Document of The World Bank FOR OFFICIAL USE ONLY Report No. 75263-TP INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND INTERNATIONAL DEVELOPMENT ASSOCIATION AND INTERNATIONAL FINANCE CORPORTATION COUNTRY PARTNERSHIP STRATEGY FOR THE DEMOCRATIC REPUBLIC OF TIMOR-LESTE FOR THE PERIOD FY2013-FY2017 February 19, 2013 Timor-Leste, Papua New Guinea, and Pacific Islands Country Management Unit East Asia and Pacific Region The International Finance Corporation East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Last Country Assistance Strategy: June 22, 2005 (Report No. 32700-TP) CURRENCY EQUIVALENT Currency Unit = US Dollar Fiscal Year (January 1 to December 31) ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Work Information System ADB Asian Development Bank ESDP Energy Services Delivery Project AF Additional Financing ESI Estimated Sustainable Income APIP Agriculture Productivity ESMAP Energy Sector Management Improvement Project Assistance Program ARP Agriculture Rehabilitation ESW Economic and Sector Work Program EU European Union ASTAE Asia Sustainable and Alternative FAO Food and Agriculture Organization Energy Program of the United Nations BETF Bank-Executed Trust Fund FDI Foreign Direct Investment BNPP Bank-Netherlands Partnership FIRST Financial Reform and Program Strengthening Initiative CAS Country Assistance Strategy FM Financial Management CASCR Country Assistance Strategy FTI Fast Track Initiative Completion Report GAFSP Global Agriculture and Food CASPR Country Assistance Strategy Security Program Progress Report GDP Gross Domestic Product CGAP Country Gender Action Plan GEF Global Environment Facility CCI Chamber of Commerce and GER Gross Enrollment Rate Industry GNI Gross National Income CCSD Center for Conflict, Security and GoTL Government of Timor-Leste Development HDI Human Development Index CEDAW Convention to End All Forms of HIES Household Income and Discrimination against Women Expenditure Survey CPE Country Program Evaluation HIV/AIDS Human Immunodeficiency CPI Consumer Price Index Virus/Acquired Immunodeficiency CPS Country Partnership Strategy Syndrome CSC Civil Service Commission HMIS Health Management Information CSO Civil Society Organization System CSP Consolidation Support Program IBRD International Bank for DfID Department for International Reconstruction and Development Development ICR Implementation Completion DHS Demographic and Health Survey Report DSA Debt Sustainability Analysis ICT Information and Communication DTIS Diagnostic Trade Integration Technology Study IDA International Development EAP East Asia and the Pacific Association EC European Commission IDF Institutional Development Fund EDF European Development Fund IEG Independent Evaluation Group EDTL Electricidade de Timor-Leste IFC International Finance Corporation EGRA Early Grade Reading Assessment ILO International Labour Organization EITI Extractive Industries Transparency IMF International Monetary Fund Initiative IMfTL Instituicao de Microfinancas de EMIS Education Management Timor-Leste IRI International Roughness Index PMO Prime Minister’s Office ISF International Stabilization Force PPP Public-Private Partnership ISN Interim Strategy Note PROST Pension Reform Options J4P Justice for the Poor Simulation Toolkit JICA Japan International Cooperation PSG Peacebuilding and Statebuilding Agency Goal LICUS Low Income Countries under PSIA Poverty and Social Impact Stress Analysis LNG Liquefied Natural Gas QAG Quality Assurance Group MAF Ministry of Agriculture and QER Quality Enhancement Review Fisheries RD&E Research, Development and MDG Millennium Development Goal Extension M&E Monitoring and Evaluation RETF Recipient-Executed Trust Fund MIGA Multilateral Investment Guarantee SAMES Autonomous Service of Medicines Agency and Health Equipment MIS Management Information System SDP Strategic Development Plan MOE Ministry of Education SIL Specific Investment Loan MOF Ministry of Finance SME Small and Medium Enterprises MOH Ministry of Health STD Sexually Transmitted Disease MSS Ministry of Social Solidarity SWAps Sector Wide Approaches MTEF Mid-Term Expenditure TA Technical Assistance Framework TF Trust Fund NESP National Education Strategy Plan TFET Trust Fund for East Timor NGO Non-Governmental Organization TLAAC Timor-Leste Agricultural Advisory NHSSP- National Health Sector Strategic Committee SP Plan Support Program TLARDI Timor-Leste Research and NLTA Non-Lending Technical Assistance Development Institute NPs National Priorities UN United Nations ODA Official Development Assistance UNDP United Nations Development OIG Office of the Inspector General Programme PforR Program for Results UNICEF United Nations Children’s Fund PEFA Public Expenditure and Financial UNMIT United Nations Integration Accountability Mission in Timor-Leste PER Public Expenditure Review USAID United States Agency for PF Petroleum Fund International Development PFM Planning and Financial WBG World Bank Group Management WBI World Bank Institute PFMCBP Planning and Financial WDR World Development Report Management Capacity Building Program WORLD BANK IFC Vice President: Axel van Trotsenburg Karin Finkelston Country Director: Franz Drees-Gross Sergio Pimenta Country Manager: Luis Constantino Gavin Murray Team Task Leader: Luis Constantino / Pamela Dale Milissa Day FY2013 – 2017 COUNTRY PARTNERSHIP STRATEGY THE DEMOCRATIC REPUBLIC OF TIMOR-LESTE TABLE OF CONTENTS EXECUTIVE SUMMARY ................................................................................................ i I. COUNTRY CONTEXT .....................................................................................................1 A. EMERGING FROM FRAGILITY .......................................................................................1 B. SUPPORTING MACROECONOMIC STABILITY AND THE NON-OIL ECONOMY ....................2 C. REDUCING POVERTY AND PROMOTING OPPORTUNITY ..................................................5 D. INVESTING IN THE QUALITY OF HUMAN C APITAL .........................................................6 E. STRENGTHENING INSTITUTIONS, SPENDING, AND GOVERNANCE ...................................7 II. TIMOR-LESTE’S STRATEGIC DEVELOPMENT PLAN ............................................8 III. REVIEW OF PAST WORLD BANK GROUP ENGAGEMENT ....................................9 A. LESSONS FROM CAS/ISN COMPLETION REPORT ..........................................................9 B. FINDINGS FROM THE IEG COUNTRY PROGRAM EVALUATION ..................................... 10 C. FEEDBACK FROM STAKEHOLDER C ONSULTATIONS .................................................... 10 D. INTEGRATING LESSONS LEARNED FOR THE NEW CPS ................................................ 10 IV. COUNTRY PARTNERSHIP STRATEGY, FY2013-2017 ............................................. 11 A. IMPLEMENTATION PRINCIPLES ..................................................................................11 B. INSTRUMENTS ..........................................................................................................14 C. STRATEGIC AREAS AND RESULTS ..............................................................................16 V. RESULTS AND RISKS ...................................................................................................21 A. RESULTS FOCUS .......................................................................................................21 B. MANAGING RISKS AND VULNERABILITIES ................................................................. 21 Boxes: Box 1: Timor-Leste’s Petroleum Fund ......................................................................................................... 3 Box 2: Alignment of the CPS with the New Deal for Engagement with Fragile States ............................. 12 Figures: Figure 1: Funding Sources for Public Spending, 2010-2016 (projected) ..................................................... 4 Tables: Table 1: Indicative New IDA, IBRD, IFC Financing, Trust Funds, Global Partnerships, AAA, and IFC Advisory Services (FY13-14) .................................................................................................................... 16 Table 2: Risks and Mitigation Strategies .................................................................................................... 22 Annexes: Annex 1: Timor-Leste Country Partnership Strategy Results Matrix ......................................................... 24 Annex 2: Country Assistance Strategy Completion Report........................................................................ 34 Annex 3: Assessing Gender Disparities in Timor-Leste ............................................................................. 77 Annex 4: Commitments under the New Deal for Engagement in Fragile States........................................ 79 Annex 5: Overview of Main Trust Funds ................................................................................................... 80 Annex 6: Summary of 2011 IMF/WB Debt Sustainability Analysis .......................................................... 81 Annex 7: Development Partner Focal Areas and Links to the Government’s Program ............................. 83 Annex 8: Standard Country Assistance Strategy Annexes ......................................................................... 85 Map of Timor-Leste: IBRD No. 33496R Acknowledgements The FY13-17 Timor-Leste Country Partnership Strategy was written by Pamela Dale under the guidance of Luis Constantino and Milissa Day, with considerable assistance from the following task team members: Hans Anand Beck, Amanda Green, David John Hook, Felix Maia, Jane Distelhorst Sansbury, and João dos Santos. Constructive feedback and substantive inputs were provided at the concept and drafting stage by Sakuntala Akmeemana, Hamid Alavi, Catherine Anderson, Jock R. Anderson, Mitsuyoshi Asada, Ziyad Bathiche, Chris Bleakley, Valery Ciancio, Franz Drees-Gross, Natasha Beschorner, Isabel Blackett, Edie Bowles, Fabrizio Bresciani, Helle Buchhave, Mukesh Chawla, Dandan Chen, Marguerite Clarke, Stephen Close, Larry Cui, Alan Cunningham, Franz Drees-Gross, Isabella Drossos, Rideca Carvalho Duarte, Leslie Elder, Ozong Agborsangaya-Fiteu, Anthony Gorman, Lene Ostergaard Jensen, Shyam KC, Laura Keenan, Michel Kerf, Vilija Kostelnickiene, Yi- Kyoung Lee, Maria Belo Leite, Esther Loening, Catherine Sarah Martin, Andrew Mason, Juan Carlos Mendoza, Jean-Baptiste Migraine, Mary Mulusa, Gavin Murray, Sheila Braka Musiime, John Nasir, David Newhouse, John Nyaga, Junko Onishi, Reidun Otteroy, Truman Packard, Sudesh Ponnappa, Josefina Posadas, Helene Carlsson Rex, Neil Saker, Yaye Seynabou Sakho, Florencio Sanches, Ethel Sennhauser, Kanthan Shankar, Sudhir Shetty, Jose Ricardo Silva, Maria Isabel Alda da Silva, Hoon Sabih Soh, Vivek Suri, Rob Taliercio, Roberto Tarallo, Natsuko Toba, Anne Tully, Joel Turkewitz, Nithin Umapathi, Elise Vanormelingen, Lorena Vinuela, John Vivian, Mitchell Wiener, Angela Williamson, Phillip Young, and Xiaoqing Yu. EXECUTIVE SUMMARY Over the past decade, Timor-Leste has created the preconditions for successful development. It has credibly emerged from a crisis of internal violence and political instability in 2006/7, built an “inclusive enough� coalition, and increased tangible services for the population, creating a hard-won political stability, absence of conflict and a new confidence in the state. Reflecting these achievements, it underwent largely peaceful democratic elections for President (March and May 2012) and Parliament (June 2012), and an orderly transition to the Fifth Constitutional Government. The United Nations Integrated Mission for Timor-Leste (UNMIT) and the International Stabilization Force (ISF), both deployed following the 2006 crisis, completed their missions in December 2012 and have withdrawn from the country upon request from the government. The United Nations Security Council, applauding Timor-Leste’s political and security achievements, ended its tutelage over the country at the end of 2012. Educating, keeping healthy, and productively employing its young population are the biggest development challenges facing Timor-Leste in the next decade. With 60 percent of the population under 25 years of age, the demographics are daunting. Reaping the benefits of high global oil prices, Timor-Leste achieved lower middle-income status in 2011, but poverty remains persistently high, particularly in the rural areas where the majority of the population lives. Oil revenues have funded an expansion of social services to improve human development performance, but with limited capacity in the public and private sector service providers. The job market struggles to provide for a population growing at 2.41 percent per year. Important development indicators, such as infant and maternal mortality, have improved, but indicators of child nutritional status have deteriorated. The impressive increases in school enrollment have not been accompanied by improvements in educational outcomes and low literacy rates persist, particularly for women and girls. Over 70 percent of total employment is vulnerable. Most of the rural poor rely upon low productivity subsistence agriculture for livelihoods, and experience periods of food insecurity. The Government is candid about the huge challenges the country faces and is looking for solutions. Timor-Leste recently completed a fragility assessment to identify successes, as well as remaining stressors that could derail stability. It is a leader in transparency (including compliance with the Extractive Industries Transparency Initiative, or EITI), and is leveraging its accomplishments through leadership of the g7+ platform for engagement in fragile states. However, the government recognizes that Timor-Leste remains the second most oil dependent economy in the world, and known reserves are finite. With public spending funded almost entirely from the wealth accumulated in its Petroleum Fund, medium-term fiscal sustainability is a concern. Government also recognizes the limitations of the public sector, not atypical of a very young nation emerging from conflict, and puts capacity building of people and institutions at the forefront of its priorities. To create job opportunities for youth, sustain inclusive growth, and prepare for a future of potentially declining natural resource returns, Timor-Leste needs to diversify its economy and sources of revenue, elevate the quality of health and education services, and equip the population with viable skills. In order for these efforts to be successful, they must be underpinned by capable institutions with a strong and consistent focus on quality of spending and policies that nurture private investment. Recognizing this imperative, the government has laid out its vision for private sector-led growth to create jobs and income, and tackle persistent poverty. It conducted a participatory planning process to design a Strategic Development Plan (SDP) for the 2011-2030 period. The SDP offers a vision, targets and indicators, phased over the next two decades. It is built around four pillars: (i) Social capital, which is comprised of health, education and social protection, and aims to improve human development outcomes, create a labor force with marketable skills, and protect the i vulnerable; (ii) Infrastructure, including transport, telecommunication, power, and water supply and sanitation, to increase connectivity, reduce transaction costs and attract private investment, and facilitate access to services; (iii) Economic foundations, which targets three sectors for development – agriculture, tourism and petrochemicals – to bring about non-oil growth, jobs, and new sources of public revenues; and (iv) a cross-cutting theme, Institutions, for sound macroeconomic management, to improve the capacity and effectiveness of state institutions through civil service reform and good public financial management, and to strengthen mechanisms of oversight, including the transparency of public decision-making. The Bank Group's Country Partnership Strategy (CPS) is fully aligned with the Government of Timor-Leste’s (GoTL) SDP and sets out a focused program of lending, analytical and advisory work (AAA), trust funds (TFs) and convening services grouped around the four pillars in the SDP. The World Bank Group (WBG) will assist the 5th constitutional government to establish the building blocks for a non-oil economy through catalytic investments in priority sectors and demonstrable improvements in institutional quality and in the quality of public spending. In particular, the WBG will help the government to (i) invest in the quality of health and education services and the effectiveness of social protection programs; (ii) build core infrastructure to connect communities to services and markets and reduce transaction costs; and (iii) support the development of a non-oil economy that creates jobs by improving the enabling environment for private sector investment and augmenting the productivity and value-added of agriculture. Underpinning each of these activities will be a focus on leveraging knowledge to strengthen the capacity of public sector institutions to improve the quality of spending of the country’s finite oil wealth. Each activity planned during the CPS period is designed to increase the government’s capacity to deliver core services, by putting in place essential institutional building blocks – including systems and policies and a well-equipped civil service. Stronger institutions will not only contribute to better and more transparent service delivery over the long-term, but will also ensure that Timor-Leste’s time-limited natural resource wealth is used productively. The CPS marks a number of transitions. First, it reflects the lessons learned from the Bank Group's previous Country Assistance Strategy (CAS, 2005) and Interim Strategy Note (ISN, 2009), which in hindsight were overly ambitious and broad for a fragile, post-conflict development context. As a result, the CPS recognizes both the need to be more selective and flexible in order to meet development priorities as they evolve. Second, after a decade in which the Bank's financial instruments involved only International Development Association (IDA) grants (with substantial donor co-financing through trust funds), the present CPS marks a transition to a program of IDA credits and International Bank for Reconstruction and Development (IBRD) loans that reflects both Timor-Leste's economic growth and its capacity to finance its own development through oil revenues and limited debt. Finally, the CPS period (FY13-17) is fully aligned with the GoTL's term in office and fully consistent with the transition from post-conflict stabilization to a carefully calibrated program of national development. ii I. COUNTRY CONTEXT 1. The WBG’s FY2010-2011 Interim Strategy Note was developed in the aftermath of violence that left one-tenth of the population displaced and highlighted remaining political and social divisions in the young nation. The 2006-7 crisis was the product of institutional weaknesses of the security forces, elite political tensions, and the massive social and economic disruptions remaining from the post-referendum violence of 1999. Following a deterioration of public order and the breakdown of basic government functions, the 4th constitutional government, which came to power in 2007, concentrated on resolving grievances, rebuilding public trust, and securing internal peace. Long-term strategic planning and efforts to shore up and diversify the petroleum-dominated economy commenced, but substantial uncertainty remained about both government priorities and the operating environment. In this environment of uncertainty, an ISN was chosen to provide greater flexibility and responsiveness to emerging priorities. 2. Since the crisis, Timor-Leste has become increasingly economically independent, with own-resources far surpassing Official Development Assistance (ODA), and has provided a country-led direction for development with the issuance of a Strategic Development Plan (SDP). In support of this plan, and cognizant that a weak public sector is the main impediment to development, the government requested that the WBG provide: (i) discrete analytical and technical assistance for capacity-building linked to development priorities; and (ii) operations in critical areas that offer demonstration effects and high potential for replication in government investments. Though challenges remain on the pathway out of fragility, and there are substantial risks in the current development trajectory, there will be a clear evolution for the WBG from assistance to partnership, reflected in the shift to a Country Partnership Strategy for fiscal years 2013-2017. 1 A. EMERGING FROM FRAGILITY 3. At independence in 2002, the new Democratic Republic of Timor-Leste inherited the daunting task of rebuilding a state from the ground up 2. Occupation and conflict left behind poorly functioning and understaffed government institutions, and destroyed basic infrastructure. Over 95 percent of schools and 80 percent of health centers had been destroyed, and human resources depleted as teachers and professionals fled the country. More than one in ten children were dying before they reached their fifth birthday. 4. Development achievements over the past decade are substantial, but the 2006/07 internal violence was a sobering call to leaders that many stressors remained. The government that came into power in 2007 focused on creating an inclusive coalition with a stake in stability and in generating confidence that the state was prepared to respond to the needs of its people. It established a system of cash transfers to address demands of the veterans of the resistance, as well as the elderly and poor families, funded through the oil revenue windfall. It rapidly increased expenditures in highly visible areas such as power supply and distributed funds in districts and sub districts for smaller scale infrastructure, to create jobs and support the nascent private sector through contracts that spread rewards across party lines and affiliations. 1 The CPS duration is designed to coincide with the mandate of the 5th constitutional government. 2 After the departure of the Portuguese colonial administration in 1975 and a brief but violent internal conflict for power, the Indonesian army occupied the territory, triggering an armed resistance that fought the occupation until 1999 when a referendum confirmed that the vast majority of the Timorese wanted independence. This was followed again by a violent conflict until 2002 when independence was formally recognized. 1 5. After five years of hard won stability and absence of conflict, Timor-Leste is looking towards the next five years as an opportunity to sustain growth, accelerate development and reduce poverty. The United Nations Integrated Mission in Timor-Leste and International Stabilization Force (ISF), both of which were deployed to Timor-Leste following the 2006 crisis, ended their mandates in December of 2012 and the United Nations (UN) Security Council terminated its oversight of Timor-Leste upon request of the government. While confident in continued stability, the government is also candid about risks, recognizing that decisions made to reduce fragility in the short term, for example cash payments and procurement practices, could spawn or deepen political fractures, undermine institutional effectiveness, and endanger fiscal sustainability over the long term. 6. The government led a Fragility Assessment in mid-2012 to identify remaining stressors that could undermine Timor-Leste’s stability and derail the development process. The Fragility Assessment reviewed Timor-Leste’s progress against five Peacebuilding and Statebuilding Goals (PSGs) agreed as part of the New Deal for Engagement in Fragile States. 3 The assessment concluded that Timor-Leste has made substantial progress in Legitimate Politics and Security, reflecting the recent stability, a functioning parliament, and a sense of political inclusion across different groups. The assessment also identified some progress on Revenues and Services, although overdependence upon oil and inadequate budget execution were identified as risks. Justice still faced severe shortfalls; some participants in the consultations characterized it to be at “crisis� level given limited access to formal justice and the degree of impunity prevailing in the country, in particular with the perceived increase in corruption. Economic Foundations remain weak, as demonstrated by persistently high youth unemployment, poor human development outcomes, regional inequities and food vulnerability. Other potential stressors include perceptions of unfairness in the distribution of oil revenues, eventual reductions of cash transfers due to fiscal constraints, the return of refugees, and latent land disputes and grievances. B. SUPPORTING MACROECONOMIC STABILITY AND THE NON-OIL ECONOMY 7. Timor-Leste remains the second most oil-dependent country in the world, yet known reserves are limited. Timor-Leste’s oil wealth, which is collected in the Petroleum Fund (PF) and drawn into the state budget, provides fiscal space and supports imports essential for development. But reserves from fields currently under production may not last beyond 2025 at current rates of extraction, and revenues are estimated to have peaked at US$2.8 billion in 2011. The Greater Sunrise gas fields could extend the natural resource windfall, and other discoveries may yet be made, but for such an oil-dependent economy, caution is necessary in the face of uncertainty. Future generations will only benefit from this wealth if it is well invested. Finite petroleum wealth provides only a window of opportunity to build a non-oil economy and the foundation for inclusive and sustainable growth. The choices made over the CPS period will thus shape Timor-Leste’s economic future. 8. The government is drawing double the estimated sustainable income (ESI) from the PF to address pressing development needs, but could risk fiscal sustainability, especially if it does not maintain a high quality of public investments. The PF is the reservoir for Timor-Leste’s petroleum revenues, and is currently worth nearly US$11 billion, or around ten times non-oil gross domestic product (GDP). It is EITI compliant, and shields the budget from increasingly volatile oil 3 The New Deal for Engagement in Fragile States is a compact championed by the g7+ group of fragile and conflict affected countries and regions, a multi-government advocacy and policy body made up of 18 countries across Africa, Asia, and the Pacific. Forty countries and international organizations, including the World Bank, endorsed the New Deal at the Fourth High Level Forum on Aid Effectiveness in Busan (November 2011). The New Deal establishes new principles for development architecture (outlined in Annex 3) and calls for new ways of working that better respond to the needs and challenges faced by fragile countries. 