|Project Rationale and Linkage to Country/Regional Strategy
The economy of Timor-Leste has grown rapidly in recent years. Its gross domestic product (GDP) of 2009, excluding offshore petroleum production, was increased by 12.2%. The GDP growth forecasts for 2010 and 2011 are 10.4% and 7.7%, respectively. The high growth rates owe much to higher levels of government expenditure funded by the country's earning from offshore oil and gas production. The 2010 government budget increased state-funded expenditure by nearly 40% through a mid-year supplementary budget approved in June 2010. Much of this is allocated for small-scale capital works and cash transfers, which will keep aggregate demand high. A key issue for public investment now is whether implementation capacity has been adequately developed so that additional resources, monetary or nonmonetary, can be utilized effectively and in a transparent and accountable manner.
A summary of the Strategic Development Plan 2010-2030 (SDP) was released at the annual Development Partners' meeting in April 2010 by the Government of Timor-Leste. The SDP is to encompass a Vision to 2030, a Framework of Action to 2020 and a Public Investment Plan to 2015. A specific implementation timetable is to be set, with key performance indicators and objectives established that can be benchmarked for progress. A country-wide program of community level consultation commenced in May 2010, and the SDP is expected to be presented to Parliament by early 2011.
The SDP aims to sustain double-digit rates of economic growth to fast track development. A key goal of the SDP is the eradication of extreme poverty through universal access to basic services, and the creation of ample job opportunities and development in all regions of Timor-Leste. The next decade (2011-2020) will see a focus on creating the basic conditions for development. This is to be achieved by a three-pronged public investment program in human capital, infrastructure, and the strategic sectors (e.g., agriculture and tourism), that will in turn induce additional private investment. The large increase in public investment is to be funded through either draw-downs from the Petroleum Fund (that holds accumulated revenue from offshore petroleum developments), concessional loans or public-private partnerships.
The Government will establish an Economic Planning and Investment Agency (EPIA) to lead implementation of the SDP. The EPIA will be tasked with streamlining the government's planning and implementation functions. It will serve a role similar to a national planning authority, adopting design features from the National Development and Reform Commission in the People's Republic of China, the Economic Policy Unit of Malaysia, and the Planning Commission of India. The EPIA will be responsible for economic planning, program monitoring and evaluation, procurement and contracting, project implementation, budgeting, international cooperation and information. It will build its own staff capacity in economic planning and contract negotiation, to be able to negotiate the contracts with domestic and external management teams needed to put key elements of the SDP in place.
The EPIA will implement major public investments through its Project Implementation and Coordination Unit (PICU). The PICU will be responsible for major projects, projects of strategic importance, and loan-financed projects, with local capacity concentrated in a leadership role. Additional human resources will be made available through out-sourcing. It will thus mobilize the external resources needed for an early scaling-up of government capital expenditure and implementation of the Public Investment Plan to 2015. By absorbing some of the pressure arising from the scaling-up in public investment, the PICU will help avoid an overloading of the capacity of other government agencies responsible for public investment projects, and thereby facilitate an orderly development of their capacity. It is envisaged that the existing government agencies will eventually take over the responsibility of operating and maintaining the infrastructure assets, once the construction and early operation is done by PICU.
To provide for an early start-up, the PICU has begun operations as a Major Projects Secretariat (MPS) within the Ministry of Finance. The MPS is responsible for establishing the PICU and preparing the project pipeline under SDP. The MPS and its successor agency will need to streamline and, sometimes, reform the systems and procedures that are already in place for public investment. The major projects planned under the SDP will place new demands on these systems and procedures, and adaptation will be required if major projects are to be prepared and implemented timely. When elements of the required systems and procedures, such as project formulation procedures, are still missing, the gaps will need to be filled. The main areas requiring attention are budgeting and programming, project conceptualization and processing, project implementation, and monitoring and evaluation.
An effective MPS (and its successors) would be important in continuing progress towards achievement of the Paris Declaration on Aid Effectiveness and the Accra Agenda for Action. Notably, an effective system owned by the government would maximize the utilization of government resources, and reduce the need for development partners to create parallel project implementation systems. Development partners have an important role to play in facilitating major projects and thereby assisting the planned increase in public investment. As a general principle, development partners will aim to align with the investment program in the SDP, rather than funding projects that could conflict with or undermine the SDP targets. They can provide knowledge, capacity and funding in support of the SDP, and its main implementing agency, the EPIA. Their contribution would be enhanced if the MPS adopts policies and procedures that satisfy development partner requirements, specifically in relation to social, environmental and financial safeguards. The development partner activities would then be better integrated with government systems.
The TA will assist the MPS (or its successor) in preparing the systems, processes and procedures needed for public investment to facilitate infrastructure-project implementation. Through engaging in the preparation and implementation of a few pilot projects, the TA will develop or refine the business processes to meet the demands of delivering major projects. It will emphasize building capacity within the MPS (or its successor), aiming to achieve an improvement in systems and procedures that will provide ongoing benefits.
The TA will complement activities underway in other areas of Government with development partner support. It will complement support provided by ADB to the Ministry of Infrastructure to improve the project management of infrastructure, and the support provided by the World Bank and other development partners to improve public financial management.