Timor-Leste, PFM consultants heaven!

Democratic Republic of Timor-Leste: Public Financial Management-Performance Report
Timor-Leste: Report on Observance of Standards and Codes (ROSC)-Fiscal Transparency Module

Highlights from the ROSC;

There is no clear and simple citizen’s guide to the budget.

 Short term recommendations;

• Initiate identification and costing of new government initiatives in the budget, both on the expenditure and revenue side, and identify recurring costs of public investment for the medium term. (2.1.3 paragraph 40)
• Require donors to provide estimates of planned expenditure volumes on a multiyear basis (but not on individual projects), and include these in the multiyear fiscal presentation and the expenditure projections in the budget. (2.1.5 paragraph 47)
• Start building capacity in costing and analytic review of capital projects and program expenditure. (2.1.1 paragraph 34)
• Include in the budget documents analysis of revenue and expenditure outturns compared to plan, for the three prior years to the budget year. (3.1.2 paragraph 63)
• Publish a clear and simple summary guide to the budget in Tetum and Portuguese to inform the population. (3.2.1 paragraph 72)
• Specify in the financial regulations the process and conditions for the access to contingency reserve funds to prevent use for other purposes. (2.2.3 paragraph 55)

 Medium Term Recommendations;

-Strengthen capacity in basic macrofiscal forecasting and use of the financial programming model. Document the macroeconomic framework. Basic macroeconomic assumptions underlying the budget estimates should be published at an early stage of the budget cycle and clearly presented in the budget documents. Extend the macrofiscal framework towards the medium term by estimating the main revenue and expenditure flows over the medium term; develop of a medium-term fiscal framework. (2.1.2 paragraphs 36 and 37)
-Develop a medium-term PIP with clear principles for the evaluation, prioritization, and approval of investment projects. Capacity building and/or buying in cost-benefit analysis in the context of multiyear investment projects is essential. (2.1.1 paragraph
34)
- Include in the timeline for budget preparation an extended period for line ministries to prepare and for the MOF to analyze and discuss the rationale and costing of the budget. For the latter, additional review capacity in MOF is needed to verify costing and challenge the recurrent and capital project budget submissions requests and correspondent links. (2.1.1 paragraph 35)
-Review and further develop the program classification of expenditure and better link it to line ministry policies; use it initially for budget planning and presentational purposes; extend the functional classification to include subfunctions and items.(3.2.2 paragraph 73)
-Strengthen the strategic planning capacity in the prime minister’s office, MOF, and line ministries, and establish clear links to the AAPs and line ministries’ budgets and
include in budget documents additional analysis on government priorities, programs, and targets. (3.2.4 paragraph 74)
-Cost existing policies and clearly separate them from new policies in the preparation of budget and forward estimates. This would enable the presentation of “baseline” expenditures at the start of the budget process. (2.1.3 paragraph 39)
-Develop a more robust methodology to expand production of baseline and budget estimates over the medium term.
-Decide on line ministry expenditure ceilings in the COM at the start of the budget cycle on the basis of baseline estimates, new expenditure initiatives and possible savings targets. These ceilings should be provided to line ministries in the budget circular, and cover both recurrent and capital expenditure
-Develop presentations in the budget in the following areas: fiscal risks, quasi-fiscal activities (including by petroleum companies), and contingent liabilities. (3.1.3 paragraph 66);
-Develop an overview of existing and new tax expenditures in the budget. (1.2.1 paragraph 22)
-The MOF should develop or commission occasional reports on long term expenditure and revenue trends. Such analyses would provide a good framework to address structural issues like population growth and the costs associated with this, or the limitations of natural resources. This would be particularly important in the preparation of the Vision 2020 plan update. (3.2.4 paragraph 74)