2 prices. The non-oil deficit (total public spending less domestic revenue) was 130 percent of non-oil GDP in 2011, and was financed by PF withdrawals. These excess withdrawals will, on present assumptions, slow the growth in the value of the PF and ESI, but may also spur non-oil growth and generate partially compensating domestic revenues. Fiscal sustainability is heavily dependent on improving the quality of public spending and selecting and implementing projects that build a sufficient non-oil revenue base. This revenue rebalancing, together with planned medium-term cuts to public spending, is designed to protect fiscal sustainability and ensure appropriate consideration and weight is given to the long-term needs of the country. But cuts, especially to recurrent spending, could prove difficult, and would require limited or no nominal increases in salaries and benefits for civil servants, public transfers and capital expenditure. The government is also considering deficit financing, and contracted foreign debt for the first time in 2012. It is also exploring public-private partnerships (PPPs) with, among others, the International Finance Corporation (IFC). Box 1: Timor-Leste’s Petroleum Fund 4 The design of Timor-Leste’s Petroleum Fund is widely considered international best practice. It was established by the Petroleum Fund Law of 2005, revised in 2011. With a design drawing from the Norwegian experience, it is intended to provide transparency and accountability on the use of public revenues, protect public finances from income volatility, and help strike the appropriate balance between current spending and savings for future generations. Management. The Fund is an account with the Central Bank which has been designated the Operational Manager of the Petroleum Fund. External investment managers can be contracted to manage investments. The Petroleum Fund Law requires that all assets are invested abroad, with at least 50 percent invested in investment grade bank deposits and debt instruments; up to 50 percent invested in equities in regulated financial markets; and up to 5 percent invested in other asset classes. Withdrawals. Transfers from the Fund can only be made to the single state treasury account. Transfers are contingent upon the government providing parliament with a report specifying the Estimated Sustainable Income (ESI), calculated each year as 3 percent of the sum of the Fund balance and the present value of expected future petroleum receipts. The ESI is certified by an independent auditor. Savings. To preserve the real value of the country’s petroleum wealth, withdrawals from the Fund are guided by the ESI. Withdrawing more than ESI requires the government to provide parliament with a detailed explanation of why it is in the long-term interests of the country, and also a report certified by the independent auditor estimating the impact on future ESI. Transparency. Revenues and transfers into the government budget are publicly disclosed. All petroleum revenue and investment income goes into the Fund. Withdrawals can only be used to finance expenditures of the state budget. The Central Bank publishes quarterly reports on the performance and activities of the Fund. The government submits an annual report with an audited financial statement. Details on revenue and composition of the investment portfolio are also fully disclosed. Performance. The Petroleum Fund is currently valued at about US$11 billion. It has grown in value above expectations due to soaring oil prices. The present value of petroleum wealth including the Petroleum Fund is estimated at $26 billion. The ESI is estimated to be about $750 million. Since 2008, government spending has exceeded the ESI. 4 Box 1 was derived, with minor edits, from the IMF 2009 Country Report No. 09/220. 3 9. Timor-Leste’s economy has performed admirably, but is sensitive to global oil prices, and subject to fiscal risks and inflation. The economy is officially dollarized, which helps to mitigate, though does not fully prevent, the Dutch Disease that can afflict resource rich economies. Annual non-oil economic growth averaged nearly 12 percent over the past five years and is projected to remain at double-digit levels during the CPS period, outpacing the rest of the East Asia and Pacific region, though from a very low base. Growth is largely driven by public spending, 90 percent of which is petroleum-financed. Services related to trade and transport also contribute to growth, as does agriculture, which together with tourism and a downstream petro-chemical industry underpin the government’s hopes for economic diversification. However, agriculture in particular is underdeveloped and characterized by low productivity, contributing to persistent poverty and food insecurity in rural areas. Figure 1: Funding Sources for Public Spending, 2010-2016 (projected) 10. Medium-term inflation is forecast to remain near double digits, as public spending adds to aggregate demand, and supply bottlenecks persist. Despite easing to 11 percent in July 2012, inflation (as measured by the Consumer Price Index (CPI) in Dili) has been on the rise, peaking at 17.7 percent in January 2012. Other major determinants of inflation are global food prices (food constitutes 60 percent of the CPI basket and half of all food is imported) and the depreciation of the US dollar relative to Timor-Leste’s major trading partners, both of which constitute upside risk factors. Higher-quality public spending would ease pressures by enhancing the economy’s supply side and absorptive capacity. Persistently high inflation, while common in high-growth situations, exacerbates poverty and compromises competitiveness and economic diversification in the longer term. This concern is fuelled by a recently agreed minimum wage of US$115/month, one of the highest relative-to-average wages in the world. 4 C. REDUCING POVERTY AND PROMOTING OPPORTUNITY 11. Poverty was measured at 49.9 percent in 2007 and preliminary analysis in advance of a planned household survey and poverty assessment suggests there may be some persistence. The assessment will need to consider the inclusiveness of Timor-Leste’s economic growth and the poverty impacts of the increasing public spending on basic services and social protection. 12. Low agricultural production and persistent food insecurity remain pressing concerns, and are priorities for growth and poverty reduction. Agriculture remains an important buffer that absorbs excess labor, albeit with low value-added and salaries. Over 70 percent of the population, and over 80 percent of the female workforce, is engaged in subsistence agriculture, where low crop yields persist. Annual rice and periodic maize deficits contribute to malnutrition rates that are among the highest in the world. Shortfalls in agricultural production are driven by poor agricultural management practices, liquidity constraints which limit access to commercial inputs, poor infrastructure and high market access costs, and insufficient agricultural investment, both public and private. Improving agricultural yields and expanding income opportunities in rural upland and highland areas, including through production of coffee, other cash crops, and high-value hardwoods for the export market, will be essential to reduce rural poverty. These expanded income opportunities, coupled with enhanced access for the poor to better basic services, will help tackle inequality, which is shown to have widened slightly since 2007. 13. Though Timor-Leste is very minor emitter of greenhouse gases, it is vulnerable to the effects of climate change and natural disasters. Timor-Leste is prone to frequent landslides, destructive winds, and droughts. Also faces a substantial risk of earthquakes and potentially tsunamis in a few points on the southern coast. Its mountainous terrain makes it particularly prone to floods, which often destroy infrastructure and homes and further endanger crops. 63.7 percent of households in Timor-Leste reported a natural or biological shock in 20105 and a majority reported spending savings or selling productive assets to cope with the impacts. 14. The private sector has substantial growth potential, and is expected to drive growth in the priority sectors identified in the SDP, but faces significant constraints in the investment environment, and infrastructure bottlenecks. The Government of Timor-Leste made some progress in 2012 toward improving the investment climate by passing regulation for a One Stop Shop for business entry to reduce the time required to start a business. It also passed a law on collateral, and approved a PPP Law. Access to credit, including microcredit, has improved in the past year, but large unmet demand for finance for micro, small, and medium enterprises remains, with 270,000 unbanked citizens (even not counting people outside the cash economy) and the potential for 80,000 new borrowers. Small and medium enterprise linkages, essential to growth, are underdeveloped. Commercial credit is constrained by weak institutions for contract enforcement, a significant barrier to foreign direct investment. The persistent lack of legal clarity around land ownership and usage rights and the potential for conflict around land expropriations and evictions from state land are also substantial impediments. Infrastructure constraints–including poorly-maintained roads, airports with low passenger and freight capacity, the high cost and low usage rates of telecommunications, and slow operation of ports–continue to impede business development, raising the cost of inputs and limiting market access. 5 Data derived from the 2010 HIES. 5 15. Timor-Leste enjoys a substantial demographic dividend, but capitalizing on this requires investments in skills development to meet the needs of the labor market. An estimated 61.5 percent of the population is under 25 years of age; this proportion is expected to decrease only slightly to 59.2 percent by 2025. 6 At 14 percent, the labor force participation rate of young people (aged 15-24) is low by regional standards and a serious education and skills gap, as well as the limited development of the non-oil private sector, hinders their ability to find productive employment. 7 Young women in particular are underrepresented in the labor force, with a participation rate of just 10 percent. The demographics feed the urgency of promoting growth that can absorb the labor supply materializing in the coming years, and to public education, health, and training services to build a productive, qualified, and skilled population. D. INVESTING IN THE QUALITY OF HUMAN CAPITAL 16. Though it has made progress towards its Millennium Development Goal (MDG) targets in critical areas, including reductions in under-5 and infant mortality rates and literacy gains for some groups, Timor-Leste is unlikely to reach its MDG targets by 2015. 8 Timor-Leste ranks 147th out of 187 countries on the UN’s Human Development Index (HDI 2011); HDI has been increasing slowly since a post-crisis decline in 2007. Despite increased access to education, primary school completion rates remain low. Education quality is a concern; a 2009 Early Grade Reading Assessment (EGRA) found that 70 percent of students were unable to read a single word of a simple text by the end of grade one, decreasing to 20 percent by the end of grade three. Childhood malnutrition likely contributes to low school achievement rates, poor health outcomes, and low productivity, and remains a significant concern. Levels of both stunting and wasting increased between 2003 and 2009. The maternal mortality ratio is also among the highest in the world (557/100,000 live births), reflecting weak health systems, poor infrastructure, and insufficient care for mothers during pregnancy and delivery. 9 17. Achievements in gender equality have been mixed, and gender disparities remain within households, markets, and institutions. Gender equality is enshrined in the Constitution and international conventions to which Timor-Leste is a signatory; however, enforcement of legislation is weak in areas such as protection from gender-based violence. 10 Violence outside the household disproportionately impacts men, as both perpetrators and victims of crime. The gender gap in education has shrunk at the primary and pre-secondary levels, but girls’ school enrollment declines substantially at the secondary and tertiary levels. Child mortality and undernutrition rates are high for 6 Data derived from World Bank Pension Reform Options Simulation Toolkit (PROST) modeling, based on 2010 census figures. 7 Labor force participation statistics sourced through the 2010 Timor-Leste Labor Force Survey. 8 The g7+ argue that MDGs should not be their immediate target as consolidating peace and ensuring stability are their foremost priorities; very few fragile countries will meet any of the MDGs by 2015. The g7+ are developing PSG indicators as part of the New Deal to monitor performance as a short-term alternative to MDGs. 9 Timor-Leste is unlikely to achieve MDG5 on improved maternal health. Poor performance on maternal health has a variety of causes, including poor quality and coverage in rural areas, lack of information on family planning and reproductive health, and low prevalence and quality of antenatal care. 10 The latest demographic and health survey (2010) finds that approximately one-third of women (38 percent) have experienced physical violence since age 15. One percent of women experienced physical violence often, while 28 percent experienced physical violence sometimes in the past 12 months (National Statistics Directorate, et al, 2010. Timor-Leste Demographic and Health Survey 2009-2010. Dili: National Statistics Directorate). The police Vulnerable Persons Unit reports over 1,000 cases of domestic violence per year in Dili alone, and calculates that for every reported case, at least ten are unreported. 6 both genders, but affect boys disproportionately. 11 Labor force participation rates and wages are lower for women. According to an IFC report on Economic Opportunities for Women in the Pacific, women are heavily represented in work in subsistence agriculture, and make up over 40 percent of microentrepreneurs. However, just 16 percent of formalized businesses in Timor-Leste are owned by women. While formalization is challenging for both genders, women face additional barriers due to lower literacy rates, poor financial literacy, and lack of collateral due in part to limited access to land ownership. Adjusted for household size, female-headed households are poorer than male-headed households. On the positive side, women’s representation in senior decision-making positions, including parliamentary positions and ministerial appointments, is high by regional standards. 18. Timor-Leste’s social protection programs are among the most generous in the developing world, but were designed to consolidate peace, not to address poverty. Cash transfers commenced in 2008 for veterans of the resistance and their survivors, the elderly, people with disabilities, and vulnerable children. School feeding, cash-for-work, rice importation and subsidy programs, and most recently a civil service pension complement these programs. At 9 percent, Timor-Leste is a leader in the region in the proportion of the government budget allocated to social protection spending. However, recent data suggest that the poverty impact of these programs is not commensurate with the level of spending, reflecting implementation challenges and the lack of poverty-focused targeting. 12 There are also growing concerns that the substantial entitlements, particularly those for veterans and their survivors, are fiscally unsustainable, and the distribution of subsidized rice may have a negative impact on domestic staple food production. E. STRENGTHENING INSTITUTIONS, SPENDING, AND GOVERNANCE 19. Timor-Leste has made progress in establishing the institutions of the state. The architecture of the state is in place, and institutional credibility is growing. Yet, capacity remains weak and the government has identified the strengthening of institutions as a priority area of assistance to improve service delivery and outcomes. A recent report on Timor-Leste by the World Bank’s Independent Evaluation Group (IEG) noted that the development of state institutions from 2000 to 2010 had proved especially challenging in this new country due to the low human skills base, language barriers, and the absence of effective capacity building strategies. Furthermore, achieving basic governance transformations takes time. For example, bringing corruption under control took the fastest reformers an average of 27 years. 20. Rapidly increasing public spending in face of still weak institutions raises concerns over corruption. Timor-Leste has taken some high profile measures to counter corruption, such as participation in the Extractive Industry Transparency Initiative, and it made substantial improvement in the Transparency International Corruption Perceptions Index between 2011 and 2012. 13 However, the government’s audit reports presented to Parliament have observed that control of underlying corruption at a time of rapidly increasing public spending is proving extremely challenging. The government needs to address the increasing concerns over corruption and send strong signals that corruption will not be tolerated, in particular by addressing the impunity resulting from weaknesses in the justice system. The transparency of government actions on budgeting, spending and procurement through on-line platforms are an important step in this direction, as they make 11 The disproportional rate of malnutrition and child mortality among boys could be due to biological differences between boys and girls, or cultural practices such as child feeding. Research on this topic is ongoing. 12 With the exception of a conditional cash transfer for children in poor households, none of the cash transfers implemented by the government are explicitly poverty targeted. 13 Timor-Leste’s was ranked 143 out of 182 countries in the 2011 index, and moved to 113 of 176 countries in 2012. 7 information available in a timely fashion to the public at large, but more needs to be done to empower citizens to interpret and act on this information. 21. The WBG will help the government to strengthen institutions that have a significant impact on achievement of the Strategic Development Plan. This institutional strengthening will support a gradual transition away from the current heavy reliance on external advisors for line Ministry functions. Increased institutional performance over the budget and project cycles has the potential to contribute significantly to economic growth. II. TIMOR-LESTE’S STRATEGIC DEVELOPMENT PLAN 22. The SDP (2011-2030) lays out an ambitious agenda aimed at propelling Timor-Leste to upper middle income country status, eradicating extreme poverty, and establishing a diversified economy by 2030. Growth projections in the strategy assume high oil prices and substantial government expenditure 14 over the first decade to build the foundations for increased private sector investment and economic diversification. The SDP is built on three pillars: (i) social capital, covering human development, gender, and social inclusion; (ii) infrastructure development; and (iii) economic development for a non-oil economy. A fourth cross-cutting pillar addresses institutions and macroeconomic foundations that underpin implementation. The essence of the SDP can be summarized as:  Continue investing in human capital through improved access and quality of health, education and skills development while protecting the vulnerable. Private sector investment, productivity, and economic growth require a healthy, well-educated population, with skills matched to the job market. The SDP outlines a strategy of investments in education and health infrastructure and facilities to keep up with the growing population, as well as increased investments in human resources development, and developing education and health standards to improve service quality. Vocational training and investments through the Human Capital Development Fund are expected to build the appropriate skills to employ the population in planned growth sectors (e.g., agriculture, petroleum, tourism, construction). The SDP prioritizes social inclusion, with specific targets for women’s access to education and health services, and commitments to provide assistance for vulnerable families, youth, and other at-risk populations.  Use natural resource wealth to fund catalytic infrastructure. Inadequate, costly, and poorly-maintained infrastructure (e.g., roads, telecommunications) is a critical binding constraint both for private sector development and access to services, namely health and education. The SDP proposes constructing or upgrading national, regional, and rural roads in a climate-resilient manner; improving access to clean water and adequate sanitation; establishing new seaports to contend with an increasing port volume; upgrading airports to meet growing passenger numbers; and further liberalizing the telecommunications market to increase the availability of bandwidth.  Encourage private sector investment, and diversify the economy to sustain growth and employment. Due to the finite nature of natural resource wealth and the need to create jobs, petroleum wealth should be used to support economic diversification, particularly in the downstream petrochemical industry, tourism, and agriculture. A major public investment in the “Tasi Mane� development project–a supply base, liquefied natural gas (LNG) plant, and 14 The SDP 2011 and 2015 expenditure targets are $758.2 million and $1,375.7 million, respectively. At $1,093 million, 2011 budget execution surpassed this target expenditure in the first SDP year; the 2012 budget contains $1,674.1 million in planned expenditures. 8 petrochemicals and refinery site–is at the center of the SDP growth strategy, although analysis of the pros and cons of this investment needs to be completed. The SDP identified three areas for tourism development, with some of the planned infrastructure designed to service tourism. Investments in agriculture include improved seeds and fertilizers, better storage, and expanded agricultural extension services. The SDP emphasizes investments in food crops, including rice, maize, and tubers, to contribute to food security and nutrition, and in cash crops (e.g. coffee, hardwoods), livestock, and fisheries to augment value-added and rural incomes.  Expand the foundations of good governance and institutional effectiveness. Currently, the public sector is Timor-Leste’s dominant employer and vehicle for economic growth. To improve its effectiveness, the SDP prioritizes civil service reforms, public financial management (particularly budget planning and execution), and public sector service delivery, including through decentralization, building on some success and experience with subnational spending modalities. In light of the large investments to be financed by the petroleum fund, the SDP recognizes the need for robust ex-ante scrutiny of projects to avoid wastage and strengthen implementation capacity, including in the design and management of PPPs. Institutions of oversight and anti-corruption will also be strengthened, as will notable instruments already in place to ensure transparency and accountability of government processes, including EITI. 23. The SDP provides a clear direction for development, but needs costing, sector-level planning, prioritization, and implementation support to be actionable. Some sectors produced sector plans as inputs to the SDP. Agriculture and public works have recently finalized their sector plans. The SDP provides a sufficiently precise set of results and outcomes for the short, medium, and long term against which to measure progress. Government strategy is thus reflected in the SDP, sector plans of the 5th government, and in the Fragility Assessment with a considerable degree of consistency, and these will be an important guide for the CPS. III. REVIEW OF PAST WORLD BANK GROUP ENGAGEMENT A. LESSONS FROM CAS/ISN COMPLETION REPORT 24. The WBG in Timor-Leste had a mixed record of success in the previous CAS (FY2006- 08) and ISN (FY2010-11) periods. The CAS/ISN Completion Report (Attachment 2) assesses WBG performance in the engagement period as Moderately Unsatisfactory. While progress was made towards achieving most major expected outcomes, the program was overly ambitious and insufficiently focused given the nation’s capacity challenges in the immediate post-Independence period. The following lessons from the CAS/ISN Completion Report have informed the development of the FY2013-17 CPS:  Set appropriate objectives for what can be achieved in a four-year timeframe, and guide resources to key priorities. Fragile and post-conflict states are inherently dynamic environments, and their development trajectory is not linear. Setbacks should be expected, and the results framework should temper ambition with pragmatism. The CPS must retain maximum flexibility to respond to emerging priorities. The CPS Progress Report provides a timely opportunity to reevaluate and update the CPS.  Achieving the government’s development vision and CPS objectives requires a continued effort to strengthen Timor-Leste’s institutions and build implementation capacity. The growth in Timor-Leste’s budget and development ambitions has outpaced gains in civil 9 service capacity. In the CPS period, Timor-Leste’s priority development need will not be in financing, but rather support to institutional development and technical know-how. Operational investments will continue to be just one facet of a multidimensional program, buttressed by high-quality, creatively disseminated analytical work; just-in-time advice; convening power; organizational support; and sustained policy dialogue.  In keeping with the institution-building focus, implementation in Timor-Leste requires intensive, hands-on support through a sustained engagement. Successful approaches, whether for analytical inputs or project implementation, are process-intensive, time- consuming, and gain more traction when accompanied by dialogue, technical assistance, and intensive supervision. WBG’s human resources must be allocated accordingly. B. FINDINGS FROM THE IEG COUNTRY PROGRAM EVALUATION 25. IEG’s Country Program Evaluation (CPE) of WBG efforts (2000-2010) also provided several recommendations that have been taken into account during CPS preparation, as follows:  Prioritize programs and accompany then with realistic timelines. Progress should be monitored against a small number of measurable key results.  Increase the focus on agriculture, human resource development and institution building, areas in which the previous CAS and ISN underinvested and performed poorly.  Scale up the IFC’s engagement, in partnership with the IBRD, to enable it to help address the remaining constraints to private sector development.  Aim for simplicity in project design, intensive fiduciary support, and partnerships with government, civil society, and other development actors. C. FEEDBACK FROM STAKEHOLDER CONSULTATIONS 26. The strategic areas and activities proposed in the FY2013-17 CPS reflect the priorities identified during stakeholder consultations. Community consultations were held in eight districts and with Dili youth in 2011 and 2012, and proved a useful testing ground for the WBG strategy in the conceptualization phase. Women were well-represented in the consultations, which were planned in partnership with local nongovernmental organizations that were tasked to recruit community leaders both within and outside of local power structures, and of varying age and gender. A series of small group discussions with influential thinkers, business leaders, and civil society representatives helped to further refine the approach and better situate the WBG program within Timor-Leste’s wider development agenda, and expand the WBG role as a knowledge leader. The WBG timed the final development of the CPS to allow for alignment with the program of the Fifth Constitutional Government, which was formed in August 2012. D. INTEGRATING LESSONS LEARNED FOR THE NEW CPS 27. Going forward, the World Bank Group will assist the government of Timor-Leste by: (i) engaging in highly visible priority areas that have a strong potential to demonstrate impact; (ii) providing assistance in a timely and digestible manner; and (iii) ensuring adequate staffing for consistent engagement. This new strategy of engagement will enable the WBG to address stakeholder demands, focus its program and resources while ensuring flexibility to meet emerging needs, and show clear, monitorable results within the CPS timeframe. 10 IV. COUNTRY PARTNERSHIP STRATEGY, FY2013-2017 A. IMPLEMENTATION PRINCIPLES 28. The CPS will reflect the activities of the entire WBG, as well as corporate priorities. The CPS combines the strategies and instruments of IDA, IBRD, and IFC. If the Multilateral Investment Guarantee Agency (MIGA) becomes active in Timor-Leste, it will also be brought under the framework of the CPS. The CPS will strive to address corporate priorities such as gender and climate change, as well as World Bank Global Programs, which are currently receiving insufficient attention at the country level. 29. In face of considerable uncertainty, the CPS will be flexible. Timor-Leste is a dynamic country, undergoing a process of learning and experimentation, and traversing a non-linear path out of fragility. It recently contracted its first debt, and it has yet to develop a borrowing relationship with the WBG. This contributes to a level of uncertaibnty and unpredictability in the operating environment, and mandates that the CPS maximize flexibility to accommodate internal and external change affecting Timor-Leste, and its changing development needs. The approach of the CPS is first, to allocate resources only for activities that are already on-going or about to commence, and leave open the focus of assistance for outer CPS years; and second, to concentrate the IDA and IBRD lending envelopes on a very small number of operations, releasing administrative budgets and staff resources to support knowledge products and hands-on dialogue and technical assistance. Knowledge products will be managed flexibly and will be identified on the basis of periodic discussions with the government. 