VIII. RECOMMENDATIONS OF THE COMMITTEE ON ECONOMICS, FINANCE AND ANTI-CORRUPTION

FRETILIN Media News Flash:

Dili, 1300 hours: 21.11.2009

Following the vote on the generality, which was passed, the specifics of the budget will be now be debated next week.

AMP MPs who voted on the Committee in favour of the report and its recommendations, last night indicated their intention to back down by voting in favour of the budget in its generality (akin to a first reading in Westminster parliaments).

It is becoming apparent that the de facto Prime Minister's dissatisfaction with their position with respect to the report, has intimidated some MPs to back down.  Some people are in turn speculating that the delay in paying the parliament's newly approved 300% pay rises for MPs, including a backpay to 1 January 2009 at around US$20,000 per MP (which FRETILIN voted against), may have motivated the back down. It is commonly known that AMP MPs are checking their bank balances daily and some have expressed their disenchantment and angst at the delay.

The following are the translated Recommendations from Committee C itself (FRETILIN.Media release on the recommendations follows):

VIII. RECOMMENDATIONS OF THE COMMITTEE ON ECONOMICS, FINANCE AND ANTI-CORRUPTION


Recommendation 1: To avoid dependence on revenues from oil and gas, the country will have to work harder to develop its domestic economy. This could be done through the creation of public enterprises and joint ventures.

Recommendation 2: Faced with a rapidly growing budget, financed by increasing oil revenues, the budget execution rates remained low, particularly in respect of capital expenditure and development. There is an urgent need to standardise procurement legislation in the Ministry of Finance and develop human resources in this Ministry for the speedy implementation of projects.

Recommendation 3: The foreign loans should be allocated to specifically identified projects, with economic return to avoid future costs from externalities. A rigorous analysis must be done of the positive and negative impacts on the economy, avoiding the use of the Petroleum Fund to pay these loans.

Recommendation 4: In terms of economic and social development, the allocation to agriculture should be approximately $ 38 million (or 6% of total budget) to reduce poverty by 5-7% in rural areas. Special attention should also be given to creating additional opportunities for self-employment and access to microfinance, especially for women, and for granting land rights and other assets important to the country’s economic development.

Recommendation 5: The Budget, as an instrument of intervention in the economy, will have to balance the policy to promote growth with pro-poor policies employment promotion. Therefore, the state budget will promote economic growth which is less ambitious (6-7% per year over a decade) with the aim of social and human development to reduce poverty and create employment opportunities.

Recommendation 6: For the improvement of credible statistical information, it will be necessary for the government to carry out the following research to complete the information and data: (1) household savings and investment survey, (2) Input-Output Survey to obtain basic information about the cost structure, availability of goods and distribution of products for certain economic activities, employment structure, production indicators, prices and other supporting information. (3) Research into the trade and service sectors, necessary to improve the distribution, production quality and price indicators, and revision of GDP (annual and quarterly).

Recommendation 7: There are obstacles that the Government will have to deal in the next few years, problems that affect the administration of taxes, such as tax evasion, corruption and leakages in tax management and the lack of a clear tax policy framework. These obstacles must be resolved.

Recommendation 8: It is highly advisable that the government reform the investment law and develop a clear competition policy to attract more potential local and foreign investors to the country; strengthen the IADE to make this institution can work to promote investment in the country; and map the priority investment sectors.

Recommendation 9: It is necessary to provide access to housing for the poor and most vulnerable, especially given that 66% of households in Timor-Leste live in temporary housing, and 81% of households were classified as severely damaged, according to the Survey on Living Standards 2007.

Recommendation 10: The nature of temporary positions may vary from the periodic contracting of unskilled labour to contracts longer term contracts. Keeping temporary staff for long periods of time may affect any programs for capacity building in this young country. Therefore, it is recommended that the Civil Service Commission be immediately strengthened to carry out civil service reforms and reduce the number of temporary positions.

Recommendation 11: The TradeInvest that stresses being a one-stop-shopshould operate more effectively for investors, through more explicit policies and incentives.

Recommendation 12: At the same time international investment is approved, the government should stipulate in the investment agreements the requirement to employ Timorese labour: unskilled labour, semi-skilled and qualified. The Council of Ministers should adopt as soon as possible, the National Strategy for Employment and begin effective implementation.

Recommendation 13: It is not necessary to transfer the full amount of the Estimated Sustainable Income of $ 502 million from the Petroleum Fund to the State Budget for 2010. The cash balance carried from December 31, 2009 plus domestic revenue and the amount of $ 400 million from the Petroleum Fund are sufficient to meet the cash payments estimated at U.S. $ 502.9 million in 2010. Thus, only $ 400 million is needed to transfer from the Petroleum Fund, which is within the Estimated Sustainable Income.

Recommendation 14: For financial year 2009 onwards, the Government should adhere to the international accounting standard and practice of reporting financial results over a one-year period. A “complementary” period of 60 days (e.g., up to 28 February) such as in the international accounting practice of a “modified cash basis of accounting”, will be allowed to ensure that cash payments made in the current year for previous years’ obligations are matched properly with those prior years when the obligations have been made. Books are not to be kept open for transactions beyond 28 February other than for ensuring proper matching of cash expenditures between the current year and prior years. This will also ensure a timely audit of the annual financial statements.

Recommendation 15: The reasons for the qualifications of the auditors’ opinion on the annual financial statements for the financial year 2008 point primarily to a limited access to information and documents made available to the auditors during the audit. This shows a disregard of Section 40 of the UNTAET/REG/2001/13 which states that “the independent auditor shall have unrestricted access to all information and explanations that, in the independent auditor’s judgment, are necessary for the purpose of the audit.”  The independent auditor who will perform the year-end audit of financial statements shall have unrestricted access to all information and documents, that in the independent auditor’s judgment, are necessary to support the determination of the validity of expenditures.

Recommendation 16: The inability of the auditors to form an opinion on the opening cash balance as at 1 January 2008 and the limited evidence made available to them to audit the movements of the Consolidated Fund during 2008 in effect renders the cash balance as at 31 December 2008, without validity. During the audit of the financial statements for 2009, the opening cash balance as at 1 January 2009 should be further audited, to satisfy the auditors on the fair presentation of the cash balance at the beginning of January 2009.

Recommendation 17: Committee C recommends that another audit should be carried out during the audit of the financial year 2009  on the additional cash receipts of US$817,000 and cash payments of US$116,746,000 made during the period 1 January 2009 to 30 June 2009 relating to the 2008 budget.  The objective is to ensure a fair presentation of the cash balance as at 31 December 2009.

Recommendation 18: The Government should endeavour to submit the Government National Strategic Development Plan (NSDP) to the Parliament for approval before the Government issues the budget circular for the GSB 2011. National priorities laid out in the NSDP should be provided with adequate budgetary resources to achieve the desired outcomes.

Recommendation 19: The Ministry of Finance should put importance to quality control in the presentation of budget data and information for budget transparency.  Errors and inconsistencies in budget numbers impact on the integrity and validity of data and create confusion among the members of Parliament leading to an improper analysis of the budget estimates.

Recommendation 20: The Committee requests that during the general discussion of the draft law on State Budget for 2010, the Government submit to National Parliament the Prime Minister’s dispatch authorizing the transfer funds for the referendum package and the Minister of Finance’s approval.