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Sub-national spending in the broader political economy of Timor-Leste

Sub-national spending in the broader political economy of Timor-Leste. Saku Akmeemana World Bank. Growth in Capital Spending. Sub-National Investment Instruments annual budget allocations - and some perspective. ALL. LDP. PR. DDP. ALL INV. SN INV. Surge in public spending .

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Sub-national spending in the broader political economy of Timor-Leste

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  1. Sub-national spending in the broader political economy of Timor-Leste SakuAkmeemana World Bank

  2. Growth in Capital Spending

  3. Sub-National Investment Instruments annual budget allocations - and some perspective ALL LDP PR DDP ALL INV. SN INV.

  4. Surge in public spending Priority: opening up Budget Execution to kick start economy, direct benefits to political / social constituencies, and send ‘credible signals’ of change: Expanded: • Public Sector Employment: rapid increases in the wage bill • Social protection schemes: market subsidies; pensions, cash transfers, payments to IDPs etc. • Goods and services spending: consumables, facilities, equipment. Created executive shortcuts & delegated discretions: • Delegated procurement to line ministries • Increased discretionary thresholds • Administrative orders to facilitate procurement In particular, on Capital Spending • Rapid, high profile commitments on ‘national flag’ infrastructure projects: sea/air ports, national power and transmission projects, equity ventures in petroleum. • De-concentrated spending for ‘business populism’: both line departments, and delegating investment decisions to private sector (advent of Referendum Package, then followed by PDDI and PDD II).

  5. Study on subnational spending What we did: • Comparative review • Aggregate data analysis of available databases (MoF, NDA, MSA) • Detailed study of schemes (4 districts)Baucau, Ermera, Bobonaro and Ainaro (+ 8 sub-Districts), • 22 Projects thoroughly surveyed (comparative range) • Forward-looking and purpose oriented reporting • Wide ranging consultations (district and sub-district administration & line departments, sucos, contractors, users, NGOs. Sector ministries, MSA

  6. Comparison of PDL and PDD systems across five dimensions of quality • Technical efficiency (time, cost, quality), overall and at project level • Correspondence with Development and Geographical Equity • Business promotion (entrepreneurs) • Jobs (durability, number, equity) • Political inclusion, governance and accountability (centre / local, coalition, opposition)

  7. Context circa 2008 Fragile electoral coalition Political fluidity Diverse, disaffected populace Internally displaced people Military/police tensions High public expectation on oil & peace dividend. • Perceived constraints = many, but: • Sound/acclaimed fiscal architecture (Petroleum Fund), but • Formal PFM systems unable to rapidly spend and direct revenue for ‘security, justice, jobs’ Private sector stagnating Oil revenue burgeoning On-set of commodity crisis No off-budget rents or distribution systems Budget execution constipated Poverty & inequality uptick

  8. Geographic equity – have per capita district allocations been roughly consistent? = highly variable

  9. Do poorer districts get more spending? DDP I+II FYs 2011 & 2012 combined $41 $53 $52 $132 $99 $ 108 $70 $103 $137 $170 $112 $88 $129

  10. How did systems perform on: Delivery time, quality, useability of assets, disputes?

  11. Impact on local employment - general findings • All unskilled workers local; semi-skilled sometimes local; skilled from Dili or foreign • Practice of rotation of local workers to share wage benefits (role of Suco chief) • Roughly coinciding with dry season & agricultural under-employment • Overall employment impact modest • But depends greatly on type of infrastructure

  12. Spending on jobs depends greatly on the type of project.

  13. Order of magnitude of job impact across the country DDP FY 2012 = $ 56.5 million. Labor/job impact less than regional comparators 18,500 unskilled work-days provided in each sub-District: • e.g. 165 p x 100 days; 370 p x 50 days; 740 p x 25 days (depends on sharing arrangements) • i.e. c. 10% of average sub-District labour force (7,500 p) would benefit each year

  14. Quality: promotion of local contractors • DDP has achieved impressive spread (315 contractors engaged in FY 2011) • x 3 expansion in # contractors (68% are post 2009) • evidence of role of PR in capitalisation of some • some real, but some more “fronts” • Some upward progression, but limited by • Category D “ceiling” • Political connection required to get from C to D • No sign of major expansion in contractor capacity– but networking, asset sharing, diversification is a positive adaptation to the ‘rules of the market’ • DDP procurement procedures constrain: problems need addressing; chance now to promote contractor consolidation

  15. Impact on governance, inclusion, stability • Transparency: unclear and changing PDD rules probably fed uncertainty, perhaps cynicism. • Inclusion: • Participation in planning has triple pay-off: voice benefits, investment efficiency, dispute pre-emption • Little evidence of “elite capture” of assets • Contracting benefits also widely spread, under PDD but also PDL • Modest job opportunities, but made widely available • Disputation: the rate of project & contractor disputes under PDD is worrisome

  16. Did PRF/DDP outperform LDP? • PR and DDP short cut procedures were introduced to i) expedite spending, ii) increase job and contractor impact. No significant differences found in • Rate of execution / spending project completion • Contracts equally widely spread • Consistency with national priorities much the same Were these systems the best way to fund contractor capitalization and capacity? • Yes, given banks not working properly

  17. Main messages • The PKF/PDD was a smart move to unblock the system, stimulate the private sector, consolidate the peace, etc. (possibly a ‘New Deal’ exemplar) • Three years on, while the results are lumpy, this policy objective has been largely achieved. • Now it is time to normalise/stabilise the system, • Improve district allocations; introduce open tendering, decentralise payments; invest in technical supervision for better results (‘assets’ and disputes); introduce simple ‘district performance measures’ • Largely, this is what PDID Decree Jan ’12 intends • The study offers detailed practical advice on priorities immediately relevant to PDID Task Groups

  18. Key recommendations • Promote the power of ex ante District budget allocation • Will get better matching with poverty/needs, improved planning, transparency and performance • Marry current prequalification arrangements with competitive tendering • Will get cost savings, better contractor performance, enhance legitimacy of process • Beware of false economies on technical staff • Sort out NDA/LM responsibilities on certification/payment • Get more technical staff in LM in districts • Allow small % of grants to be used for technical support • Sort out the treasury function – District treasuries, banking payments • Revert to local payments, with IFMIS, big cost, time and legitimacy gains

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