30. In line with the WBG’s overall commitment, the CPS will assist the Government of Timor-Leste (GoTL) to implement the New Deal for Engagement in Fragile States. Timor-Leste has been a vocal advocate of the New Deal (Box 2) through its leadership of the g7+ group of fragile states, and it is one of seven New Deal pilot countries. It is now defining priorities for country level implementation of the New Deal, including use of country systems, and the WBG has been a strong partner in this process. The government’s Fragility Assessment also identified priorities for assistance, several of which the WBG will support. 11 Box 2: Alignment of the CPS with the New Deal for Engagement with Fragile States Peacebuilding and Statebuilding Goals: The WBG will focus on the PSGs of Economic Foundations, by helping create the building blocks for a non-oil economy, Revenues and Services, through improved services in health an education and the development of revenue sources other than oil, and within the critical Justice sector by supporting the design and implementation of a land policy, identified as one of the potential stressors of further conflict and a key constraint to private sector investment. One Vision, One Plan: The WBG will support implementation of the SDP and the government’s program, and will coincide with the country’s democratic cycle. Compact: The WBG is aligned to country-led national priorities and will harmonize interventions with other donors, to the extent possible. Using PSGs to Monitor: The WBG will incorporate the PSGs, once completed, in its results matrix to monitor progress against CPS outcomes. Support Political Dialogue and Leadership: The CPS has been developed consultatively with the government, civil society, women, and youth, and its implementation and monitoring will continue to rely on ongoing consultations with these groups. Transparency: The WBG program will be reflected in and make use of the government’s Aid Management System. Risk-Sharing: The WBG will monitor and review risks of implementation together with implementing agencies. Use of Country Systems: The WBG will strive towards the use of country systems, particularly in financial management, and will assist the government in strengthening those systems. Capacity Building: The WBG will continue to focus on national capacity building in its sectoral engagements and knowledge exchange. Timely and Predictable Aid: The WBG will agree up front with the government on the timing and level of planned financial assistance. 31. The CPS will be selective, prioritizing: (i) discrete analytical and technical assistance linked to development priorities and major investments; and (ii) operations in critical areas that offer demonstration effects and high potential for replication in future government investments. The share of international aid in public spending is declining rapidly as the government budget expands, financed by withdrawals from the Petroleum Fund. The WBG’s resources are modest in Timor-Leste; and the consolidated trust funds through which bilateral agencies previously channeled resources through the Bank are declining. Most requests for assistance from the government are for support for the quality of its own spending, and given the sizeable and expanding government budget, this is how the WBG can maximize its impact. Recent experience supports this approach. Previous economic and sector work (ESW), such as advice on the PF and social protection and technical assistance in public management, responded directly to government demand for targeted advice in priority areas, and contributed to important results. Most operations, including health, education and social protection, also focus on strengthening systems and capacity within line ministries. Even more traditional investment projects, such as road rehabilitation, are small relative to needs, and aim to demonstrate good practices, develop implementation capacity, and establish 12 standards that can be replicated in the government’s own programs. Similarly, the IFC is involved primarily in the provision of Advisory Services, for example on PPPs. 32. In addition to its partnership with government, the WBG will maintain the strong working relationships that exist with development partners. (See Attachment 7 for an overview of development partner focal areas in Timor-Leste.) Total ODA is estimated at US$169 million in 2012. 15 Of this, Australia contributed by far the largest share, about US$74.7 million, followed by UN agencies, the Asian Development Bank (ADB), the European Union (EU), and others. Foreign aid is concentrated in governance, health, education, agriculture, and public works, which are also areas of focus of the WBG. In addition to informal frequent meetings, complementarity and comparative advantage are ensured in two ways. First, in asserting its leadership of the development process, the government chairs periodic meetings with development partners on national priorities and pillars of the SDP and requires that all foreign assistance support the SDP. The Aid Effectiveness Portal, an online information tool, contains detailed data on development partner activities. Second, a significant portion of the WBG portfolio is funded or co-financed by development partners; between FY10 and FY12, the country program disbursed US$38.46 million in recipient-executed trust funds and an additional US$7.6 million under Bank-executed trust funds, compared to US$12.61 in IDA disbursements and US$3.6 million in Bank budget resources. In the CPS period, the World Bank is pursuing two additional Bank-executed multi-sector TFs with AusAid and the European Union, as well as continuing to implement existing World Bank TFs to support a knowledge-oriented CPS. In addition to helping extend the limited Bank administrative budget and allowing the deployment of staff with the right skills, these funds strengthen critical coordination in a small donor space. 33. In recognition of the urgent gender-related needs in Timor-Leste, gender will be mainstreamed throughout the WBG program. Early in the CPS period, the World Bank will conduct a gender assessment to identify areas where gaps in development partner support might be filled by WBG interventions, and will develop a Country Gender Action Plan (CGAP) based on this assessment. This will be supplemented by a Public Expenditure Review (PER) examining gender- focused public spending, as well as data disaggregation within projects, to the extent possible. Gender issues will also be addressed through components of existing operations: For example, the WBG will address equal access to endowments through programs in health, education and social protection which support improved expenditure practices to increase quality of services for both genders. Planned programs in skills development and nutrition have a clear gender dimension. The WBG education activities also include support for girls’ bathrooms in schools, an intervention with proven impact on adolescent girls’ school attendance. Equal access to economic opportunities will be supported through planned work in the areas of agriculture, land, and private sector development. Business Registration and Licensing will include outreach to women business owners to increase the number of women entering formality. Greater clarity in land ownership and access rights has the potential to increase women’s access to collateral, an important stepping stone for business development and support to entrepreneurship. Given the predominance of women in subsistence agriculture activities, interventions designed to increase the productivity of agriculture will ensure higher incomes for women in this sector. The WBG will also work to amplify women’s voices in the policy sphere. In this regard, access to high-quality data is essential, and the WBG will conduct a gender-sensitive public expenditure review and ensure gender disaggregation of data. Given persistently high rates of domestic violence, the World Bank will also partner with the government on a National Gender Workshop, which will facilitate broad consultations on domestic violence, 15 Unofficial numbers, derived from donor reported figures on the government Transparency Portal. Not all donors have reported ODA. 13 women’s engagement in the private sector, and other priority national gender concerns, to help focus and coordinate resources across many stakeholders. 16 34. The WBG will assist the GoTL to prepare for climate and disaster risks. The Bank is helping the government to incorporate climate resilience into infrastructure design, and the roads program will include a component on disaster risk management. Because non-irrigated agriculture (such as corn and tubers) is particularly prone to droughts, WBG programs will support agriculture systems that can help poor farmers cope with these effects. Policy work on social protection will improve the system for addressing the vulnerabilities of the very poor, many of whom are vulnerable to weather-related shocks. 35. The WBG will ramp up staffing and “face time� in its areas of support. The standard World Bank staffing model is not appropriate to a fragile country with the capacity weaknesses of Timor-Leste. The country team needs capable staff on the ground with global experience to engage with the client in ensuring learning and full ownership of analytical work and on all aspects of implementation. A portfolio review makes clear that the best-performing programs were those that were supervised by an experienced staff member in the field or with considerable “face time�. The proposed trust funds will finance international staff in the field in critical areas. B. INSTRUMENTS 36. Timor-Leste’s per-capita gross national income (GNI) is in excess of US$3,000, and it has been declared creditworthy to borrow from the IBRD, facilitating the country’s graduation from IDA to Blend eligibility status. The transition to Blend status reflects Timor-Leste’s strong fiscal performance and development progress. In this CPS period, Timor-Leste can access IDA credits and IBRD financing. 17 The Bank will encourage a tailoring of IDA and IBRD assistance volumes to help achieve a smooth eventual transition to IBRD-only status and the efficient use of other financing resources. Given the risks associated with managing public debt, the World Bank and International Monetary Fund (IMF) will provide continued support to the government in this area. Timor-Leste’s first loans, from ADB and Japan International Cooperation Agency (JICA), were approved in 2012. The CPS assumes an indicative IDA envelope of US$25 million each for IDA16 and IDA17, for a total of US$50 million18 and an indicative IBRD envelope of US$54-60 million, subject to country performance, IBRD’s lending capacity, demand by other Bank borrowers, and global economic developments. In addition, the Bank will work with the authorities to fully explore the flexibility in IDA financing, including the potential use of the Immediate Response Mechanism19 and the Crisis Response Window that could support the government’s rapid response to eligible crisis and emergency situations, as well as the potential access to the IDA regional program that could provide additional resource for participating in regional integration operations. Initially a 16 For more on the gender context in Timor-Leste, please see Attachment 3. 17 Because Timor-Leste has not begun borrowing from IBRD of the World Bank, the Bank has not included an analysis of Key Exposure Indicators in this CPS. However, they will be added during the CPS Progress Report. 18 The estimate of the IDA envelope is based on the available IDA16 resources, and it is updated annually. The IDA16 envelope includes firm FY12-13 allocations and indicative FY14 allocations, and the IDA17 envelope (FY15-17) is only an indicative estimate. The final allocation may vary due to: (i) total IDA resources available over the CPS period; (b) the country’s performance rating, GNI per capita, and population; (iii) the performance other allocation parameters, and IDA assistance terms for other IDA borrowers; and (iv) the number of IDA-eligible countries. Also, IDA allocations are provided in SDR terms; while the US dollar equivalent amount is provided at the IDA16 replenishment exchange rate of US$1.50233/SDR, the exchange rate for each operation depends on the applicable prevailing rate at the time of approval. 19 This mechanism allows the inclusion of emergency related contingent components in selected investment operations to support rapid response in eligible crisis and emergency situations when needed. 14 combination of an IDA credit and an IBRD loan totaling US$40 million will finance an investment in roads. The remaining IBRD resources are being considered for investments to be chosen from the following areas: branch roads, port facilities, airport upgrading, telecommunications, agriculture, and education. These are likely to develop in outer CPS years, and will be included in the CPS Progress Report. Instruments could include Investment Loans (SILs), Program-for-Results (P4R) financing, or budget support. 37. Although WBG financing is small relative to budget and needs, the government sees various benefits in borrowing. At US$15-$25 million, the expected amount of IDA/IBRD loan disbursements is small relative to government budget (in excess of US$1 billion). Nevertheless, the government views borrowing from the WBG and others as an important component of budget gap financing. First, borrowing would permit the government to reduce withdrawals from the PF while the costs of the loans are less than the expected PF returns (currently averaging 4% per annum). Second, the government wishes to become familiar with and develop the capacity to manage debt. Finally, the government values the considerable technical assistance and implementation knowledge that comes embedded in WBG loans, and therefore wishes to use WBG loans to leverage sizeable portions of government investments. For example, the proposed credit and loan of US$40 million for a road rehabilitation project could be accompanied by US$52 million of government financing, using WBG procurement methods and safeguard policies. The government values in particular the WBG global capacity to foster South-South knowledge exchanges both with fragile and non-fragile states. The WBG is already supporting some of these activities and South-South learning will be expanded considerable during the CPS period, both in lending and in analytical support. 38. In the CPS period, the WBG will utilize the full suite of WBG financial products, including lending, recipient- and Bank-executed TFs, IFC investment and advisory services, and technical assistance) to support Timor-Leste’s development path. For the first CPS years, the government intends to restrict borrowing to transport infrastructure investments. Financing instruments to support non-infrastructure activities will consist primarily of Bank- and recipient- executed trust funds, including a planned AusAID-World Bank multisector trust fund, a European Union trust fund for public financial management, and the Global Environment Facility (GEF) and Global Agriculture and Food Security Program (GAFSP) for agriculture. (Attachment 4 provides an overview of trust funds active in Timor-Leste.) TFs are an important feature of Timor-Leste’s portfolio, funding critical technical assistance, analytical work, project preparation, supervision, and implementation support, and partially funding five staff positions in the Dili office. They are integrated into the portfolio and encourage cooperation with key development partners. During the CPS period, the WBG will make less use of recipient-executed TFs, as donor financing diminishes or is transferred directly to the government, it will, however, continue to rely on smaller Bank-executed TFs that are better suited to mobilize global WBG experience. 39. The IFC will facilitate the country’s first robust PPP transaction in Timor-Leste during the CPS period, in addition to continuing to provide other Advisory Services. It will support the government’s initiatives improving the business environment, addressing in particular access to finance and barriers to entrepreneurship and business entry. PPPs will encourage a private sector role in developing Timor-Leste’s core infrastructure and the World Bank will complement IFC’s role by working with the government to improve its capacity to design and manage PPPs and other forms of infrastructure financing. 15 C. STRATEGIC AREAS AND RESULTS 40. The FY2013-17 CPS program will be structured around the three strategic areas and one crosscutting theme of the SDP, and the program of the Fifth Constitutional Government. The CPS will also address key stressors identified in the Fragility Assessment. The three strategic areas are: (i) improving the management and delivery of services in education, health and nutrition, and social protection (Social Capital pillar in the SDP); (ii) building core infrastructure to connect communities to markets; and (iii) supporting economic development for a non-oil economy. Work in these areas will be underpinned by a cross-cutting focus on (iv) strengthening institutions for quality of spending and inclusive service delivery. The WBG will emphasize selectivity within these four engagement areas, focusing on a small number of discrete, high impact projects as described in Table 1. Table 1: Indicative New IDA, IBRD, IFC Financing, Trust Funds, Global Partnerships, AAA, and IFC Advisory Services (FY13-14) 20 Service Economic Infrastructure Institutions Delivery Development Road Climate Coffee & cash Financing, & TF co- Resilience Project AF crop rehabilitation (IBRD/IDA, IFC WBG Recipient- (FY13-14) (FY15) Operations financing ) Executed PPPs in Infrastructure Investments (IFC, FY14) targeting 2 Investment in Business projects (IFC, Infrastructure FY14-17) (IFC, FY14-15) Education Telecommunications Food/nutrition Pacific Microfinance Recipient-Executed Operations (TFs & quality & ICT Development security & Initiative (IFC, FY15) Partnerships) improvement (TBD) agriculture Land policy & land titling Global (FY15) productivity (FY15) Skills (FY14) development/ labor markets (FY15) Food & PPP policies & Business process Country Gender Assessment AAA & IFC Advisory Services nutrition capacity building simplification (FY14) security & (IFC/WBI, FY14-15) (IFC, FY14) Community Driven agriculture Financial services Development M&E (FY14) policy (FY14) & banking sector Building disaster/climate Health equity & review (IFC, resilience (FY14) financial FY14) protection Poverty analysis, PERs, & (FY14) Public investment management (FY14-17) Health financing PER Capacity building for PPPs (FY15) & infrastructure financing (FY15) 20 This list includes only new planned activities; the fiscal year listed is an estimated start date for the activity, but is subject to change. Activities are listed under the main CPS strategic area, but many touch on multiple strategic areas. All activities are subject to change. Activities in the IDA17 period will be further defined during the CPS Progress Report in FY15. 16 Strategic Area 1: Improving the Management and Delivery of Services in Education, Health and Nutrition, and Social Protection 41. The first CPS strategic area will build the capacity of the government to deliver services to create an educated, healthy, employable and less vulnerable population. In particular, the WBG will focus on supporting decentralized service delivery in health and education, and improving the targeting and impact of social protection programs. Engagement Area 1.1: Increasing access to and quality of education and health. 42. The WBG will focus on technical assistance to improve the efficiency and quality of service provision in education, skills development, and health, and contribute to a higher order goal of creating an employable youth. The WBG will directly support implementation of the new National Health Sector Strategic Plan (NHSSP) and National Education Strategic Plan (NESP), analyze deficiencies in nutritional outcomes, and (in outer years) expand collaboration in the areas of teacher quality improvement and workforce development. In the Ministry of Health, technical assistance will strengthen a sector-wide monitoring and evaluation (M&E) system to assess the health sector’s achievements against the NHSSP and evidence-based decision-making. The WBG will also support the MOH to analyze health equity and financial protection. Education will be enhanced through management strengthening and school facility improvements. The WBG will also support the Ministries of Health and Education with district level budgeting and planning, and to link line ministry annual plans and budgets to the national strategic policies. Engagement Area 1.2: Developing an appropriate social protection system. 43. Through the Social Protection Administration Project and related TA, the WBG will continue to assist the government to improve the design, management, and evaluation of its core social protection programs. Assistance includes development and deployment of a Management Information System (MIS) for cash transfers; capacity building and training; and technical assistance on M&E and database management. Upon request, the WBG will also advise the government on methods to improve the impact of its programs, including poverty targeting, and on the design and financing of its social insurance scheme for civil servants and the formal sector. Strategic Area 2: Building Core Infrastructure to Connect Communities to Markets 44. The second CPS strategic area will develop core infrastructure to enhance access to services, employment, and markets, and to facilitate efficient and reduced-cost movement of people and goods. Insufficient or poor quality infrastructure is an important constraint to private sector growth and improved connectivity will help to enable economic diversification. Support in this area will be delivered through a close partnership between the IBRD and IFC, will include lending, technical assistance, and IFC investment and advisory services, and will set the stage for PPPs for major infrastructure. Engagement Area 2.1: Developing a high-quality, well-maintained road infrastructure. 45. Through the Timor-Leste Road Climate Resilience Project, the WBG will support Timor-Leste with climate-resilient road infrastructure on the Dili-Aileu-Maubisse-Ainaro corridor, including branch roads to Gleno, Same, and Ramelau. This corridor transects key agricultural and tourism development areas in Timor-Leste’s most populous region, where many of 17 its poorer populations live. This road network is a centerpiece of the SDP, and is expected to reduce the transaction costs of market access, in particular for agriculture, improve access to one of the priority areas targeted for tourism, and increase the accessibility of social services, particularly in the rainy season. The road network is also a crucial connection between the north and south and will facilitate access to the new Tibar Port, which will replace the Dili Port (see Engagement Area 2.2). It will also facilitate an emergency response to tackle natural disasters. Finally, it is intended to serve as a demonstration of effective climate-responsive road infrastructure. Engagement Area 2.2: Commencing freight and air traffic improvement. 46. The WBG, led by the IFC, will advise the government of Timor-Leste on the structure and implementation of a transaction to enable private sector participation in the Dili Airport expansion and greenfield port at Tibar Bay. This advice will consist of: (i) due diligence and structuring, including advice on technical, legal, environmental, and social due diligence and design of potential legal structures for a PPP; and (ii) implementation of a transparent and competitive tender for a private airport operator. By the end of the CPS period, both projects will achieve financial closure, facilitating private investment to improve and maintain infrastructure. Improved trade logistics will help reduce the cost of imports, and in particular of food, reducing inflation pressures. This CPS Outcome will link to Engagement Area 2.1, as the road network being rehabilitated by the WBG links these facilities. The government has also expressed interest in WBG co-financing the public investment component of the project; this is an important opportunity for IBRD-IFC partnership to improve the private sector enabling environment. Engagement Area 2.3: Supporting reliable and affordable telecommunications services through efficient and well-regulated competition. 47. WBG assistance will support the development and implementation of a new telecommunications regulatory framework and Information and Communications Technology (ICT) policy, and contribute to institutional development of the newly created ICT regulator. These efforts build on the success of WBG assistance on a competition friendly telecommunications policy and negotiations for the termination of the telecommunications monopoly, leading to the issuance of two new operator licenses in a previously closed market and the establishment of a new regulatory body. In the outer years of the CPS, the WBG may support the government’s catalytic investments in fiber-optic infrastructure, including an international submarine cable. Technical assistance and investment in the telecommunications sector is expected to contribute, both directly and indirectly, to improved market access, productivity, and job creation. Strategic Area 3: Supporting Economic Development for a Non-Oil Economy 48. The third CPS strategic area will assist Timor-Leste to build the foundations for a non- oil economy that can eradicate poverty, create jobs, and improve livelihoods. It will emphasize development of a productive agriculture sector, and support to private investment and reduced transaction costs for business, including for tourism. Interventions on the ground will focus on districts crossed by the road corridor to maximize the economic impact of the road and to demonstrate a more integrated path for rural development. IFC will lead WBG engagement with SMEs to identify opportunities for downstream development pending an agreement by Government and developers of the Sunrise field. 18 Engagement Area 3.1: Increasing productivity of the agriculture sector through strategic policy support and investments. 49. Through the Food and Nutrition Security and Agriculture Policy TA and Project21, the WBG will help address the low yields in food crops and the under-development of markets for domestic food production. Specifically, it will support: (i) participatory resource planning and development; (ii) investments in market and rural productive infrastructure; and (iii) use of targeted learning grants to farmer organizations to improve farm practices. Raising productivity of food crops to regional standards will help not only to improve rural incomes, but will also lead to lower food prices, thereby facilitating access to food at the national level. Given the strong representation of women in subsistence agriculture, increasing agricultural productivity will have a clear impact on women’s economic opportunities. Similarly, the WBG will explore opportunities for the sustainable development of ocean and in-land fisheries, an important natural resource that remains until now untapped and unmanaged. The WBG will also assist the Ministry of Agriculture and Fisheries (MAF) to implement its new strategic plan and will offer support in organizational development, strategic, policy and investment planning capacity, and decentralization of its technical functions at the district level. Engagement Area 3.2: Improving the business environment. 50. The WBG will assist the government in addressing key constraints to private sector investment (including weak legal protections, complex and costly regulations, and skill mismatch), primarily through partnership with financial institutions, support to private sector institutions, technical advice on business regulatory reform, customs clearance, and PPP policies support on land policy, and establishment of the nascent One Stop Shop for business. Activities in this area will specifically address constraints to women’s participation in private sector enterprises, including regulatory and process reforms to simplify business registration and formalization. The private sector will be particularly important to drive tourism development, a priority in the SDP, and the IFC will explore potential transactions with tourism operators. Already the WBG is helping government identify areas with tourism potential along the road corridor. The IFC will lead efforts by the WBG to strengthen the government’s capacity to design and manage PPPs and will identify areas for IBRD engagement in PPP regulation and policy as well as infrastructure financing, an important stepping stone for increasing private sector engagement in infrastructure provision. To help address the constraints posed to private sector development by insecure land ownership and usage rights, particularly for women, the WBG will respond to a request by the Ministry of Justice for capacity building support in the areas of land policy and land administration. Interventions in this area are also expected to mitigate the risk of land-related conflict. Should there be demand from the government, the WBG will also provide assistance on minimum wage policy, employment skills, and training, building on the findings of a recent Labor Market Issues Diagnostic Report. 