costs of maintenance and vehicle operation. Rural electricity restoration in various districts has benefited about 5,000 households. Up to 250,000 people in rural areas and 15,000–20,000 in Dili benefited from the TFET-funded water supply projects that improved access to safe water supply. Beneficiaries include about 31,500 in the Oecussi enclave and 1,750 on Atauro Island. Promotion of offshore fisheries at Hera port is intended to increase fish supply and bring down prices, leading to improving nutrition and health, and an easing of pressure on inshore fishery resources. These benefits have yet to materialize as progress in developing an active fishing fleet has been limited.

31. Employment generation is a pressing need. Road maintenance by community groups and national contractors created employment throughout the country, especially in rural areas, estimated at over 300,000 person-days. Water supply projects are estimated to have created up to 90,000 person-days of work.

32. Government capacity and ownership were developed through infrastructure projects: (i) road projects helped strengthen staff capabilities in maintenance, road asset management, and procurement; and (ii) water supply capacity building activities helped staff with management, technical, and planning skills. Local contractors have improved their capability to manage and implement civil contract works. International contractors have also trained Timor- Leste nationals in project civil works, increasing the pool of local technical expertise. Local NGOs were engaged in water supply projects, developing their capacity to implement participatory community development, including mobilization of beneficiary groups, training, and physical implementation. Local community groups have helped implement, and have benefited from, infrastructure projects: (i) in roads, local communities were employed in road maintenance activities; and (ii) in water supply, water user groups helped communities become more selfreliant in addressing their water needs, and in sustaining their projects.

4. Gender and Development

33. The NDP includes several targeted activities to improve gender equity and the status of women in Timor-Leste. ADB has committed to preparing a preliminary country gender assessment in late 2004 to identify priority areas for gender-focused interventions and greater gender mainstreaming in ADB’s future program.

C. Highlights in Coordination of External Funding and Partnership Arrangements

34. Development partners are key to Timor-Leste’s development. For the country’s reconstruction, bilateral donors, multilateral banks, and the United Nations have provided substantial development grants. The development community at large has coordinated well to facilitate efficient delivery and utilization of aid to help the country during transition. Regular coordination through biannual and monthly meetings of development partners and the Government has been crucial for strengthening partnership and country ownership. Development partners established two trust funds: the Consolidated Fund for East Timor (CFET)⁷ and TFET; the former was designed to finance largely recurrent expenditures, and the latter the capital investment portion of the budget. Donor-financed budget support has been sustained since 2002 under the World Bank-administered Transitional Support Program (TSP)⁸.

35. ADB has worked closely with the World Bank in all TFET projects, notably the poverty analysis study and the infrastructure rehabilitation project. Successful collaboration has also been seen in the water supply and sanitation sector with Australian Agency for International Development (AusAID), Japan, and the Humanitarian Aid Office of the European Commission (ECHO). In economic and public sector reforms, there has been considerable collaboration with the International Monetary Fund (IMF), UNDP, World Bank, and the Government of Portugal. In the power sector, ADB has collaborated with the Government of Norway. Roadworks were coordinated with the Government of Japan and UNTAET, and development partners have participated in project reviews. In the microfinance project, a multi-donor foundation and management board was established to take ownership of the microfinance institution. The Hera Fisheries Port project is a good example of such development partner coordination among World Bank, AusAID, and ADB. Much development partner activity and coordination has taken place with regard to the oil and gas revenue issue.

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