51. IFC will partner with three financial institutions, including two microfinance institutions, to double access to finance, particularly for women entrepreneurs. The WBG, led by the IFC, will partner to conduct a review of the financial services and banking sector. Based on these findings and government demand, the WBG will assist the government to improve financial infrastructure through a credit registry or support to payment system development and develop an approach to address gaps in SME financing. 21 The program team is currently seeking GAFSP funding; however, in the absence of this funding, the program will go forward with support from WBG resources. 19 Cross-Cutting Theme: Strengthening Institutions for Quality of Spending 52. The cross-cutting theme will focus on strengthening institutions to improve the quality of spending, both across government and in the specific sectors addressed by this CPS. All activities in the CPS will contribute, directly or indirectly, to improving the quality of spending of government ministries. The WBG will also focus on planning and budgeting and enhancing resource flows between Dili and the districts. Through improvements in institutional capacity, the WBG will support the government to efficiently execute its substantial capital investment, improve the quality of planning through better use of data, and strengthen systems to prepare for budget support in subsequent CPS periods. Engagement Area 4.1: Supporting public sector institutions and planning functions to contribute to better economic management. 53. The WBG will continue its focus on cross-sector public financial management, macroeconomic stability, and budget execution through the Planning and Financial Management Capacity Building Program. This will be supplemented by substantial support to the government to improve public financial management and funds flow at the sector level as a means to strengthen service delivery. PERs will be undertaken in several sectors, including health, infrastructure, and gender. The WBG will support sector strategies in key sectors where they are currently absent (for example, social protection). 54. The WBG will continue to support the collection and analysis of data on living standards through household income and expenditure surveys, poverty assessments, and other household level living standards survey instruments. A CGAP will be developed based on a gender assessment. These data will be made widely available and used to inform planning and policy dialogue. The WBG will also support program- and sector-level data collection, including impact evaluations and M&E systems. Consistent with commitments under the New Deal for Engagement with Fragile States, the WBG will work to improve and use country systems, and to ensure that all aid is on budget and reported through the government’s Aid Management System. A country systems review, conducted in partnership with procurement and financial management teams with expertise in fragile states, will identify barriers to further use of country systems and present a plan to address these areas during the CPS period. Engagement Area 4.2: Increasing the focus on equity, inclusion, and citizen participation. 55. The WBG will deliver a series of analytical products highlighting issues of equality and inclusion, including a study on socioeconomic inequalities, a human opportunity index, a gender study, and a possible youth report. For example, analysis of the development benefits of infrastructure spending will facilitate more effective, equitable, and sustainable development outcomes for poor people and reduce grievances around infrastructure development. Findings will inform the World Bank’s program design and will be disseminated to government through short, digestible policy notes, and workshops. The WBG will also use ongoing analysis of the distribution of benefits from infrastructure projects and social transfers to build a dialogue with the government about equity and transparency in service delivery. For infrastructure specifically, the WBG will work with civil society and the government to increase the voice of poor and vulnerable groups in decision-making around spending. The WBG will partner with AusAid to assist with South-South knowledge transfer and design of a M&E system for a large Community Driven Development program financed by the government. 20 V. RESULTS AND RISKS A. RESULTS FOCUS 56. The WBG will consistently monitor progress toward CPS Engagement Areas and link results to the outcome and output indicators of activities in the portfolio. The results matrix identifies several outcomes that are directly and measurably linked to the CPS Engagement Areas, and can be reasonably expected to be achieved within the CPS period. The WBG will implement the new RIM Sys results monitoring program, which links all portfolio activities to CPS outcomes and allows consistent and streamlined tracking of progress. In recognition of risks in the operating environment activities in the outer years of the CPS remain unspecified and are not reflected in the results matrix. The CPS Progress Report in FY2015 will analyze progress, reconsider interventions and results, and define activities for the latter CPS years. B. MANAGING RISKS AND VULNERABILITIES 57. Timor-Leste is a young, post-conflict country facing significant developmental and institutional challenges (Table 2). Risks include, inter alia, climate change, political or social instability, policy and governance gaps, and implementation risks due to the low capacity environment. Macroeconomic risks are also substantial. Economic prospects over the medium term depend heavily on prudent and effective management of the Petroleum Fund and associated fiscal policies. Risks include vulnerability of the economy to volatile oil prices, the risks to economic stability and sustainable growth from inefficient or excessive withdrawals from the Petroleum Fund in excess of absorptive capacity, and governance concerns, including political risks associated with the evolution of political and government institutions and social tensions. The WBG categorizes risks broadly as project-related risks that can be mitigated through project design and safeguards; country- level risks that the WBG can help to mitigate through selection of intervention areas, project design, objective advice on policies and programs, and engagement with stakeholders; and risks that are beyond the WBG’s span of influence. Flexibility is the core risk management strategy built into the CPS. 58. The WBG will actively monitor risks and changes in the operating environment, and will adjust its mitigation strategy accordingly. In cooperation with the country office team and the Justice for the Poor program, and with substantial input from the government’s Fragility Assessment team, the World Bank’s Center for Conflict, Security, and Development (CCSD) conducted a desk review of the major drivers of fragility based on the 2011 WDR framework in September 2012. The findings from this review have informed the CPS and identified areas where additional analytical work is necessary to understand economic, political, and social drivers of instability. The WBG has worked closely with the government on the Fragility Assessment and will use its findings to inform its dialogue with the government and program design going forward. Table 2 summarizes the risks and mitigation strategies for country level risks as well as programmatic and institutional risks. 21 Table 2: Risks and Mitigation Strategies Risk Description Mitigation Strategy Country-Level Risks Timor-Leste reverts to conflict The WBG would prepare for the suspension of operations in after failing to manage its Timor-Leste and consider the evacuation of staff. upcoming generational leadership transition Political conflict and/or Programs will be designed with the flexibility to respond, or instability hampers access to restructure, as the operating environment requires. The WBG will senior civil servants and commission ongoing analytical work and work in close project sites, impedes cooperation with the CCSD team to keep abreast of potential achievement of development conflict triggers in the operating environment. objectives, or reverses policy gains Elite bargains, patterns of The CPS cross-cutting focus on quality of spending, investments wealth distribution, unmet in social service delivery and agriculture, and a geographic focus expectations, perceptions of on a region with a high proportion of poor people, are intended to corruption, and entrenched increase the share, quality, and impact of spending reaching poverty lead to instability impoverished communities. Dialogue with the government on (particularly among frustrated infrastructure and cash transfer spending, as well as planned youth) public expenditure reviews, will continue to inform the government’s planning and budgeting. Legal and policy uncertainty In addition to following required safeguards procedures for the around land leads to increased Road Climate Resilience Project, the World Bank is conducting a tensions between the state and study of cultural heritage sites along the road corridor to ensure communities, especially due that the road does not impede access to or encroach upon any to land expropriation or cultural sites. Should funding be secured, the WBG will also investor concessions work with the government and stakeholders to improve the legal and policy environment on land. Conflict between elements of The WBG does not engage in the security sector. However, the military and police forces WBG’s Timor-Leste country team employs a full-time security resurface following the officer to keep abreast of potential security risks in the operating withdrawal of UNPOL and the environment. The Australian government is supporting the International Stabilization government to develop its community policing capacities to Force provide a supporting/ alternative security presence in communities throughout Timor-Leste. Inflation, continued The draft CPS focuses on quality of spending as a cross-cutting overspending of the PF theme. The WBG’s programs and technical assistance within the beyond a sustainable level, Ministry of Finance, line ministries, and possibly the new corruption, or poor investment Economic and Policy Investment Advisory agency will focus on management cause wastage transparency and efficient management of funds. The WBG’s and create economic and Timor-Leste country team will also continue to rely on political risks substantial fiduciary and procurement guidance. 22 Risk Description Mitigation Strategy Programmatic and Institutional Risks The government is unwilling The WBG will continue to make use of diversified funding to borrow for non- sources, such as bank budget and trust funds, including infrastructure projects and multisector trust funds being developed in partnership with additional donor support is not AusAID and the EU. The WBG will also continue to urge identified increased human and infrastructure investments in social sectors. Lack of ownership, poor All projects will be reviewed for alignment with the CPS, which coordination, and/or weak has been discussed and agreed with the government and reflects local capacity lead to projects overall government priorities and priority projects. Additionally, which are unsustainable individual projects will continue to be designed in cooperation and/or not appropriately with civil servants and advisors within the respective Ministries; modeled for the operating buy-in from the government will be a deciding factor during environment project concept note reviews for new activities. In line with CASCR recommendations, projects will be designed simply, and will be phased to ensure that the attention of civil servants is not unduly spread across multiple objectives. On-the-ground support from sector and fiduciary teams will also help to mitigate the capacity risks. Delays in the passage of key The WBG will continue to monitor the legislative agenda and legislation result in delays in will make use of political economy analysis to determine the project preparation or likelihood of the passage of key legislation that impacts planned implementation or ongoing projects. However, there may be a need to delay or restructure projects and CPS outcomes to account for changing political priorities and legislative delays. Procurement, financial, and The WBG will engage additional financial management and public financial management procurement resources in Dili, both by hiring staff on the ground systems continue to be and through requests for support from the WBG’s Jakarta office. inadequate to ensure effective The WBG will also work with the CCSD and regional project management, anti- procurement and financial management teams to build country corruption, and budget systems, and find ways to ensure good practice fiduciary implementation management in a low-capacity context. Vested interests prevent The WBG will work closely with leading government partners, progress on key reforms. civil society, and development partners to promote reforms. The WBG’s focus on building institutional capacity and promoting quality of spending will also help to mitigate this risk. Lack of prioritization and poor The CPS quality of spending cross-cutting theme will address the management threaten the quality of program design, implementation, and management, in sustainability of the addition to activities falling strictly within the areas of planning government’s portfolio of and financial management. programs Timor-Leste is prone to During the CPS period, technical assistance will be carried out on frequent natural disasters, and managing disaster/climate risks on and around the Dili-Ainaro the impacts of climate change road corridor, with a view to improving disaster/climate are likely to lead to an resilience of the transport assets and of livelihoods. increase in the instance and severity of natural disasters 23 Annex 1: Timor-Leste Country Partnership Strategy Results Matrix COUNTRY CONSTRAINTS OUTCOMES MILESTONES 22 Indicative Bank Group DEVELOPMENT the CPS will address the CPS will influence by which to measure PROGRAM GOAL progress STRATEGIC AREA 1: IMPROVING THE MANAGEMENT AND DELIVERY OF SERVICES IN EDUCATION, HEALTH AND NUTRITION, AND SOCIAL PROTECTION Engagement Area 1.1: Increasing access to and quality of education and health Access to a quality  Insufficient capacity of  MOE capacity to SPN: Second Chance education enables Ministry of Education allocate resources to key Education Project, people to participate (MOE) for effective policy needs increased, as Education Sector Support in the economic, development and resource measured by: Project (incl. AF and social and political management to ensure high AFII), Education development of the quality education Indicator 1: Pre-  Pre-secondary GER from Management Strengthening nation (SDP, pg. 14) secondary gross 74.3% to 80% Project enrollment rate (GER) LEN: Education Quality increased from 74.3% Improvement Project, Food (Census 2010) to 80% by Security Project 2015. ESW: Education service delivery, education quality, Indicator 2: Gender  GER disparity narrows workforce development, disparity in secondary from 5.8 percentage teacher quality education enrollment points to under 4 improvement narrows from 5.8 percentage points percentage points to under 4 percentage points by 2015. Timor-Leste will  Declining trend in  MOH resource SPN: National Health have a healthier Government of Timor-Leste management improved, Sector Strategic Plan population as a (GoTL) health expenditure as measured by: Support Project result of as a % of general LEN: Food Security comprehensive, government expenditures, in Indicator 1: # of districts  Health MTEF prepared Project high quality health particular with insufficient that receive recurrent and updated based on TA: JSDF on Food and 22 For results which are strongly linked to projects which end in or prior to FY15, and for which follow-on work has not yet been identified, outcomes and milestones are identical. New outcomes will be incorporated into the CPS Progress Report, as necessary. 24 COUNTRY CONSTRAINTS OUTCOMES MILESTONES 22 Indicative Bank Group DEVELOPMENT the CPS will address the CPS will influence by which to measure PROGRAM GOAL progress services accessible resources to maternal and expenditures consistent costed strategic plan Nutrition Security and to all Timorese child health with the NHSSP Mid- Agriculture Policy (TBC) people (SDP, pg.  Insufficient capacity for Term Expenditure 34) resource management, Framework (MTEF) and including planning and approved budget (Target: budgeting, implementation, 8 in 2015; Baseline: No resource (human, financial, MTEF yet developed) and material) management, and monitoring and Indicator 2: % of stock-  % of stock-outs of tracer evaluation outs of tracer essential essential drugs at the drugs at health facilities Autonomous Service of reduced (Target: 30% in Medicines and Health 2015; Baseline: 40% in Equipment decreased 2011) (Target: 15% in 2015; Baseline: 19% in 2012) Engagement Area 1.2: Developing an appropriate social protection system Rights and interests  Lack of information needed  Management and SPN: Social Protection of the most for decision-making implementation of social Administration Project vulnerable citizens  Unsustainable levels of assistance programs TA: Social Protection protected (SDP, pg. growth in budget improved, as measured NLTA, indicative social 44)  Lack of strategic by: protection TA framework/policy ESW: PER on Social Indicator 1: Social  Interministerial Assistance, ongoing assistance policy committee to consider analysis on social framework in place SA policy formed protection and labor Indicator 2: Program  Management management indicator Information System for reports produced by the cash transfers developed MIS (Target: Quarterly in and deployed FY15; Baseline: None in FY13) 25 COUNTRY CONSTRAINTS OUTCOMES MILESTONES 22 Indicative Bank Group DEVELOPMENT the CPS will address the CPS will influence by which to measure PROGRAM GOAL progress STRATEGIC AREA 2: BUILDING CORE INFRASTRUCTURE TO CONNECT COMMUNITIES TO MARKETS Engagement Area 2.1: Developing a high-quality, well-maintained road infrastructure Extensive network  Insufficient road network  Improved road LEN: Timor-Leste Road of quality, well- increases cost and time for conditions and Climate Resilience Project maintained roads travel sustainability of road and Additional Financing I will connect  Low investment in investment, as measured and II communities, operations and maintenance by: TA: Road for Cultural promote rural (O&M) Heritage development,  Poor condition of roads in Indicator 1: % of the Dili-  Road roughness reduced, industry and key agricultural areas Ainaro Road Corridor that as measured by tourism, and provide  Little attention to climate is in good or fair International Roughness access to markets change impact on road condition (Target: 90% in Index (IRI) (m/km) (SDP, pg. 70) networks FY2016; Baseline:10% in (Target: 3.5 for 2012) improved sections in 2016; Baseline: 9 in 2012) in the Dili-Ainaro Road Corridor Indicator 2: Climate  # of locations with resilience of the Dili- improved slope Ainaro road corridor, as protection on Dili- measured by % of Ainaro road corridor drainage on the road (Target: 25 in 2016; corridor in good condition Baseline: 0 in 2012) (Target: 90% in 2016;  % of drainage on the Baseline: 20% in 2012) Road Corridor in good condition (Target: 90% in 2016; Baseline: 20% in 2011) Engagement Area 2.2: Commencing freight and air traffic improvement International airport  Lack of sector planning  Air transport IFC AS: Dili Airport expanded and  Insufficient airport facilities infrastructure IFC IS network of district  Limited private sector improved through 26 COUNTRY CONSTRAINTS OUTCOMES MILESTONES 22 Indicative Bank Group DEVELOPMENT the CPS will address the CPS will influence by which to measure PROGRAM GOAL progress airports built up to investment private sector meet future demand investment, as measured for air traffic and by: boost key industry sectors (SDP, pg. Indicator 1: Dili Airport  Advice provided on 222) construction complete technical, legal, environmental, and social due diligence and design of potential legal structures for PPP Indicator 2: US$5  Competitive tender to million in new private select private developer/ investment facilitated for investor/operator to construction of Dili partner with the GoTL to Airport build a new Dili Airport initiated New seaports  Limited private sector  Seaport infrastructure IFC AS: Tibar Bay Port support growing investment improved through (Dili) economy and meet  Lack of sufficient freight private sector future industry and facilities investment, as measured freight demands by: (SDP, pg. 222) Indicator 1: US$50-70  Competitive tender to million in new private select private developer/ investment for the Tibar investor/operator to Bay Port facilitated and partner with the GoTL to port construction build Tibar Bay Port underway initiated Engagement Area 2.3: Supporting reliable and affordable telecommunications services through efficient and well-regulated competition Modern  Legal and regulatory  Information and LEN or Programmatic telecommunications frameworks incomplete communications AAA + RETF: network established  Limited technology (ICT) Telecommunications and 27 COUNTRY CONSTRAINTS OUTCOMES MILESTONES 22 Indicative Bank Group DEVELOPMENT the CPS will address the CPS will influence by which to measure PROGRAM GOAL progress (SDP, pg. 100) telecommunications policymaking ICT Development Project infrastructure, particularly capability improved, as in rural areas, leading to measured by: low access and high costs Indicator 1: Sector  Initial review/update of policy documents Telecommunications updated and effective Policy undertaken regulatory framework in place  Penetration of telecommunications increased, as measured by: Indicator 1: # of direct  Policy needs assessment beneficiaries (Target: of broadcasting and 80% of the population in Internet delivery, 2017; Baseline: approx. national Internet 50% of the population in exchange, international 2012) optical fiber cables completed STRATEGIC AREA 3: SUPPORTING ECONOMIC DEVELOPMENT FOR A NON-OIL ECONOMY Engagement Area 3.1: Increasing productivity of the agriculture sector through strategic policy support and investments Thriving  Weak policy formulation  Agricultural LEN: Agriculture agricultural sector and implementation productivity and Productivity Improvement reduces poverty, capacity of the Ministry of competitiveness Project (APIP), Food provides food Agriculture and Fisheries improved, as measured Security Project (see security, and (MAF) by: below), Marine Coastal and promotes growth in Limited use of commercial Environmental rural areas and the inputs and improved Indicator 1: % of Management Project nation as a whole technologies by farmers farmers adopting (indicative), Coffee Sector (SDP, pg. 118)  Under-developed market improved farming Rehabilitation Project 28 COUNTRY CONSTRAINTS OUTCOMES MILESTONES 22 Indicative Bank Group DEVELOPMENT the CPS will address the CPS will influence by which to measure PROGRAM GOAL progress linkages due poor road and practices (baselines and TA: JSDF on Food and Timor-Leste will marketing infrastructure targets will be identified Nutrition Security and have at least four  Limited and erratic rainfall during project Agriculture Policy (TBC); niche cash crop and poor soil conditions preparation) Institutional Development products that can be  Limited private sector Fund (IDF) on Capacity consistently investment in agriculture Indicator 2: % of Building in MAF; TA for exported (pg. 223)  Poor agricultural practices farmers adopting soil policy and planning among coffee farmers and water conservation capacity building  Soil degradation measures (baselines and ESW: Pre-feasibility study targets will be identified for development of during project groundwater irrigation, preparation) Action Plan for the Rehabilitation of the Indicator 3: One IFC  Coffee sector strategy Coffee Sector (WB and investment in coffee, prepared in a IFC) forestry, or another key consultative manner IFC AS: Pacific agribusiness subsector Microfinance Initiative initiated (partnership w 2-3 MFIs) IFC IS:  MAF policy Coffee/agribusiness formulation and investment planning, regulatory, and implementation N.B. APIP could be capacity strengthened, supported through GAFSP as measured by: if GoTL’s proposal is accepted. In such case, the  Indicator 1: Timor-Leste  MAF is reorganized and Bank will appraise and Research and adopts a decentralized supervise project Development Institute structure implementation. and Agricultural Advisory Committee established and operational 29 COUNTRY CONSTRAINTS OUTCOMES MILESTONES 22 Indicative Bank Group DEVELOPMENT the CPS will address the CPS will influence by which to measure PROGRAM GOAL progress Engagement Area 3.2: Improving the business environment. Reforms to improve  Weak legal and regulatory  Reduce the cost and TA: Labor Market Issues the business and protections (including on increase the ease of Diagnostic Report, Land investment land ownership and use), doing business in policy and land titling environment in complex and costly Timor-Leste, as IFC AS: Public-Private Timor-Leste, regulations, limited access to measured by: Dialogue, Business provide better finance, skills mismatch Environment TA, access to  High cost of business start- Indicator 1: Business  One Stop Shop partnerships with financial microfinance, and up registration and licensing established, maintained intermediaries, Business create a new  Limited or no access to process streamlined and and improved Registration and Licensing National credit and long-term finance time reduced (Target: 5 Reform, process Development Plan. at affordable rates days; Baseline: 103 simplification, Financial (SDP, pg. 151)  Potential for conflict arising days) services and banking sector from land expropriation and review, IFC PMI Businesses need evictions Indicator 2: Access to  Either payment systems partnerships with 2-3 credit to invest, finance is doubled or credit registry created Financial Institutions; IFC expand, purchase (Target: 26% of the financial infrastructure goods and population in FY17, project. equipment, and Baseline: 13% of the upgrade facilities. population in FY12) (SDP, pg. 152) Indicator 3: # of women  Milestone will be with formalized determined in early 2013 businesses increased (Targets and baselines will be determined in early 2013)  Contingent upon  Milestone will be passage of the draft determined in early 2013 land law, land titling underway in line with law and approved land policy 30 COUNTRY CONSTRAINTS OUTCOMES MILESTONES 22 Indicative Bank Group DEVELOPMENT the CPS will address the CPS will influence by which to measure PROGRAM GOAL progress CROSS-CUTTING THEME: STRENGTHENING INSTITUTIONS FOR QUALITY OF SPENDING Engagement Area 4.1: Supporting public sector institutions and planning functions to contribute to better economic management SDP implemented  Insufficient attention to  Improved efficiency SPN: National Health as cost effectively sector planning, weak and targeting of public Sector Strategic Plan and efficiently as linkages between expenditures, in line Support Project, Education possible (SDP, pg. subnational program with strategic priorities Management Strengthening 227) implementation and national and sound fiscal policy, Project, Planning and planning as measured by: Financial Management Public sector  Inadequate information for Capacity Building Program management and planning purposes Indicator 1: Household  Gender-informed LEN: Education Quality governance  Low level of cooperation, and other survey data, PERs in infrastructure Improvement Project, strengthened; including data sharing, poverty assessments, and and at least 1 Food Security Project, Modern Information within and among program- and sector-level additional sector Public Financial Technology will government agencies data made widely  Poverty assessment Management (PFM) and have been adopted  Insufficient attention by available and used to and/or HIES Economic Management by the civil service donors to the needs of inform program planning completed TA: Public Investment to support joined-up fragile states, including lack and policy dialogue (This  Disaster/climate Management TA, government and e- of harmonization of aid with indicator will be resilience study Petroleum Fund and Asset government the local and national sharpened during the undertaken Management TA, initiatives (SDP, pg. context, unpredictable aid, CASPR.)  Country Gender Agriculture Policy and 227) and inadequate attention to Assessment Strategy TA, Social building capacity and undertaken Protection and Pensions systems ESW: Infrastructure PER; Indicator 2: At least 2  At least 1 Ministry- Youth public expenditure Ministry-level MIS level MIS developed analysis; education service developed and in use and in use delivery, quality and (Baseline: 0 in 2012) workforce development; Poverty Analysis and HIES; Building Indicator 3: World Bank  Full and accurate data Disaster/Climate support integrated into on World Bank Resilience; Country and reported in budget assistance made Systems Review plans and requests, and available in GoTL Aid TF: Social Protection 31 COUNTRY CONSTRAINTS OUTCOMES MILESTONES 22 Indicative Bank Group DEVELOPMENT the CPS will address the CPS will influence by which to measure PROGRAM GOAL progress included in Transparency Portal Administration Project appropriations approved  Country systems IFC AS/WBI: PPP policy by Parliament review undertaken support project Indicator 4: PPP regulation gaps identified to allow transactions for Dili Airport and Tibar Bay Port Engagement Area 4.2: Increasing the focus on equity, inclusion, and citizen participation Timor-Leste will be  Lack of adequate  Government policy and TA: Network for a strong, cohesive information for equality- and programs informed by Parliamentarians (with the and progressive inclusion-focused policy data on equality and World Bank Institute nation where the planning inclusion, as measured (WBI)) rights and interests  Rapid increase in by: ESW: Poverty and Social of its most infrastructure budget, Impact Analysis (PSIA) vulnerable citizens executed through multiple Indicator 1: Collection  At least 2 analytical grant on Understanding are protected (SDP, modalities, with incomplete and use of data on pieces on inequality Perceived and Actual pg. 219) monitoring of impacts development and (including gender and Socio-Economic  Limited voice and inequality improved to age-based inequality) Inequality, Poverty participation of citizens and support policy planning prepared and Analysis and HIES, Human civil society in identifying, (This indicator will be disseminated widely Opportunity Index for planning and executing sharpened during the Timor-Leste, Youth PER, development priorities CASPR.) Country Gender Analysis, Public Investment Indicator 2: National  Analysis of equity in Management, sub-national systems and capacities infrastructure spending spending modalities, and for maximizing completed and feeds into large infrastructure development benefits for reform of country contracts; Infrastructure poor and vulnerable systems for PER groups improved, infrastructure planning ESW, LEN (IDA), and increasing their voice and TF: Social accountability and transparency 32 COUNTRY CONSTRAINTS OUTCOMES MILESTONES 22 Indicative Bank Group DEVELOPMENT the CPS will address the CPS will influence by which to measure PROGRAM GOAL progress reducing grievances in  Partnership with infrastructure stakeholders established development around a national-level engagement on infrastructure, with equal participation of women 33 Annex 2: Country Assistance Strategy Completion Report June 2012 Country Assistance Strategy for FY2006–2008 August 18, 2005 Report No. 32700-TP Interim Strategy Note for FY2010–2011 August 12, 2009 Report No. 50099-TP CASCR prepared by: Amanda Green Under the guidance of: Luis F. Constantino Pamela Dale With inputs from: World Bank Timor-Leste Country Team I. Introduction 1. This Country Assistance Strategy Completion Report (CASCR) evaluates the World Bank’s Country Assistance Strategy (CAS) for the Democratic Republic of Timor-Leste for the period FY2006–2008, as well as the subsequent Interim Strategy Note (ISN) for FY2010–2011 produced jointly by the World Bank and International Finance Corporation (IFC). To the extent possible, this CASCR reports on progress to date, including for CAS outcomes that were envisioned over the period FY2006–2008. A Country Assistance Strategy Progress Report (CASPR) was prepared but never finalized, as the decision was taken to move to an ISN. 2. The CAS for FY2006–2008 was the World Bank’s first full CAS for Timor-Leste, following the Transition Support Strategy developed in 2000. Its chief aim was to help the country consolidate early post-independence progress. In line with Timor-Leste’s National Development Plan and Stability Program, the CAS was developed around three strategic pillars: delivering sustainable services, creating productive employment, and strengthening governance. Youth and gender considerations were mainstreamed throughout the program. Taking into account lessons learned from the Bank’s early interventions in the country, the CAS emphasized four principles of engagement: building institutional capacity, deepening the results orientation, strengthening transparency and communication, and consolidating and extending strong international partnerships. The CAS advocated a whole-of-government program supported by strong multidonor partnerships, underpinned by the Consolidation Support Program (CSP), a budget support operation financed by ten donor partners. Given its alignment with the multidonor CSP, the CAS results matrix included outcomes to which the Bank did not expect to contribute directly. This CASCR reports only on those outcomes to which the Bank expected to contribute directly. 23 3. Less than a year after the start of the CAS, in April 2006, violence erupted in Timor-Leste. Fighting broke out between the army and police following the dismissal of over one-third of the army’s soldiers, which sparked widespread violence in the capital, Dili, particularly among youth gangs. Over 100,000 people were displaced, and international troops were called in to restore order. This period of insecurity lasted well into 2007, invalidating many of the assumptions underlying the CAS and prompting the decision to move to an ISN. In May 2007, the Bank began processing new operations under Operational Policy 8.00, Rapid Response to Crises and Emergencies (OP 8.00). 24 23 These outcomes were marked with an asterisk (*) in the CAS Results Matrix. International Development Association. 2005. Country Assistance Strategy for the Democratic Republic of Timor-Leste for the Period FY06– FY08. Report No. 32700-TP, June 22. Annex B9. 24 The most recent project in Timor-Leste approved under OP8.00 is the 2009 Youth Development Program. 34 4. Published in August 2009, the ISN for FY2010–2011 aimed to support the government in using its oil wealth to address immediate post-conflict stabilization imperatives while laying a sound basis for sustained growth in nonoil sectors. Recognizing the critical role of private sector development in ensuring national stability and nonoil growth, the ISN was prepared jointly by the World Bank and IFC. The move to an ISN also reflected the understanding that the political and security risks present at the time in Timor-Leste required greater focus and flexibility in the program. CAS activities that were no longer relevant to the country’s context and goals were restructured or dropped. This CASCR reports to the extent possible on progress made on all CAS activities. 5. ISN activities were organized differently than those in the CAS, focusing on four strategic stages of the government’s transition from restoring stability to fostering long-term development: (i) participation in the ongoing dialogue on National Priorities and the formulation of a national development strategy; (ii) development of capacity to implement this strategy; (iii) design and implementation of short-term stabilization activities; and (iv) steps to secure longer-term economic growth and development. Implementation of the ISN was guided by the Bank Group’s framework for engagement in fragile states. 25 6. Following a thorough review of CAS and ISN implementation, the country team has rated both Program and Bank performance moderately unsatisfactory based on the latest guidelines for CASCR ratings. 26 Though good progress was achieved toward most major outcomes—an impressive feat in a new, postconflict country—the program did not meet expectations in key areas such as job creation, agricultural development, and youth employment. Regarding the Bank Group’s performance, while the design of the CAS provided the broad scope and coordinated multidonor approach the government was looking for, the strategy’s ambitious targets foundered in the face of severe capacity challenges and postconflict uncertainty. Despite improvements in program supervision and meaningful dissemination of analytical work, implementation was hampered by overly complex projects and insufficient mitigation of risks. 7. This assessment is based on discussions within the country team and on a review of key documents.27 The assessment is informed by the Independent Evaluation Group’s (IEG) Country Program Evaluation (CPE), which reviewed 39 IDA- and IBRD-financed operations, four IFC advisory service activities, and various trust funded activities implemented between 2000 and 2010. However, in keeping with the CASCR guidelines, this assessment is a self-evaluation by country office staff, and therefore may differ from the CPE in both its analysis and conclusions. II. Progress toward Longer-term National Development Goals 8. In evaluating Timor-Leste’s progress toward the long-term development outcomes set forth in the CAS, it is important to take into account the disruptive and, in some cases, retrogressive effects of the 2006–2007 crisis. The outbreak of violence destabilized the political environment, contracted the economy, and exacerbated unemployment, adding a significant burden to the challenges the country already faced in meeting its national development goals. As discussed at length in the World 25 World Bank. 2005. Fragile States—Good Practice in Country Assistance Strategies (IDA/R2005-0252), December. 26 World Bank. 2012. Guidance to Staff on the Country Assistance Strategy Completion Report. Operations Policy and Country Services Department. October. 27 Key reference documents include the CAS for FY2006–2008, the ISN for FY2010-2011, Project Documents, Implementation Status and Results Reports, supervision reports, Implementation Completion and Results Reports, trust fund progress reports, portfolio reviews, and recent Economic and Sector Work. 35 Bank’s World Development Report 2011: Conflict, Security, and Development, it is not unusual for post-conflict countries to experience “cycles of repeated violence, weak governance, and instability,� which frustrate efforts to reduce poverty, advance human and economic development, and improve institutional performance. 28 Moreover, creating institutions that can break the cycle of violence takes 15 to 30 years, even in the most promising cases, and the transition to stability tends to take shape in a series of transitions from confidence building to institutional transformation. 29 9. In this context, it is notable that the young nation of Timor-Leste emerged from this crisis intact and with a renewed focus on translating the work of government into tangible economic and social benefits for its citizens. Despite the tense situation, the government showed impressive restraint in its handling of the crisis. Under intense pressure to rebuild public trust, it moved quickly to address the proximate cause of the unrest and to resettle those who had been displaced. In the aftermath of the conflict, the government prioritized the promotion of economic recovery, provision of security, implementation of social protection programs, and restoration of positive communication with the Timorese people about government policies and initiatives. 10. As a result of the government’s priority focus on stabilization and recovery, some activities that had been highlighted in national development planning documents and, consequently, in the CAS were deemphasized in the short term, with attendant effects on the achievement of these objectives. Still, despite the challenging context, Timor-Leste has made important progress toward recovering from the effects of the crisis and advancing toward national development goals. The country’s first National Development Plan—in which the CAS was anchored—set forth two overarching development objectives: (i) to reduce poverty across the nation; and (ii) to promote equitable and sustainable economic growth. 11. The incidence of poverty increased significantly between 2001 and 2007, a period of global economic financial downturn. The Timor-Leste Survey of Living Standards (TLSLS) measured the poverty headcount at 49.9 percent nationwide in 2007, up from 36.6 percent in 2001. 30 Poverty was shown to be greater in rural areas, arising largely from a decline in average consumption. Preliminary analysis in advance of a planned household survey and full poverty assessment suggests some persistence in poverty.. 12. Timor-Leste’s economic recovery has been strong, showing average annual growth rates above 10 percent since 2007. The government’s expansionary fiscal policy has been a principal driver of this growth. This fiscal approach relies on the country’s petroleum income, which peaked at US$ 2.8 billion in 2011 and is projected to come to an end by 2025. The country has amassed over US$ 11 billion in savings (nearly eleven times the estimated nonoil GDP in 2011) in its Petroleum Fund, which provides a cushion for potential economic shocks. Withdrawals from this Fund, which were budgeted to exceed the estimated sustainable income (ESI) by US$ 321 million in 2011 and are planned at over twice the ESI for 2012, have been aimed at spurring domestic investment and private sector growth. While medium-term economic prospects are strong, they depend on the quality of government spending and government efforts to stimulate economic opportunities across the country. Moreover, the transition from low-income, postconflict environment into an oil-rich lower-middle- 28 World Bank. 2011. World Development Report 2011: Conflict, Security, and Development. Washington DC: World Bank, pp. 2-5. 29 Ibid, pp. 10, 12. 30 World Bank. 2008. Timor-Leste: Poverty in a Young Nation. Preliminary Draft. Washington DC: World Bank. 36 income country will have important implications for its strategic development path as well as for the nature of its relationship with the Bank. 13. Though the ISN focused less on national long-term development goals than on short-term stabilization, it did aim to help the government lay the foundations for sustained nonoil growth as part of its transition out of a postconflict environment. It did so in two areas: support for enhanced rural productivity and creating a basis for enhanced private sector activity. 14. After a period of low growth from 2000-2007, agricultural sector growth rates reached 13.4 percent in 2008 and 12.6 percent in 2009. Yet nearly half of rural households live below the poverty line of US$ 0.88 per day, and food security, poor nutrition, and child malnourishment remain substantial challenges. Additional efforts are needed to reach vulnerable upland farmers and to address the underlying causes of food insecurity, including low yields of staple crops, large post- harvest losses, and limited food distribution capacity. 15. Timor-Leste has a small but growing private sector, which has benefited from a substantial increase in government spending since 2007. The business regulatory environment has improved, including in telecommunications, microfinance, procurement, business registration, and customs clearance. Despite this progress, the barriers to private sector growth remain substantial. Timor-Leste ranks 169th out of 185 countries in the joint World Bank-IFC 2013 Doing Business survey, and poor infrastructure, high transportation costs, and limited access to land and finance impede investment. III. Program Performance 16. Overall performance on the CAS and ISN program is rated moderately unsatisfactory based on the ratings scale provided in the CASCR guidelines. Good progress was achieved toward most major expected outcomes—an accomplishment that is particularly remarkable in a postconflict, low- capacity environment. Support provided under the CAS and ISN programs helped expand school enrollment and improve health outcomes. The highly transparent and inclusive process of identifying and recognizing veterans of the resistance helped promote national dialogue and healing after a long history of conflict. On governance, the Bank’s role in helping Timor-Leste to develop institutions, establish and strengthen financial management systems, and create a world-class petroleum revenue management regime is widely acknowledged by the government and development partners. 17. Nonetheless, the program fell short of goals in key areas such as job creation, agricultural development, and meeting the needs of unemployed young people. Efforts to stimulate private sector development and job growth have proceeded slowly in comparison to the country’s needs. Early interventions were too piecemeal to make a meaningful impact, and more comprehensive approaches have so far failed to take root. Support provided to agricultural development under the multidonor CAS and, subsequently, to rural development under the ISN has had some effect, but there is a need for broader, more systematic interventions and closer engagement with key players in the ministry. Finally, despite an effort to mainstream youth concerns in the CAS, the design of the program failed to mitigate the risk of youth dissatisfaction and violence that materialized during the crisis. 18. The remainder of this section will briefly review program performance by CAS pillar and ISN strategic area. In each of the areas supported by the CAS, Bank assistance was underpinned by the multidonor CSP budget support operation; other key Bank interventions are highlighted in the relevant sections below. Where there are intersections between the CAS and ISN programs, like 37 topics are discussed together, thus yielding an integrated discussion of progress over the two strategy periods. Details are provided in the self-evaluation summary matrix (Annex 1). Delivering Sustainable Services 19. Increased access to and improved efficiency and quality of basic education (CAS). Access to basic education has grown rapidly despite the crisis, with net enrollment reaching around 90 percent. Between 2001 and 2007, literacy among those aged 15 to 24 swelled from 50 percent to 85 percent. The CAS outcome targets on grade one enrollment and continuation to grade two were achieved with relative parity among boys and girls. However, repetition and dropout rates remain high, and educational quality is low. An Early Grade Reading Assessment (EGRA) conducted in 2011 found that 43 percent of children at the end of grade 2 were unable to read a single word. The scope for overall improvement in early reading ability has been held back by the growth in primary school enrollment, which has brought the poorest, most vulnerable children into the system. It is notable, however, that Timor-Leste was one of the first low-income, capacity-constrained countries to undertake the EGRA, and given continued distribution of learning materials and teacher training, expectations are high that reading results will begin to improve. The education ministry is undertaking major sector reform, shifting to school- and community-based management of school clusters, but the sector continues to face systemic management and resource constraints. 20. Improved access to and quality of primary health services (CAS). Timor-Leste’s relatively strong health sector institutions responded well to the crisis, swiftly re-establishing service provision and assisting those who had been displaced, and the country has continued to make good progress in achieving many of its key health outcomes. Immunization coverage exceeded CAS outcome targets, and moderate progress was made in increasing annual outpatient visits. Achievement of CAS targets on skilled attendance at birth is unclear given discrepancies in available data sources. 31 Ensuring adequate quality of health sector information represents a continuing challenge. Health promotion efforts have gained some headway, particularly in reproductive health and communicable diseases, and Timor-Leste has made important advancements in health sector management. 21. Service delivery capacity in health and education sector programs (ISN). The Bank’s interventions to support the government’s strategic planning, financial and information systems development, and management of construction and service provision have assisted the government to progressively improve its performance under the Health Sector Strategic Plan for 2008–2012. In the education sector, there has been good progress in achieving outcomes set out in the Strategic Plan for Achieving Universal Primary Completion by 2015. In addition, the Second Chance Education Project, which became effective in 2011, aims to provide basic education certification and skills training to young people who missed out on traditional education opportunities. 22. Improved efficiency of power supply and collections in the national capital and enhanced availability of reliable, affordable power in the districts (CAS). Following a recent extensive national power development program, unofficial estimates suggest that the national electrification rate may have risen to 80 percent in mid-2012. Installation of a new generator at Comoro has helped achieve significant fuel cost savings and improve the reliability of the power supply in Dili. Distribution system improvements have significantly reduced system losses, increased the number of paying customers, and strengthened revenue collection. Key challenges in rural energy include expanding 31 According to the Health Management Information System (HMIS), the target of 40 percent was exceeded (46 percent), while under the 2009–2010 Demographic and Health Survey it was not (30 percent). 38 access to electricity and addressing the negative health and environmental effects of biomass fuels. A distribution system was completed in Aliambata, but plans to build a seep gas-fired generation plant were dropped following tests showing that gas resources in the project areas would be insufficient. The government instead financed a diesel-fired power plant that backs up the electricity supply. 23. Recognition of veterans of the resistance on the basis of national consultations (CAS). Launched in 2002, the painstaking and participatory process of identifying and registering veterans of the resistance had a tangible effect on national stability, generating public consensus around the definitions of veterans and appropriate forms of government assistance. This process was highly inclusive and well received, as evidenced by the absence of veterans’ issues from among the political grievances articulated during the 2006–2007 crisis. 32 A veterans’ law was passed in 2006 and has since been revised to adjust eligibility and benefit levels. The national dialogue culminated in a series of recognition ceremonies held between November 2006 and May 2008. Pension payments to veterans or survivors were launched in mid-2012. 24. Sustaining an effective safety net for the most vulnerable (ISN). The government’s social assistance framework expanded rapidly following the crisis, resulting in a formal safety net and associated public expenditures that extend beyond those usually found in low-income countries. A series of cash transfer programs was launched in 2007, including pensions for the elderly and disabled and a conditional cash transfer program directed at female-headed poor households who send their children to school and health clinics. Roughly one-tenth of the population is now receiving some form of social support. 25. Tackling youth employment and alienation (ISN). Though the CAS highlighted the risks posed by Timor-Leste’s rapidly growing youth population in a context of high unemployment and poor government communication about public sector development initiatives, the 2006–2007 crisis brought this issue to the forefront. In designing the ISN, the Bank sought to tackle the needs of youth more directly using a two-pronged approach: (i) building a national employment bridge to support short-term income-earning opportunities, and (ii) empowering young people to participate meaningfully in their country’s development through direct engagement and second-chance education opportunities. During ISN implementation, however, the government requested that the comprehensive National Workfare Program envisioned under the first element be dropped. On the youth empowerment side, the Youth Development Project has provided funding to support local development projects that are identified and implemented by youth groups in five districts. The Second Chance Education Project is working to establish community learning centers and provide education services for young people who have not benefited from the traditional school system. 26. Promoting equitable access to “economic justice� (ISN). The Bank has worked to strengthen participation in development planning and decision making among the rural poor, supporting research, conflict mapping, and a community feedback system designed to deepen accountability in local governance. The feedback system has not been taken on board by the government, however. The program has also focused on improving government and private sector engagement with communities. Some progress has been made in integrating effective conflict management and rights protection considerations into development processes. 32 World Bank. 2008. Defining Heroes: Key Lessons from the Creation of Veterans Policy in Timor-Leste. Washington DC: World Bank. 39 Creating Productive Employment 27. Jobs created directly through budget implementation and overseas employment programs (CAS). The number of jobs created through the nascent emigrant workers program fell far short of expectations. Negotiations with recipient countries proved to be complex, preventing the program from reaching its potential. There were some efforts early in the CAS period to direct routine road maintenance budget expenditures toward labor-intensive activities, but these activities yielded few jobs. Challenges included slow budget execution and limited capacity for works supervision. Following the crisis, the ISN sought to implement a more comprehensive employment creation program, but this effort was dropped at the government’s request (paragraph 25). 28. Improved private sector enabling environment, resulting in increased trade, investment, and jobs (CAS). Key elements of the legal framework supporting investment have been implemented, and administrative procedures for credit are in place. Foreign direct investment and nonpetroleum exports have grown substantially, exceeding CAS targets. Business registration processes have been updated, and the time required to start a business fell from 92 days in Doing Business 2005 to 13 days as of March 2012. A One Stop Shop for business entry, set to open in April 2013, is expected to further reduce the number of days and procedures required. There was some expansion of entrepreneurial jobs, and government-business consultation has been enhanced, including through the unification of 17 associations into the Chamber of Commerce and Industry of Timor-Leste. 29. Improved access to credit for private investment and working capital (CAS). Timor-Leste’s ranking on “getting credit� jumped to 159th of 185 countries in the Doing Business 2013 survey, up from 170th of 178 countries in Doing Business 2008. 33 A public Credit Registry Information System, designed in consultation with banks and microfinance institutions, was launched in 2009. Commercial bank lending and access to microcredit have grown, though no special initiatives have been undertaken to reach young people. 30. Creating a basis for enhanced private sector activity (ISN). The IFC supported the establishment of a Chamber of Commerce and Industry, which has provided recommendations to the government on private sector priorities such as access to financial services, trade facilitation, and business registration, and has participated in discussions with the government and labor unions on the minimum wage and labor law. The government approved a Public-Private Partnership Law in May 2012 and has signed transaction agreements with IFC to develop Tibar Port and Dili Airport. 31. Enhanced sustainable resource management (CAS). There has been some progress in outlining a legal and regulatory framework for the sustainable development of agriculture, forestry, and fisheries, though implementation has been slow and difficult to assess. Enforcement, implementation, and impact are still limited. The country’s first national park was created and other protected areas identified, though these amount to only about 60 hectares of land. A fisheries licensing system is under implementation, but monitoring is selective and control is limited. 32. Building blocks for improved food security and food production in place (CAS). There has been some recent progress on monitoring of and reporting on food security, but food production statistics remain unreliable. Good progress has been made toward the release of new crop varieties, and these improvements are expected to have a significant impact once sufficient seed and planting 33 The Doing Business methodology was adjusted in Doing Business 2012, so these rankings are not directly comparable. But they give a general sense of Timor-Leste’s improvement in this area. 40 materials are available. A high-quality national agricultural extension strategy was developed, and extension officers are now in place in nearly every village in the country. Their effectiveness is constrained by limited resources, however. 33. Enhanced business-oriented production of agricultural products (CAS). Coffee remains the only high-value, organic cash crop in Timor-Leste. Annual coffee production and export earnings have increased steadily, but important challenges remain in expanding the sector’s value added, including high input costs, inconsistent quality due to aging trees and insufficient understanding of quality problems among producers, lack of access to credit, and limited coordination among small growers. 34. Support for enhanced rural productivity (ISN). The ISN included support for policies and programs to increase smallholder productivity, and the Bank’s guidance in the sector has begun to be integrated into government strategy documents. Though the ISN left open the possibility of launching a rural development operation, this did not materialize due to funding constraints. Recent advances in rural development planning and implementation show the importance of maintaining a long-term, generational view of support for agricultural and rural development. Strengthening Governance 35. Safeguards against corruption and abuse of power in place, with increased awareness of citizens’ rights (CAS). Timor-Leste has made good progress in establishing institutions to safeguard public sector accountability. The Office of the Provedor dos Direitos Humanos e da Justiça became operational in 2006. It is no longer responsible for investigating corruption following the establishment of an independent Anti-Corruption Commission in June 2009 and the appointment of a vice prime minister with a mandate to address corruption. The effectiveness of both these institutions has been constrained by limited resources. The independence and effectiveness of parliamentary scrutiny has improved, though there is a continuing need to strengthen technical skills and experience. The media and civil society are active on governance issues, publishing cases of alleged corruption and fostering public discussion. 36. Transparency and probity in managing petroleum revenues (supported by the CAS and continued under the ISN). In 2008, the government launched the Timor-Leste Transparency Model to help the public better understand the resource management process. In July 2010, Timor-Leste became the third country to be deemed compliant with standards set under the global Extractive Industries Transparency Initiative (EITI). In October 2010, the first Revenue Watch Index ranked Timor-Leste 12th of 41 resource-rich countries on comprehensive revenue transparency. However, some amendments to the Petroleum Fund Law have been enacted against technical advice, and withdrawals from the petroleum fund have been above the ESI for the past three years. 37. Enhanced motivation and responsibility among civil servants, resulting in higher standards of probity and service delivery (CAS). The powers and mandate of the Office of the Inspector General, including its role in internal audit, were defined through an organic law in 2009. Parliament has approved the establishment of a Tribunal da Contas, which will conduct external audits. In 2009, the government established an independent Civil Service Commission with a mandate to improve service orientation, leadership, ethics, and career structure in the civil service, along with powers to investigate misconduct and decide on disciplinary measures, but it faces this broad agenda with limited capacity and financial resources. The government introduced a new career regime, though this has been undermined somewhat by the recent proliferation of special regimes for line ministries. 41 38. Sound policy and legislative process across government and strengthened capacity to manage for and monitor results on the ground, with particular attention to women and youth (CAS). The government produced a legislative program setting out a timetable for passage of legislation, but the harmonization of organic laws is still pending. The capacity of the National Statistics Directorate has improved significantly as a result of technical assistance and hands-on experience in implementing key surveys, including—despite the disruptions caused by the crisis—a living standards survey that would be considered of high quality by international standards. 39. Improved implementation of budget in a transparent manner, in line with savings policy and sustainable growth and poverty reduction goals (supported by the CAS and continued under the public financial management outcome of the ISN). Timor-Leste has made solid progress in strengthening the transparency and effectiveness of public financial management systems. The budget document is comprehensive but does not accurately predict total budget spending given the frequent use of significant supplementary budgets. Procurement capacity has improved, though there is anecdotal evidence that less competitive procurement mechanisms are used more frequently than in the past. A major reorganization of the Ministry of Finance (MOF) clarified roles and responsibilities, promoted communication, and gradually strengthened management, but its relative strengths are diminished by incomplete budget coverage, low capacity for budget planning and implementation in line ministries, and the lack of internal and external audit. 40. Enhanced revenue performance through streamlined procedures and mechanisms (supported by the CAS and continued under the public financial management outcome of the ISN). Customs collections have improved thanks to new cargo clearance arrangements, use of x-ray technologies, and improved electronic systems. Petroleum tax receipts reached a record high in 2011 following the launch of the government’s first comprehensive petroleum tax audit. Domestic revenue mobilization remains weak, though a 2010 public awareness campaign strengthened the transparency of tax laws and taxpayer obligations. 41. Review capacity-building experience in Timor-Leste (ISN). Under the ISN, the Bank anticipated conducting a review of capacity-building experience in oil-rich post-conflict societies to identify approaches that could work in Timor-Leste and feed into a technical assistance and skills development strategy. The Bank did conduct a review of capacity building in the MOF, but at the government’s request, the ISN output was modified to a civil service review completed in 2011, which recommended reforms to strengthen wage and salary bill management. 42. Continued support for the National Priorities exercise (ISN). The Bank, along with the United Nations, played a lead role in supporting the development and monitoring of high-priority, government-identified initiatives known as the National Priorities (NPs) until 2011, after which the government began to phase out the process in deference to its new Strategic Development Plan. The government valued this support, as evidenced by its reference to the NPs process as best-practice postconflict support to government-led and government-owned priority setting, but in practice, its budget priorities appeared to be only marginally influenced by the exercise. 43. Bringing international experience of postconflict transition to Timor-Leste: support for the national strategic planning exercise and Bank Group policy work (ISN). Some assistance was provided in the development of the government’s national strategic plan in the form of background documents and costing support, but more formal engagement was not requested. Policy dialogue was enhanced on trade integration, telecommunications liberalization, agricultural reform, and poverty dynamics. The Bank has supported the government in bringing its own postconflict experience to the 42 world through the g7+ community of fragile and conflict-affected states, which is viewed internationally as the most vocal and legitimate voice representing fragile states on the world stage. IV. World Bank Group Performance 44. Overall Bank Group performance under the auspices of the CAS and ISN is rated moderately unsatisfactory based on the ratings scale provided in the CASCR guidelines. 34 The CAS was intentionally designed to be ambitious in order to meet the multifaceted development needs of a new nation arising from conflict. The strategy’s focus on government ownership and donor coordination was highly appreciated, but in the end its approach proved to be overly broad. Following the crisis, the ISN sought to refocus the country program on stabilization and recovery efforts while putting in place the building blocks for sustainable development in the medium to long term. In some sectors, this effort to pare down to the essentials may have cut back too far, setting goals that were easily reached. In others, the limited time horizon of the ISN allowed for minimal progress on thorny agendas—especially as some large planned operations did not go forward. On the implementation side, the country team made important progress in strengthening program supervision and making analytical work more accessible, while continuing to play a valued role in donor coordination. Nonetheless, many programs were not sufficiently small, simple, or flexible to ensure achievement of outcomes or maintain good portfolio performance in a low-capacity environment. The CAS and ISN identified several risks, some of which were realized, but no appropriate response to prevent or mitigate these risks was taken. Design and Relevance 45. The CAS was closely aligned with government priorities as expressed in the National Development Plan, Stability Program, and Sector Investment Programs. The selection of strategic pillars and country-level objectives on which to focus was drawn from these documents, as well as from the country’s Millennium Development Goals. 46. The CAS was anchored by the multidonor CSP. In recognition of severe capacity challenges faced by the nascent government in implementing its sweeping agenda, the CAS also envisioned the implementation of targeted capacity development in the management of public finances through the Planning and Financial Management Capacity Building Program (PFMCBP). These interventions were supported by sector-specific operations in areas where the Bank had built up expertise through implementation of the successful post-independence Trust Fund for East Timor. Together, these instruments embodied an innovative business model for the Bank in Timor-Leste, building on the government’s no-borrowing policy at the time to engage productively in coordinating international partnerships, supported by trust fund resources, grants, and analytical and advisory activities. 47. The CAS was drafted at a time when the government was taking on a new level of leadership and focusing on programs designed to foster self-reliance, rather than directly on poverty reduction. In this environment, the Bank team felt that its role was to support the government’s policies and priorities while continuing to advocate for pro-poor interventions where appropriate. While supporting the legitimate interest of a country that had recently regained its sovereignty, this design 34 This rating encompasses the activities of both the World Bank and IFC, where they apply. IFC launched operations in Timor-Leste in August 2006, shortly after the start of the CAS. Though their involvement in its design was limited, their early interventions were conducted in the context of the Bank’s CAS engagement as well as their own independent strategy. Subsequently, the ISN was developed, implemented, and monitored jointly with IFC. 43 choice elicited a tension—common in fragile state environments 35—between cultivating country ownership and focusing limited resources on a few priorities. In the end, the ambitious targets set by the CAS may have diffused focus on the steps and sequencing needed to achieve tangible progress. 48. Though the CAS covered a wide array of issues that were critical to Timor-Leste’s development, the relevance of the strategy was tested during the 2006 crisis, during which many of the risks identified in the CAS played out. As expressed in the ISN, the overarching lesson of the CAS experience was that maintaining social stability requires paying close attention to underlying tensions and communicating with citizens to manage expectations. Although the potential for a resurgence of conflict was well understood, it did not adequately influence program design. A more explicit focus on ensuring the distribution of tangible, short-term results might have helped stave off the 2006 crisis. For example, the Bank identified youth as a flashpoint, but making it a “cross- cutting� CAS theme in effect demoted the issue from direct attention. Only after the crisis did the Bank carry out targeted analytical work on youth unemployment and enunciate a multisectoral youth strategy, leading to operational interventions. Importantly, the ISN notes, this youth development work was embedded in strong government leadership emanating from the lessons of the crisis. 49. In the shift to an ISN, planned actions that were no longer deemed relevant were redesigned, postponed, or dropped, and the thrust of continuing programs was adjusted to emphasize short-term stabilization and continuous dialogue. For example, the PFMCBP refocused its efforts on accelerating government spending without losing fiduciary control. The sectorwide approaches in education and health concentrated on maintaining and/or restoring basic service provision, especially in rural areas, and the new Youth Development Project aimed to foster inclusion and empowerment among unemployed young people. Finally, the Bank joined other donors in supporting the government’s NPs to help the government prioritize and manage its stabilization and recovery objectives. Based on the Bank’s experience in fragile states, the ISN was geared toward ensuring a flexible program to allow for timely responses to quickly evolving challenges. 50. The design of the ISN reflected the lessons learned under the CAS by emphasizing selectivity, simplicity of project design, and accessibility of analytical and advisory work. In some sectors, this shift yielded a stronger, better-targeted program. On public financial management, for example, a renewed focus on key functions and critical capacity needs under a restructured PFMCBP have guided further progress in the sector. In agriculture, targeted analytical and advisory work has supported gradual, but important, shifts in the Bank’s strategic approach. In other areas, however, the effort to scale interventions back to core results may have swung the pendulum too far. In education and health, once services had been restored in the aftermath of the crisis, the ISN left little to aim for in furthering sector goals. In the area of economic justice, ISN objectives were drawn from the work program of one ongoing intervention and thus provided little strategic guidance. While this shorter- term focus reflected a conscious choice to concentrate on stabilization and recovery in the lead-up to a new medium-term government strategy, it may have sold short a few key areas of engagement. Implementation 51. Implementation of the CAS and ISN centered around coordinating strong donor partnerships in support of the government’s broad policy priorities, combined with targeted support for capacity building in public financial management. Linchpin programs such as the CSP were buttressed by 35 UNDP, World Bank. 2005. Operational Note on Transitional Results Matrices: Using Results-Based Frameworks in Fragile States. 44 sector-specific operations in areas where the Bank had a history of engagement and expertise, as well as high-quality economic and sector work and just-in-time advisory assistance. 52. This approach helped the Bank leverage the limited resources available to Timor-Leste under IDA14, attracting US$ 38.6 million in donor cofinancing as well as US$ 80 million in trust fund resources over the period from FY2006 to FY2011. By comparison, the projects approved for Timor- Leste during this same time period drew on US$ 42.1 million in IDA resources. The country team also increased its human resources, expanding the number of technical staff in the country office and placing an operations manager at the regional hub in Sydney. 53. The country team’s decentralization efforts helped enhance the quality of supervision, a key factor in the success of interventions in Timor-Leste. Supervision of the CSP involved twice-yearly multidonor monitoring missions and was intensified through regular dialogue around the government’s quarterly monitoring reports. These missions often dovetailed with supervision of sector programs. Overall, the Timor-Leste country program’s supervision costs have tended to fall below regional and Bankwide averages (Table 1), reflecting a balance between the absence of investment lending and the greater supervision needs in a low-capacity, postconflict environment. Table 1: Average Supervision Effort, US$ thousands FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 Timor-Leste 77 64 80 52 41 64 93 East Asia and the Pacific 75 83 64 67 65 67 68 Bankwide 94 98 88 87 87 83 84 Notes: (1) Average supervision effort is the total cost of projects, including costs of support activities, in addition to supervision, for a fiscal year, divided by the number of projects in the portfolio that fiscal year; (2) There is substantial variation between projects on supervision costs. For example, in 2008, the HSSP cost was US$7,000, whereas PFMCBP was US$243,000. (Note that data for FY2012 were added to the table on February 12, 2013.) 54. Under the ISN, proposed interventions that did not fit with refocused priorities or have sufficient government buy-in were dropped. Though these adjustments contributed to narrower, more flexible approaches in most sectors, the speed of interventions was held back by staffing challenges, burdensome procurement and operational systems, and limited country implementation capacity. Table 2: Timor-Leste Portfolio Highlights FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 No. of projects 7 8 6 6 6 8 6 No. of potential problem projects 0 1 1 4 1 2 2 No. of problem projects 0 1 1 0 3 3 1 No. of projects at risk 0 2 2 4 4 5 3 Net commitment amount 53.8 40.8 20.4 19.5 24.5 49.5 46.1 Commitments at risk 0 14.5 7.9 17.6 12.6 17.5 8.1 Projects at risk % of total, by number 0% 25% 33% 67% 67% 63% 50% % of total, by amount 0% 36% 39% 90% 51% 35% 17.60% Proactivity 0% 100% 33% 50% Satisfactory projects at exit, by number* 50% 50% 66.7% 0% 100% n/a n/a Disbursement ratio 48.8 37.2 18.8 38.0 28.7 27.6 16.1 * Project outcome rating = Satisfactory or Moderately Satisfactory, Source: IEG Outcome Indicators (SAP) (Note that data for FY2012 were added to the table on February 12, 2013.) 45 55. Project outcome ratings were mixed, both during and after the crisis. For all seven projects approved in FY2006 and FY2007 and reviewed by the IEG upon exit, project outcomes were rated moderately unsatisfactory. By comparison, 42 percent of project outcomes for the 28 projects approved between FY2000 and FY2005 and reviewed by the IEG upon exit were rated either satisfactory or moderately satisfactory. 36 The IEG’s CPE did not review any projects approved between FY2008 and FY2010. These data may indicate that project design suffered during the volatile crisis period given high levels of uncertainty and change. Project management quality seems to have fared better in response to the crisis, with at least half of projects receiving satisfactory or moderately satisfactory ratings at exit in all years except FY2009 (Table 2). 56. Portfolio performance declined after the crisis, however. The number of projects at risk has risen to around two-thirds in the last three years, representing 90 percent of commitments in FY2009. Proactivity has varied widely, reflecting the small size of the portfolio, where actions taken on one project greatly affect aggregate statistics. The disbursement ratio has been on par with or above the East Asia regional average, rising to nearly 40 percent in 2009 owing in part to heavy disbursement from the PFMCBP. This performance reflects the difficulties of implementing a challenging program under considerable uncertainty and risk, as well as the distinct operating environments at various points in this new nation’s young history. The Bank’s performance during the CAS and ISN period was most successful in areas where the greatest congruence existed between Bank programming and government priorities and where intensive supervision with considerable face time was carried out. 57. Several projects in the portfolio were restructured to enhance their effectiveness and better align their objectives with country development goals. The PFMCBP was formally restructured in early 2010 to address emerging priorities and reduce the program’s scope and complexity. A Mid- Term Review in June 2010 found that the PFMCBP had made a significant contribution to strengthening capacity across its target agency, the MOF. The Energy Services Delivery Project was restructured to scale up the impact of the successful distribution component. The Youth Development Project was restructured to, among other reasons, enhance the realism of outcome indicators and targets, reduce risks to outcomes, increase project sustainability, and improve results measurement. 58. A 2008 Quality Enhancement Review (QER) of the Timor-Leste program encouraged greater focus, simplicity in project design, and better follow-through on analytical work. 37 The QER supported the Bank’s role in helping convene donors around a common agenda, including the use of sectorwide programs to reduce disparate donor demands on government, but criticized their design as too complex. The QER was disappointed with the impact of Bank analytical work in areas such as health, social protection, and youth employment, implying that there was more focus on the product than on catalyzing change. While the QER underestimated the time it can take to translate analysis into action in Timor-Leste, the Bank has modified how it conducts analytical work in the country. 59. In the past, the country team occasionally missed opportunities to disseminate the findings of analytical work in an accessible manner and to translate those findings into policy and operations. Learning from this experience, recent initiatives on agricultural productivity, natural resource benefits sharing, and capacity building have replaced a report-oriented approach with an interactive series of debates, presentations, and tailored policy notes aimed at specific audiences. The role of the country team’s external communications group has been expanded. There is a strong preference for 36 Independent Evaluation Group. 2011. Timor-Leste Country Program Evaluation, 2000-2010: Evaluation of the World Bank Group Program. Washington DC: World Bank. 37 World Bank. 2008. Quality Enhancement Review: Pacific Islands. Washington DC: World Bank. 46 analytical work that has grown out of clear government demand and links closely with ongoing or potential operations. This focus on analytical work is reflected in higher-than-average completion costs in most years (Table 3). The provision of high-quality knowledge products is an important part of the Bank’s contribution in Timor-Leste, particularly in light of its comparatively limited financial role. Creation and dissemination of high-quality, highly relevant analytical work is expected to be a significant area of focus under the next CPS. Table 3: Average Completion Costs for Analytical and Advisory Activities, US$ thousands FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 Timor-Leste (for active or closed, not dropped) 124 300 215 154 - 26 - East Asia and the Pacific 161 182 134 126 146 190 185 Bankwide 170 183 177 188 200 218 215 (Note that data for FY2012 were added to the table on February 12, 2013.) 60. One of the Bank’s principal roles in Timor-Leste has been to help bring the country’s many donors together around a coordinated agenda. This role was cemented under the CAS and ISN by the Bank’s administration of the multidonor CSP and PFMCBP and its support for the National Priorities. The Bank has provided substantial technical assistance to the MOF’s National Directorate for Aid Effectiveness and chairs a biweekly donor coordination meeting. V. Lessons Learned and Recommendations for the Country Partnership Strategy (CPS) 61. The whole-of-government approach embodied by the CAS was too broad and ambitious given Timor-Leste’s severe capacity challenges. Though designed in response to the fledgling country’s desire to move forward on multiple fronts and the donor community’s optimism about the country’s prospects, the CAS set overly high expectations for what could be accomplished in three years and may have diffused focus on key priorities. Now, after the tenth anniversary of Timor- Leste’s independence, the government and donors are more attuned to the need for careful prioritization and sequencing of the development agenda, and for tempering expectations and communicating with citizens about challenges. It will be important for the CPS to present a truly strategic, prioritized, and realistic plan for supporting Timor-Leste’s development. However, in the search for achievable objectives, it should be careful not to reach only for low-hanging fruit. 62. Achievement of the CPS will require sustained efforts to strengthen institutions and build implementation capacity across the board. The obstacles to institutional development in Timor-Leste are thorny, deeply embedded in the country’s history and culture and not well understood in the donor community. The public sector has essentially had to build technical skills and expertise from scratch, a long-term challenge that is exacerbated by: (i) a weak management culture in the civil service, (ii) capacity constraints associated with the government’s language policy, in which the formal and working languages are different from that in which the majority of civil servants are literate; and (iii) the gap between slowly growing capabilities and quickly expanding ambitions. 63. In parallel with project-based efforts to support capacity strengthening, CPS interventions will need to be designed with current capacity constraints in mind. This will mean a disciplined approach to ensuring simple project design and realistic, monitorable indicators of progress. In Timor-Leste, it will be more effective to aim for “best fit� rather than “best practice.� Program design will need to be flexible given the risks posed by the country’s fragile stability and uncertain funding. In developing the CPS, the team would be well served in drawing on the Bank’s framework for engagement in fragile states, which emphasizes the centrality of efforts to build state capacity and 47 accountability, the interlinkages between peacebuilding and development, the importance of broad international partnerships, and the need for strong and flexible institutional responses. 38 64. This simplified, concretely monitorable approach will need to be underpinned by a strong results matrix that lays out a streamlined set of clearly defined goals and targets that are both measurable and regularly measured as part of broader monitoring processes (rather than standalone indicators reviewed only under the auspices of the CPS process itself). Given the need for flexibility and adaptability in any development context, and particularly the fluid situation in Timor-Leste at this time, a useful results matrix is one that can be amended to reflect changing circumstances and development needs. The upcoming CPS will make use of the mid-term CPS Progress Report to conduct a thoughtful review and modification of the results matrix with the aim of strengthening its relevance and utility. 65. Implementing programs in Timor-Leste’s capacity-constrained environment will imply continuous hands-on support. Experience has shown that interventions in Timor-Leste gain more traction when supported by intensive dialogue, sustained technical assistance, and close supervision. Under the CAS and ISN, Bank programs consistently underestimated the time it took to complete procurement and financial management procedures. Successful approaches are process-intensive and require more staff and more generous budgets than would otherwise be the case. 66. Timor-Leste’s rapidly growing national budget, together with the Bank Group’s increasingly constrained resource envelope for the country, will necessarily change the nature of the Bank’s relationship with the country. Maintaining relevance will require innovative approaches to working in a nontraditional environment. Operational interventions will continue to be just one facet of a multidimensional program, buttressed by high-quality, creatively disseminated analytical work; just- in-time advice; convening power; organizational support; and sustained policy dialogue. In some cases, the Bank Group’s most effective contributions may be delivered behind the scenes, and it will be a challenge to incorporate these informal but valuable activities into the definition of results expected from the CPS. 38 Fragile States—Good Practice in Country Assistance Strategies (IDA/R2005-0252), December 22, 2005. 48 CASCR Annex 1: Summary of Timor-Leste CAS/ISN Program Self-Evaluation 39 Lending and Nonlending Activities that Contributed to CAS/ISN Outcomes and Status and Evaluation Summary Outcomes Lessons for the New CPS Indicators (Approval-Completion Date; ICR Outcome/ISR DO/IP) CAS Outcome (Pillar I) Achieved. Operations: • Core capacity—that which Increased access to and improved is necessary for efficiency and quality of basic • Fundamental School Quality implementation—should be education* Project (TFET) (FY02-07; S) ensured prior to • Net enrolment rate for both girls • Net enrolment rate 87.55% in 2011, • Consolidation Support implementation in order to and boys in grade one at least 85% up from 67% in 2004-05. NER for girls Program (CSP) (FY06-07; MU) avoid risk of stalling. Analysis in 2011: 87.14%; for boys, 87.94%. • Primary Education Support of core capacity helps support • 95% of grade one girls and boys • Grade 1 to Grade 2 survival rate at Project (FTI-CF) (FY06-09; no additional capacity building continue to grade two 95.2% overall in 2011; 95.5% for boys ICR or ISR required) during implementation. and 94.9% for girls. • Education Sector Support • Pairing of Timorese Project (ESSP), with additional national consultants with financing (IDA Grant/AusAID) international experts at all (FY07-13; S/S) levels, positive engagement • Fast Track Initiative Bridging with civil society Project (FTI-CF) (FY09-11; S) organizations, and AAA: participation of local • Youth in Crisis (FY08) communities were key factors in the success of the FTI Bridging Project. • In fragile and/or post- conflict states, time and resources are better focused on promoting field-based partnerships during implementation than on time- consuming and expensive upfront production of a standard Project Appraisal 39 Because there was a change in the Bank’s engagement following the 2006 crisis in Timor-Leste, some CAS activities were not pursued under the ISN. This completion matrix covers outcomes foreseen under both the CAS and the ISN and reports on progress as of June 2012. 49 Lending and Nonlending Activities that Contributed to CAS/ISN Outcomes and Status and Evaluation Summary Outcomes Lessons for the New CPS Indicators (Approval-Completion Date; ICR Outcome/ISR DO/IP) Document. • Broad, rapid project design, combined with intensive, well-resourced supervision, can be effective in low- income, low-capacity states. CAS Outcome (Pillar I) Partially Achieved. Operations: • In the reconstruction phase, Improved access to and quality of • Second Health Sector there must be a clear focus on primary health services* Rehabilitation and Development broader sector strategy. • Measles and DPT3 vaccination • Measles and DPT3 vaccination (TFET/EC) (FY01-08; MS) • Continuous guidance is coverage increased from 45% to 55% targets exceeded. Per the Demographic • CSP (FY06-07; MU) essential in the context of and Health Survey (DHS) (2010): • EC-funded Health Sector limited institutional capacity, DPT3, 66%; Measles, 68%. Per the Program (FY06-11; S) and it is important for Health Management Information • Health Sector Strategic Plan adequate supervision System (HMIS) (November 2011): Support Project (FY08-13; resources to be allocated. DPT3, 62%; Measles, 70%. S/MU) • Close coordination with • Skilled attendance at birth increased • Increase in skilled attendance subject development partners was from 25% in 2003 to 40% to data discrepancies; measured at 30% critical to sector development. in DHS (2010) and 51% in HMIS • Results frameworks, even (November 2011). AAA: under a SWAp, need to • Annual outpatient visits per capita • Annual outpatient visits per capita at • Health Sector Review (FY11) identify results that can be increased to 2.5 1.8 (September 2011). • Population Policy Note (FY09) achieved through project • Targeted health promotion • TA and training provided to support • HIV/AIDS Behavioral Survey interventions. programs implemented, particularly health promotion activities in (FY10-11) for youth on HIV/AIDS, STDs and collaboration with United Nations communicable diseases, reproductive agencies. Modest progress on health, and road safety/accident communicable diseases and prevention reproductive health; limited focus on road safety. 50 Lending and Nonlending Activities that Contributed to CAS/ISN Outcomes and Status and Evaluation Summary Outcomes Lessons for the New CPS Indicators (Approval-Completion Date; ICR Outcome/ISR DO/IP) ISN Outcome (Strategic Area 2) Partially Achieved. Operations: • ISN objectives in education Service Delivery Capacity: Health • ESSP, with additional sector were underambitious. and Education Sector Programs financing (IDA Grant/ AusAID) • It is a challenge to conduct • Progress towards achieving • Education: Achieved. Good progress (FY07-13; S/S) surveys in a timely manner. outcomes in health and education in achieving outcomes set out in the • Fast Track Initiative Bridging • Coordinating role was not articulated in respective sector plans Strategic Plan for Achieving Universal Project (FTI-CF) (FY09-11; S) appropriate for the WB in the Primary Education by 2015, including • EC-funded Health Sector health sector, given the higher primary completion rates, fewer Program (FY06-11; MS) number of other (larger) repeaters, more materials in • Health Sector Strategic Plan donors in the sector and classrooms, and better-trained teachers. Support Project (FY08-13; limited WB staffing. Donors • Health: Partially achieved. Increased S/MU) that are funding a portfolio of direct delivery of health services to activities in the sector are approx. 450 communities per month; AAA: better placed to take the lead improved health infrastructure; • Education Strategy (FY11, on coordination. increased provision of information, under ESSP) • Focus on public financial communication equipment, and solar • Teacher Development Strategy management in the sector panels for health facilities; increased (FY11, under ESSP) would be a good niche for health workforce capacity; and • Health Financing Note (FY11) WB to fill to help MoH build improved storage, supply, and its core systems so that distribution of pharmaceutical and donors can provide less medical supplies. earmarked funding using • Investment in formal and informal • Achieved. Education budget has government systems and education increasing to begin grown from US$ 45.3 million in 2008 processes in future. addressing needs of alienated youth to a projected US$ 117.7 million in • Other lessons listed under 2012. the CASPR still apply. 51 Lending and Nonlending Activities that Contributed to CAS/ISN Outcomes and Status and Evaluation Summary Outcomes Lessons for the New CPS Indicators (Approval-Completion Date; ICR Outcome/ISR DO/IP) CAS Outcome (Pillar I) Partially Achieved. Operations: • Utility management Improved efficiency of power • Power Sector Priority contracts should include supply and collection in the Investments (TFET) (FY05-08; management of foreseen national capital to allow greater MS) capital projects and capacity spending on district power • Public-Private Infrastructure building of utility staff in their services* Advisory Facility grants for legal scope of responsibilities. and regulatory development and • Reduced fuel costs in comparison to • Fuel cost savings estimates exceeded commercialization (FY05-07) regional benchmark Singapore FOB with discounted fuel savings of US$ • CSP (FY06-07; MU) 3.85 million through installation of new • Energy Services Delivery generator with reliable generation Project (IDA Grant) (FY07-12; capacity of 4.7 MW. Estimates based MS/MU) on average diesel oil prices from the • PHRD for Energy Services time of commissioning in April 2007 to Delivery Project (FY06-08) the project’s completion report in January 2008. Regional benchmark AAA: comparisons were not made. • Household Energy (2007) • Overall efficiency of Dili generation, • Technical and nontechnical system • Key Issues in Rural Energy distribution, and collections improved, losses reduced from about 56% in June Policy (FY09-10) as measured by increased collections 2007 and 69% in December 2007 to per liter of fuel from 30 to 45 about 41.7% in September 2011; revenue collections thus increased from 31% in December 2007 to about 58% in September 2011. • EDTL institutional capacity • Technicians trained in hands-on strengthened operational work, but transfer of professional managerial skills to EDTL local staff largely lacking due in part to insufficient local staff who could be trained. Capacity building activities foreseen under ESDP were not implemented. 52 Lending and Nonlending Activities that Contributed to CAS/ISN Outcomes and Status and Evaluation Summary Outcomes Lessons for the New CPS Indicators (Approval-Completion Date; ICR Outcome/ISR DO/IP) CAS Outcome (Pillar I) Not Achieved. Operations: Enhanced availability of reliable, • Energy Sector Management affordable power in the districts to Assistance Program on rural support social and economic electrification (FY06-07) development* • CSP (FY06-07; MU) • Reliable power restored to currently • Under the Gas Seep Harvesting • Gas Seep Harvesting (TFET) connected customers in districts Project, the government financed a (FY07-12; HU/U) diesel-fired power plant that currently serves as backup electricity supply to AAA: 700 existing customers and 610 new • Household Energy (2007) customers. A 1-MW diesel unit, which • Key Issues in Rural Energy was transferred to Darabai station from Policy (FY09-10) Comoro station, is providing power to • ASTAE Rural Electrification project areas. Master Plan and Implementation • Measures to restore power services • Rural Electrification Master Plan Manual (FY05-08) to sub-districts and expand rural updated in 2007. access under implementation • Strategic Development Plan (SDP) for 2011-2030 includes renewable energy and rural electrification program. • Gas seep distribution system completed, but plans to build a seep gas-fired generation plant dropped following tests showing insufficient gas resources for plant design specifications. 53 Lending and Nonlending Activities that Contributed to CAS/ISN Outcomes and Status and Evaluation Summary Outcomes Lessons for the New CPS Indicators (Approval-Completion Date; ICR Outcome/ISR DO/IP) CAS Outcome (Pillar I) Partially Achieved. Operations: Recognition of veterans of the • Post Conflict Fund Grant resistance on the basis of national (FY05-06) consultations* • CSP (FY06-07; MU) • Veterans recognized in accordance • Definition of “veterans� enshrined in • Institutional Development with law veterans law. Fund Grant on Institution • Recognition ceremonies conducted in Building for Veterans Policy 2006-2008, and nearly 13,988 veterans Implementation (FY05-08) awarded medals by mid-2008; facilitated by registration database with AAA: over 75,000 veterans or their survivors. • Veterans’ Policy Note (FY08) • National policy on assistance to • National policy on assistance to veterans followed by Government, veterans under revision; veterans’ NGOs, and donors pension system established; first payments to 12,538 beneficiaries made in July 2008. ISN Outcome (Strategic Area 3) Partially Achieved. Operations: • While AAA support has Sustaining an Effective Safety Net • Social Protection been considerable, more for the Most Vulnerable Administration Project (FY11- effort is needed to ensure that • Efficient and sustainable range of • Range of cash transfer programs 13) AAA is disseminated social protection programs in place introduced, becoming one of budget’s effectively and yields largest spending items. AAA: constructive recommen- • Yet policy development has been • Social Protection dations for use in further piecemeal and lacked prioritization, and Administration TA (FY11-13) operations. QAG report program design has some weaknesses • Social Protection NLTA acknowledged that excellent in management of beneficiary (FY11-13) AAA work carried out under information, local administrative • Vulnerability Analysis (FY08- difficult circumstances was capacity, payment mechanisms, 11) not followed up or finalized outreach, targeting, and M&E. After with government in a timely completion of diagnosis and initial manner. operational work under previous nonlending TA, issues of policy and 54 Lending and Nonlending Activities that Contributed to CAS/ISN Outcomes and Status and Evaluation Summary Outcomes Lessons for the New CPS Indicators (Approval-Completion Date; ICR Outcome/ISR DO/IP) program management will be tackled in a follow-on project and nonlending TA. ISN Outcome (Strategic Area 3) Partially Achieved. Operations: • Including youth as a “cross- Tackling Youth Unemployment • Youth Development Project cutting� theme under the and Alienation (FY09-12; MS/MS) CAS did not provide • Major national temporary • Not achieved; WB disengaged from • Emergency National Workfare sufficient impetus to develop employment ‘bridge’ created, this area after dropping planned Project (Dropped) and implement targeted youth particularly in rural areas National Workfare Project at • Second Chance Education activities; this approach was government’s request. Other donors Project (FY11-16; S/S) amended for the ISN. have engaged in limited activities in this • National Workfare Project area. was dropped due to limited AAA: interest and commitment on • Alienated youth engaged in • Local development projects under • Youth in Crisis (FY08) the part of the government. productive community-based activities way in 5 districts, identified and implemented by youth groups; 208 projects completed. ISN Outcome (Strategic Area 3) Achieved. AAA: • Difficulties of Promoting Equitable Access to • EAP Justice for the Poor simultaneously aspiring to ‘Economic Justice’ (FY09-13) high-quality research outputs • Decision-makers and donors more • Decision-makers’ awareness • Social Accountability in and local capacity building aware of local communities’ needs improved. Chapter on community land Participatory Transfer and Grant can be underestimated in low- inserted in draft land law, and proposal Programs (FY09-12) capacity environments. for expansion into separate organic • Customary Systems of Land • Working with local CSOs is law. Management and Rural time consuming, and • Donors’ awareness improved through Development (FY09-12) engagement strategies may Donor Coordination Working Group • Justice for the Poor advisory need to be adapted mid- on land, particularly regarding need to services, just-in-time analysis stream in light of country consult with local communities and realities. complexities of land acquisition and • Focus on process-intensive resettlement for infrastructure projects. engagements might yield 55 Lending and Nonlending Activities that Contributed to CAS/ISN Outcomes and Status and Evaluation Summary Outcomes Lessons for the New CPS Indicators (Approval-Completion Date; ICR Outcome/ISR DO/IP) • Effective conflict management and • Some progress. Safeguards for good results by influencing rights protection considerations recently approved road project would outcomes once Bank and integrated into development processes have applied OP4.10 (Indigenous program credibility have been Peoples), but deemed unnecessary established. following an ADB social assessment. • Though dialogue continues, there has been little progress in dialogue with government on increasing social accountability and rights protection into country-led development processes, particularly in the area of land. CAS Outcome (Pillar II) Not Achieved. Operations: • Though recognizing the Jobs created directly through • CSP (FY06-07; MU) need for movement on job budget implementation and • Planning and Financial creation in the short term, overseas employment programs* Management Capacity Building while awaiting longer-term • Increased private sector • Jobs being created through labor- Program (FY07-13; S/S) progress on private sector employment through improved intensive programs, but no specific • Second Small Enterprises development, the piecemeal budget implementation, with an monitoring of jobs created through Project (TFET) (FY02-08; MS) approach adopted under the emphasis on labor-intensive programs budget implementation more broadly. CAS was insufficient to meet • By FY08, nearly 6,000 projected AAA: the country’s significant annualized jobs created via business • 2008 Budget Employment nationwide employment development center-supported Impact (FY09) needs or the high businesses, new FDI, and market place • Youth Development & Labor expectations set by the CAS construction under 2nd SEP. Market (FY08) outcomes. • 3,000 jobs created overseas for • Not achieved; 265 workers sent to • Youth Open Space (FY07) Timorese workers with adequate South Korea (231 men, 34 women). • Infrastructure Constraints representation of women and youth Study (FY06) • Gas Pipeline TA (Dropped) 56 Lending and Nonlending Activities that Contributed to CAS/ISN Outcomes and Status and Evaluation Summary Outcomes Lessons for the New CPS Indicators (Approval-Completion Date; ICR Outcome/ISR DO/IP) CAS Outcome (Pillar II) Achieved. Operations: Improved private sector enabling • Second Small Enterprises environment, resulting in increased Project (TFET) (FY02-08; MS) trade, investment, and jobs* • CSP (FY06-07; MU) • Laws on investment, leasing, credit • New investment law passed in 2011 • IFC: Better Business Initiative and collateral approved and now in effect; this replaced two (annual) previously approved investment laws. • IFC: Advisory support on cost Laws on leasing of state and private of doing business (Dropped) property approved. There is currently • IFC planning investments in no law on credit, but there are new tourism, manufacturing, and administrative procedures. Law on infrastructure; none completed collateral entered into force in March 2012. AAA/Advisory Services: • Private and Financial Sector • Business registration procedures • Number of procedures required Review (FY06) streamlined dropped to 6 in 2012 from 10 in 2006. • Diagnostic Trade Integration Time for business registration has Study (FY11) decreased from 157 days in 2005 to 13 • IFC Doing Business in Timor- days as of March 2012. Ranked 157th of Leste (annual) 183 countries in 2011 on ease of • IFC Small and Medium starting a business, down from 152nd in Enterprise Demand Study (2010) 2010. • Improved performance against • Achieved; ranked 168th of 183 “Doing Business� indicators countries in 2011 (Doing Business 2012) on overall ease of doing business, up from 174th of 175 in 2006. Further improvements expected in 2013 rankings as a result of the new One Stop Shop for business registration and streamlined procedures. 57 Lending and Nonlending Activities that Contributed to CAS/ISN Outcomes and Status and Evaluation Summary Outcomes Lessons for the New CPS Indicators (Approval-Completion Date; ICR Outcome/ISR DO/IP) • 1,000 new jobs created through non- • Likely achieved, but no data collected petroleum private investment on actual rather than expected jobs (measured on a gross basis) created. • Increased number of entrepreneurial • Nearly 3,000 jobs created in 2007; jobs, especially for women and youth based on a small sample of entrepreneurs trained in business management (188), 96% were women, 86% were still in business employing 1.5 workers on average; no data on youth. • Greater consultation between • Government-business consultation Government and private sector strengthened through biannual Better Business Initiative Forum and associated working groups. • USD 10 million in new Foreign • Achieved; actual investments at US$ Direct Investment 44.3 million in 2010, up from US$ 8.5 million in 2006. • USD 10 million increase in non- • Partially achieved; merchandise petroleum exports exports at US$ 12.7 million in 2008, up from US$ 8.1 million in 2005. CAS Outcome (Pillar II) Partially Achieved. Operations: • Strong central bank Improved access to credit for • Financial Reform and commitment crucial if some private investment and working Strengthening (FIRST) Initiative key stakeholders are not at capital* (FY07-09) first fully supportive of a • Increased number of microfinance • Three institutions providing • IFC: Support for credit registry credit registry or if they want institutions, in both rural and urban microcredit to women in rural areas; (Dropped) to limit its membership. areas aside from Banco Nacional Comercio de Timor-Leste, Moris Rasik and Tuba AAA: Rei Matin have 19 branches and 5 sub- • Private and Financial Sector branches, with 17,000 borrowers Review (FY06) among them—a slight increase from • Timor-Leste Strategy for 58 Lending and Nonlending Activities that Contributed to CAS/ISN Outcomes and Status and Evaluation Summary Outcomes Lessons for the New CPS Indicators (Approval-Completion Date; ICR Outcome/ISR DO/IP) the 16,700 borrowers receiving Establishing a Credit Registry microcredit from four microcredit (TA, FY06-09) institutions in 2005. • FIRST: Timor-Leste Strategy • Increased coverage by commercial • Three foreign-owned commercial for Establishing a Credit Registry banks in both rural and urban areas banks in operation, with 10 branches (TA, FY07-09) and 16 ATMs; Banco Nacional Comercio de Timor-Leste established in July 2011 (out of IMfTL) and has branches in 10 districts. • Increased lending for private • Total commercial bank lending to the investment and working capital private sector up 23% from US$ 87 million at end-2005 to US$ 107 million in mid-2011. • Increased access to credit for • Good progress in reaching women; women and youth no special outreach toward youth. ISN Outcome (Strategic Area 4) Achieved. Operations: Creating a Basis for Enhanced • Rural Growth (Dropped) Private Sector Activity • Steps and time required for • Number of procedures and days AAA: registering a business reduced decreased from 10 and 147, • Timor-Leste Public-Private respectively, in 2008, to 6 and 13 as of Dialogue (IFC Advisory Service, March 2012. FY08-10) • Timor-Leste Business • Reform-focused consultation • IFC supported establishment of Registration and Licensing (IFC between Government and private Chamber of Commerce and Industry AS, FY2009-11) sector continued and strengthened (CCI) and its first national Congress. • Ongoing dialogue between government and private sector on private sector priorities such as access to financial services, trade facilitation, and business registration (One Stop Shop). 59 Lending and Nonlending Activities that Contributed to CAS/ISN Outcomes and Status and Evaluation Summary Outcomes Lessons for the New CPS Indicators (Approval-Completion Date; ICR Outcome/ISR DO/IP) • Private sector capacity to prioritize • CCI is receiving training from the and address PSD needs and make Government of Victoria, Australia, specific policy recommendations with IFC support. They recently improved participated in tripartite discussions on the minimum wage and labor law. • Assistance provided to CCI in offering detailed recommendations to government on private sector priorities. • Government ability to structure and • Decree law on public-private execute public-private partnerships in partnerships approved in March 2012. a transparent and competitive manner • Government has a new office for improved public-private partnership development and a short list of prioritized partnerships for 2012-2013. • SME loan products piloted and • Credit Registered Integrated System options evaluated to improve access developed for businesses, including to financial services methods to facilitate loans to small businesses. • RSF market study for design now in progress. • Outside peer private sector • Victoria Chamber of Commerce expertise brought in to help address helping the CCI to address private market imperfections sector development needs in Timor- Leste. CAS Outcome (Pillar II) Partially Achieved. Operations: • The absence of a Enhanced sustainable resource • Third Agricultural systematic, comprehensive management* Rehabilitation Project (FY04-09; approach held back attempts • Legal and regulatory framework and • Some progress, though MU) to make meaningful progress systems in place for sustainable implementation slow and difficult to • CSP (FY06-07; MU) in the agriculture sector. development of agriculture and assess; Forestry Policy and Strategy • Agricultural Performance • More sustained engagement fisheries drafted, but no regulatory systems in Improvement Program (APIP) of key players, especially in place. Reasonable progress on (Delayed to end-2012 pending the ministry, was needed. 60 Lending and Nonlending Activities that Contributed to CAS/ISN Outcomes and Status and Evaluation Summary Outcomes Lessons for the New CPS Indicators (Approval-Completion Date; ICR Outcome/ISR DO/IP) developing a regulatory framework, but completion of sector expenditure implementation and impact are still framework) minimal. • Monitoring and control system • System in place, but monitoring AAA: functioning and licensed boats in selective and control limited. • Timor-Leste Country operation Environmental Analysis (FY06- 10) CAS Outcome (Pillar II) Partially Achieved. Operations: • More technical assistance Building blocks for improved food • Third Agricultural and regular independent security and food production in Rehabilitation Project (FY04-09; technical reviews required place* MU) from the start, given • Coordinated national system • Good progress toward release of 6 • CSP (FY06-07; MU) difficulties in systematically established for seed/tuber testing, new crop varieties (with support from • APIP (Delayed to end-2012) gathering and analyzing data. multiplication and distribution AusAID and ACIAR); significant • In conditions such as those impact expected once sufficient seed AAA: in Timor-Leste, new and planting materials available. • Rural Growth Strategy initiatives need to be pilot- • Timely reporting and monitoring of • Food security reporting and (Dropped) tested before nationwide food security monitoring remains inadequate, as food implementation to strike a production statistics are unreliable. balance between achievement Ministry’s Food Security Unit making of outputs and knowledge some progress but hindered by lack of transfer. resources and data reliability. • Donor coordination in the • Agricultural extension model • One small pilot undertaken; national sector is a priority, given the piloted, with increased information to extension strategy in place; over 400 large number of donors farmers, particularly women extension officers based in nearly every providing (often competing suco (village), though their effectiveness or duplicative) limited due to inadequate operational recommendations. budgets (for travel, training, etc.). No specific attention to female farmers. Extension officers will be assisted through EU-funded Rural Development Program IV. 61 Lending and Nonlending Activities that Contributed to CAS/ISN Outcomes and Status and Evaluation Summary Outcomes Lessons for the New CPS Indicators (Approval-Completion Date; ICR Outcome/ISR DO/IP) CAS Outcome (Pillar II) Not Achieved. Operations: • Encouraging large-scale Enhanced business-oriented • Third Agricultural private sector investment in production of agricultural Rehabilitation Project (FY04-09; agricultural products, products* MU) particularly cash crops, will • Increased production and earnings • Coffee remains the only high-value • CSP (FY06-07; MU) remain a challenge until issues from agriculture cash products, crop. • APIP (Delayed to end-2012) of land registration and including high value, organic, and • Annual coffee production increased ownership in rural areas are alternative products to 8,000-14,000 metric tons of green AAA: addressed. Developing this beans on 52,000 ha of cultivated land • Diagnostic Trade Integration sector will require leveraging in 2007-2009. Study (DTIS) (FY11) Bank support to the • Export earnings grew to US$ 12.6 government on policy million in 2008 from US$7.6 million in frameworks and IFC 2005. expertise in public-private • No progress was made in developing partnerships and private production or markets for high-value sector investment. crops. ISN Outcome (Strategic Area 4) Achieved. Operations: • World Bank was Support for Enhanced Rural • APIP (FY10). increasingly able to influence Activity outcomes and strategies • Policy and investment framework • Agricultural Performance AAA: through direct policy advice developed to influence rain-fed and Improvement Program presented by • Raising Agricultural to key decision makers. small-scale irrigated agriculture WB in early 2010; recommendations Productivity (FY09-11) General advice did not seem gradually being integrated into • Advisory services, policy to work; instead, it is government strategy documents. WB papers, Government-donor necessary to work with expects to continue influencing this dialogue on agriculture enabling counterparts within a policy and investment framework with environment framework that is agreed with Global Food Crisis Response Program government, and to have funding in 2011-12. access to key policymakers. • Rural development planning and • Some improvement in development budget quality improved planning and budget quality; SDP shows signs of further improvement. 62 Lending and Nonlending Activities that Contributed to CAS/ISN Outcomes and Status and Evaluation Summary Outcomes Lessons for the New CPS Indicators (Approval-Completion Date; ICR Outcome/ISR DO/IP) • Assessment and review of rural • Some improvement in assessment development investment options and review of rural development strengthened investment options, and signs of further improvement in SDP. • Partner resources aligned to support • Some improvement in the focus of implementation of identified measures partner resources on key issues and constraints as well as opportunities; expected to increase under SDP and Action Plans. CAS Outcome (Pillar III) Partially Achieved. Operations: • In a low-capacity Safeguards against corruption and • CSP (FY06-07; MU) environment such as that abuse of power in place, with • PFMCBP (FY07-13; S/S) found in Timor-Leste, increased awareness of citizens’ • IDF Grant on Institutional establishing institutions of the rights* Development of the Provedor state is a necessary but not (FY04-08) sufficient condition for • Provedor functioning credibly in • Provedor established and functioning, improved governance. To education, prevention, and though small staff size hampers the AAA: succeed, these institutions investigation of corruption timeliness and quality of investigations • Communication and need to be backed by and reports. Provedor no longer Leadership Capacity for National sufficient financial and responsible for anticorruption, Renewal (LICUS/Pacific human resources, buttressed following establishment of Anti- Facility) (FY07-11) by sustained, hands-on Corruption Commission in June 2009 • Analysis on civil service, capacity-building support. and appointment of a Vice Prime Petroleum Fund Law, Timor Minister with anticorruption mandate. Gap Law, and Public Investment The ACC is undertaking investigations Management shared with and working with government agencies parliamentary committees. to prevent corruption. The VPM with responsibility for anti-corruption was removed from his position after repeatedly criticizing the government for its failure to address corruption. 63 Lending and Nonlending Activities that Contributed to CAS/ISN Outcomes and Status and Evaluation Summary Outcomes Lessons for the New CPS Indicators (Approval-Completion Date; ICR Outcome/ISR DO/IP) • Adoption and implementation of • Not achieved; no leadership code Leadership Code by Presidency, introduced. Judiciary, Parliament and Executive • Higher-quality, independent scrutiny • Parliamentary scrutiny has improved; by Parliament, Court of Appeals, MPs increasingly vocal on public sector media, and civil society accountability. Local NGOs and media active on governance issues, publishing cases of alleged corruption and commenting on key government initiatives for public discussion. CAS Outcome (Pillar III) Achieved. Operations: Transparency and probity in • Second Petroleum Technical managing petroleum revenues* Assistance Project (TFET) • Petroleum revenue collection, • Petroleum revenue collection (FY03-07; S) savings policy, and petroleum fund effective. Savings policy no longer in • CSP (FY06-07; MU) functioning credibly operation as government escalates • PFMCBP (FY07-13; S/S) drawdowns from Petroleum Fund. • EITI (FY09-12; no ISR yet) Petroleum Fund Law amended in a way that maintains integrity of Norway AAA: Plus model. • Analysis of Petroleum Fund Law amendment ISN Outcome (Strategic Area 1) Achieved. Operations: Support for Continued • PFMCBP (FY07-13; S/S) Transparency in the Management • EITI (FY09-12; no ISR yet) of Petroleum Revenues • Continued adherence to sound • Petroleum management regime AAA: management of petroleum resources continues to adhere to principles of • Policy Note on National Oil and increased transparency in line sound management and transparency Company Oversight (Bank- with EITI principles in line with EITI; methodology for Netherlands Partnership estimating sustainable income debated Program TF) (FY09) in Parliament and amended. • Petroleum Support Project • Though government has approved (FY05-13) 64 Lending and Nonlending Activities that Contributed to CAS/ISN Outcomes and Status and Evaluation Summary Outcomes Lessons for the New CPS Indicators (Approval-Completion Date; ICR Outcome/ISR DO/IP) spending over the ESI, spending quality is poor; some changes made to the Petroleum Fund contrary to advice provided by World Bank and Norway’s Petroleum for Development. • Field audits of petroleum companies have begun. CAS Outcome (Pillar III) Partially Achieved. Operations: Enhanced motivation and • CSP (FY06-07; MU) responsibility among civil servants, • PFMCBP (FY07-13; S/S) resulting in higher standards of • IDF Grant on Institutional probity and service delivery* Strengthening of the OIG • Career development and pay • Decree Laws introduced for Civil (FY04-08; MU) structure introduced Service Act, Career Regime, Recruitment, Performance and AAA: Commission. • Timor-Leste Civil Service • Office of the Inspector General • 16 audits, 3 inspections, 78 Review (FY10-12) (OIG) reinforces integrity and investigations completed as of June • TA on Strategic Planning for accountability through inspections and 2007; 10 cases referred, none MOF (FY11) – BETF PFMCBP investigations, with recommendations prosecuted; report summaries implemented and reports published published and posted online CAS Outcome (Pillar III) Partially Achieved. Operations: Sound policy and legislative • CSP (FY06-07; MU) process across Government* • PFMCBP (FY07-13; S/S) • Progress in following policy and • Legislative program developed, legislative process by all entities, setting out a timetable for the passage AAA: including availability of draft laws, of legislation. • Administrative Services appropriate consultations, and Capacity Building Project (FY03- coherent legislative timetable 06) 65 Lending and Nonlending Activities that Contributed to CAS/ISN Outcomes and Status and Evaluation Summary Outcomes Lessons for the New CPS Indicators (Approval-Completion Date; ICR Outcome/ISR DO/IP) CAS Outcome (Pillar III) Partially Achieved. Operations: • Targeted technical Strengthened capacity to manage • CSP (FY06-07; MU) assistance and hands-on for and monitor results on the • PFMCBP (FY07-13; S/S) experience in survey ground, with particular attention to • IDF on Enhancing Poverty implementation have been women and youth* Monitoring and Analysis (FY06- important factors in • Improved monitoring and • Limited progress; previous 09) strengthening capacity for evaluation leading to higher quality administration’s Sector Investment monitoring and evaluation, as policy decisions and clearer priorities Plans discarded by new government, AAA: evidenced by the high quality which introduced SDP, National • Poverty Assessment (FY09) of the most recent household Priorities, and Annual Action Plans. • Household Survey (FY08) income and expenditure • Capacity of the National Statistics • Overall capacity improved through survey. Directorate enhanced in conducting technical assistance and and analyzing a household survey implementation and analysis of a high- program quality living standards survey in 2007; in-house capacity building still required • Poverty assessment results • Poverty Assessment completed in incorporated into preparation of 2009, informed preparation of the future strategies SDP. CAS Outcome (Pillar III) Partially Achieved. Operations: Improved implementation of • CSP (FY06-07; MU) budget in a transparent manner, in • PFMCBP (FY07-13; S/S) line with savings policy and • IDF Grant on Public sustainable growth and poverty Expenditure Management reduction goals* (FY03-07) • Improved financial management • Solid progress in strengthening PFM • Pacific Facility on Advice on with critical financial management systems. Improvements measured in 12 Budget Preparation (FY06-10) staff in place in MPF and line agencies of 29 PEFA indicators between 2007 and 2010, often modest but AAA: underpinned by real changes in work • Public Financial Management practices, legislation, and IT systems. Performance Report (FY11) Progress in indicators somewhat • PEFA 2010: led by IMF with undervalued by overly optimistic 2007 participation from WB 66 Lending and Nonlending Activities that Contributed to CAS/ISN Outcomes and Status and Evaluation Summary Outcomes Lessons for the New CPS Indicators (Approval-Completion Date; ICR Outcome/ISR DO/IP) ratings. • Reduced unspent appropriations • Some progress on budget execution; excellent progress on carry-over management • Combined Sources Budget and • Budget published online at time of budget execution reports published in presentation to parliament. Budget an accessible form, including medium- execution information available in real term donor commitments time through Transparency Portal. Open Budget Initiative rates Timor- Leste 34/100, stating that it “provides minimal information to the public in its budget documents during the year�; however, Timor-Leste has the groundwork in place to improve its rating quickly. CAS Outcome (Pillar III) Partially Achieved. Operations: Enhanced revenue performance • CSP (FY06-07; MU) through streamlined procedures • PFMCBP (FY07-13; S/S) and mechanisms* • Customs clearance times reduced for • In 2010, average reported times taken AAA: low-risk shipments for good to clear green line Customs • TA on MoF Strategic Plan declarations improved. The next phase identified improvements to of ASYCUDA will track this indicator. revenue administration. • Improved revenue collection, • Domestic revenue increased from including from petroleum US$ 52.8 million in 2008 to US$ 136.1 million in 2012 (projected). Petroleum revenue increased from US$ 2.40 billion in 2008 to US$ 2.82 billion in 2012 (projected). 67 Lending and Nonlending Activities that Contributed to CAS/ISN Outcomes and Status and Evaluation Summary Outcomes Lessons for the New CPS Indicators (Approval-Completion Date; ICR Outcome/ISR DO/IP) ISN Outcome (Strategic Area 2) Achieved. Operations: • Progress on public financial Support for Transparent and • PFMCBP (FY07-13; S/S) management benefited from Effective Public Financial • IDF grant on building the substantial resources allocated Management capacities of procurement to this area and sustained • Transparency and effectiveness in • Transparency and effectiveness institutions to achieve approach that built upon public financial management improved in most areas, though development outcomes (FY11- previous donor improved diminished in policy-based budgeting 14) commitments. as per PEFA indicators. Much progress • Intensive use of still to be made, e.g. when assessed AAA: international consultants also against PEFA “getting the basics • Advisory services, in-time played a role. right.� Timor-Leste rates low against analytical inputs documented in Open Budget Initiative, but PFMCBP Mid-Term Review and groundwork is in place to improve Strategic Plan (FY07-12) quickly. • Ministry of Finance capacity for • MOF capacity has improved prudent, effective and accountable substantially between 2007 and 2012, as planning and management of public described in PFMCBP Mid-Term finances improved to promote growth Review. The SDP for 2011-2030 and poverty reduction evinces a step-change in capabilities. ISN Outcome (Strategic Area 2) Achieved. AAA: • Challenges of institutional Review Capacity-Building • Timor-Leste Civil Service development in Timor-Leste Experience in Timor-Leste Review (FY11) not yet articulated or • Technical assistance and skills • Output modified to a civil service • PFMCBP Mid-Term Review understood widely across WB development strategy developed that review and completed. and development partners. reflects lessons learned since • Review of capacity building in MOF independence conducted, yielding some discussion with government and donors about capacity building lessons. 68 Lending and Nonlending Activities that Contributed to CAS/ISN Outcomes and Status and Evaluation Summary Outcomes Lessons for the New CPS Indicators (Approval-Completion Date; ICR Outcome/ISR DO/IP) ISN Outcome (Strategic Area 1) Partially Achieved. AAA: • While enjoying broad Continued Support for the • TA on NPs (FY08-12) support initially, the process National Priorities Exercise waned as it was seen by some • Government’s and international • Commitment did not intensify, but to be too MoF-led and did partners’ commitment to the NPs continued through SDP launch; not a not enjoy equal buy-in from intensified negative, as decreased government all actors. focus on the NPs was appropriate • Interest in the process following SDP launch. Mechanisms for diminished significantly after transition to longer-term SDP the SDP was launched; the implementation delayed due to later- process should have been than-planned release of SDP; better able to respond to the government has developed a draft changing context post-SDP. framework for consideration and • Together, the influence of donors eager to support the transition an election year and launch of once decision is made. the SDP disrupted the • NP process considered a highly program and led some within useful forum for exchange of government and donor information; promoted by Timor-Leste organizations to question its internationally as a best-practice model relevance. of post-conflict, government-led • Insufficient priority setting. linkage/influence with the • Budget priorities influenced by NPs • Budget priorities marginally budget-setting process was a influenced by NPs. major factor in the NP’s • Partner alignment with • Partners relatively well aligned with limited correspondence with Government’s program enhanced, government program, with reasonably budget allocations. with improved coordination among good donor coordination; regular international partners quarterly meetings to monitor progress and refine priorities. 69 Lending and Nonlending Activities that Contributed to CAS/ISN Outcomes and Status and Evaluation Summary Outcomes Lessons for the New CPS Indicators (Approval-Completion Date; ICR Outcome/ISR DO/IP) ISN Outcome (Strategic Area 1) Partially Achieved. Operations: Bringing International Experience • PFMCBP (FY07-13; S/S) of Post-Conflict Transition to Timor-Leste: Support for the AAA: National Strategic Planning • PMO Planning TA (Dropped) Exercise • Strategy developed by Prime • SDP developed and launched in July Minister’s Office (PMO) that is 2011; provides a development vision developmentally sound and conforms for the country that is ambitious to the country’s macroeconomic and relative to institutional capacities. institutional capacities ISN Outcome (Strategic Area 1) Partially Achieved. AAA: • The Bank Group should be Bringing International Experience • Diagnostic Trade Integration prepared to support the of Post-Conflict Transition to Study (FY11) government’s aid Timor-Leste: Bank Group Policy • Policy note on poverty effectiveness efforts and Work dynamics (FY09) commitments under the New • Dialogue intensified on transition • Some increase in dialogue, notably on Deal for Engagement with from post-conflict to long-term recommendations of Diagnostic Trade Fragile States, which include growth and development Integration Study (DTIS), SDP, use of country systems and telecommunications sector aid transparency. liberalization, and agriculture. • Trade strategy developed that • DTIS completed and serving as the enables Timor-Leste to increase basis for dialogue on trade issues; productivity and competitiveness in its extent to which this has resulted in non-oil tradable sector and expand national trade strategy unclear. exports 70 CASCR Annex 2: CAS Planned Lending Program and Actual Deliveries (FY06-08) CAS PLANS (06/22/2005) STATUS Project US$ (M) US$ (M) Ongoing TFET Fundamental School Quality Project 20.6 Actual 20.6 TFET/EC Second Health Sector Rehabilitation and Development Project 33.1 32.1 TFET Power Sector Priority Investments Actual Project 1.4 1.4 TFET/EC Third Agriculture Rehabilitation Actual Program 11.3 11.9 TFET Second Small Enterprises Project 7.5 Actual 7.4 TFET Second Petroleum TA Project 1.7 Actual 1.6 TA: Office of the Inspector General (IDF) 0.09 Actual 0.09 TA: Provedor (IDF) 0.22 Actual 0.22 TA: Strengthening Public Expenditure Actual Management (IDF) 0.32 0.32 TA: Public Expenditure Management and Actual Procurement Capacity Building (IDF) 0.31 0.31 Actual Planned/New Education for All FTI 8.2 Actual 8.2 EC-Funded Health Program 4.11 Actual 4.36 Energy Service Delivery Program 2.5 Dropped 0 TFET Gas Seep Harvesting Project 0.85 Actual 0.39 GEF and CDCF Energy Not found Not found Power Sector Lending Not found Actual (delivered to ESMAP on Rural Electrification, FY06-07) NLTA EC-funded Agricultural Program Not found Not found Not found GEF and BCF Natural Resource Management TA: Light Labor Survey (IDF) Not found Not found Not found Planning and Financial Management Capacity Not found Not found Not found Building Program 71 TA: Strengthening Capacity for Poverty 32.6 Actual 31.0 Monitoring (IDF) TA: Strengthening Parliamentary Capacity 0.3 Actual 0.3 (IDF) Not found Not found Not found Additional IDF Grant on Institution Building for Actual Veterans Policy Implementation (FY05- Projects 08) 0.16 Communication and Leadership Capacity for National Renewal (LICUS/PF, FY07- 11) 1.7 Petroleum Support Project (FY05-13) 0.089 Advice on Budget Preparation (PF, FY06- 10) 0.11 Total Planned 125.1 Total Actual 122.3 72 CASCR Annex 3: ISN Planned Lending Program and Actual Deliverables (FY10-11) ISN PLANS (08/12/2009) STATUS FY Project US$ (M) US$ (M) IDA TF IDA TF Ongoing PFMCBP (FY06) 7.0 25.6 Actual 7.0 24.0 Education Sector Support (FY07) 6.0 6.0 Actual 6.0 10.48 Energy Services Delivery (FY07) 2.5 0.5 Dropped 0 0 Gas Seep Harvesting (FY07) 0.0 0.85 Dropped 0 0 Health Sector Strategic Plan Support (FY08) 1.0 19.3 Actual 1.0 20.0 Extractive Industries Transparency Initiative TA (FY09) 0.0 0.23 Actual 0 0.19 Youth Development (FY09) 2.1 0.0 Actual 1.3 0 Additional Actual Projects: FTI Bridging Project (FTI-CF, FY09-11) 0 ESSP Additional 4.9 Financing (FY10) 5.0 2010 Emergency National Workfare 3.5 0.0 Dropped 0 0 2011 Second Chance Education 5.0 0.0 Actual 3.2 0 Rural Development 4.1 0.0 Dropped 0 0 Total Planned 31.2 52.48 Total Actual 24.5 59.57 73 CASCR Annex 4: CAS Planned Non-Lending Services and Actual Deliveries (FY06-08) CAS PLANS (06/22/2005) STATUS Ongoing Veterans Clandestino Study Completed FY07 Health Sector Review Completed FY07 TA: Youth Leadership for Economic Development (PCF) Completed FY07 TA: Youth Policy Development Completed FY08 TA: Veterans (PCF) Completed FY06 TA: Power Regulatory Framework (PPIAF Phase I) Completed FY07 TA: Rural Power Mapping (ESMAP) Completed FY07 Private and Financial Sector Review Completed FY06 Labor Market Study Completed FY08 (Youth Development and Labor Market Study) Regional Flagship Study on Labor Mobility No Information Found Strengthening the Institutions of Governance No Information Found TA: Support to NDP (DfID) Delivered under CSP Planned/New Population Growth and Challenges Completed FY09 (as “Population Policy Note�) Youth: Challenges and Options Completed FY09 (as “Timor-Leste’s Youth in Crisis�) Making Services Work for the Poor Dropped Veterans Policy Paper Completed FY08 Household Fuel Study Completed FY07 TA: Power Regulatory Framework (PPIAF Phase II) Completed FY07 Rural Growth Strategy Dropped Doing Business in Timor-Leste (annual) Completed annually TA: Business Environment Not found TA: Collateral and Credit Registry (FIRST) Completed FY09 Poverty Assessment Completed FY09 Public Expenditure Analysis (annual) Ongoing TA: Governance, including enhancing demand (Pacific Facility, EITI) No Information Found Additional Actual Projects: ASTAE Rural Electrification Master Plan and Implementation Manual (FY05-08) Youth Open Space (FY07) Country Environmental Analysis (FY06-10) 74 CASCR Annex 5: ISN Planned Non-Lending Services and Actual Deliveries (FY10-11) ISN PLANS (08/12/2009) STATUS FY PRODUCT Ongoing TA and Policy Work on Rural Productivity and Growth Completed FY10 National Priorities Exercise Completed FY10 Poverty Assessment Ongoing Civil Service Reform Moved to FY11 Social Protection Fiscal Sustainability and Payment Systems Completed FY10, Follow on TA and AAA Ongoing (“Social Protection Administration TA�, “Timor- Leste Social Protection AAA) CDD for Infrastructure Completed FY11 Telecommunications Sector Reform Completed FY11 Diagnostic Trade Integration Study Completed FY11 Petroleum Sector Support Ongoing Justice for the Poor Completed (“Customary Systems of Land Management and Rural Development�, “Social Accountability in Participatory Transfer and Grant Programs�, and “Women’s Participation in Community-Investor Negotiations on Land and Rural Development�), Follow on TA Ongoing (“Legal and Social Accountability for Development Assistance and Service Delivery�) 2010 Continued support for National Priorities Exercise Completed FY12 Capacity Building Review Completed FY11 (Changed to “Civil Service Review�) PFMCBP-related Analytical Work Completed FY10 (PFM/PER, PEFA) Policy Note on National Oil Company Oversight (BNPP) Completed (FY in 09) Additional Products Timor-Leste HIV/AIDS Behavioral Survey (FY10- 11) Health Financing Note (FY10) 75 Key Issues in Rural Energy Policy (FY10) 2011 PFMCBP-related Analytical Work Completed in FY11 (“TL Public Investment Management�, “PFM Review�, “GET PPP�, PEFA Review, TA on Strategic Planning for MOF, PFM Performance Report�) Additional Products Building the capacities of procurement institutions to achieve development outcomes (Approved FY11, ongoing) HD Policy Notes (Completed FY11) TA on Rural Energy Access and Efficiency (Completed FY11) Health Sector Review (Completed FY11) Education Strategy (Completed under ESSP, FY11) Teacher Development Strategy (Completed under ESSP, FY11) Raising Agricultural Productivity (Completed FY09) 76 Annex 3: Assessing Gender Disparities in Timor-Leste In the decade since independence, Timor-Leste has experienced high rates of economic growth, made progress in developing its legal and policy framework, and re-established and strengthened basic social service delivery throughout the country. These efforts impact men and women both directly and indirectly, and have contributed to the closing of the gender gap in key areas, such as school enrollment. However, substantial challenges remain. Consistent with the findings of the 2012 World Development Report (WDR) on Gender Equality and Development, gender disparities persist as a result of inequalities within households and in access to and participation in markets and institutions. Early in the CPS period, the World Bank Group will conduct a Country Gender Assessment to identify specific areas where gender disparities remain, where other development partners are engaged, and where the WBG is well-placed to respond. This Assessment will feed into the development of a Country Gender Action Plan in the CPS period. In the interim, the East Asia Pacific companion piece to the 2012 WDR, the most recent Convention on the Elimination of All Forms of Discrimination against Women (CEDAW) report, two recent IFC reports on gender, investment, and economic opportunities, and gender assessments conducted by other development partners have identified the following areas where progress on closing the gender gap is lagging:  Education: Young women are less likely than young men to receive the education and training necessary to prepare them for workforce participation and income generation. Though the female to male gross enrollment ratio for secondary education is nearly 1:1, young women are much less likely to enroll in tertiary education. More than half of adult women are illiterate.  Youth Opportunities and Outcomes: Youth of both genders face high rates of unemployment, exclusion from political and economic decision-making, and poverty. Anecdotal evidence suggests that high rates of alcohol consumption amongst male youth may increase the likelihood that they engage in violent and anti-social behavior, and reduce their ability to find gainful employment. The adolescent fertility rate is high by international standards, at 52 births per 1,000 girls aged 15-19. Early marriage and pregnancy limits young women’s educational attainment and economic opportunity, and increases their likelihood of living in poverty.  Health and Nutrition: Substantial gender disparities in health and nutrition exist throughout the life cycle. Birth rates and maternal mortality ratios in Timor-Leste remain stubbornly high, and care for women during pregnancy and delivery is insufficient for maternal and child health. The contraceptive prevalence rate for married women aged 15-49 is just 22 percent, contributing to a high overall birth rate and increasing the risk of sexually- transmitted infections for both men and women. Boys are more likely than girls to be undernourished and have a higher under-five mortality rate. Stunting and wasting are common for both boys and girls.  Economic Opportunities: Substantial disparities exist in women’s access to paid employment opportunities, wage rates, and overall labor force participation, as well as access to finance and economic inputs. High birth rates (an average of nearly 6 children per woman) contribute to low employment rates and missed educational opportunities for women, and reduced women’s mobility. Women’s labor tends to be concentrated in less lucrative activities, such as handicrafts, household work, or subsistence agriculture activities. According to the IFC’s 2010 report on Economic Opportunities for Women in the Pacific, women make up over 40 percent of microentrepreneurs in Timor-Leste, but own just 16 percent of formalized businesses. 77  Poverty: The poverty rate in Timor-Leste is close to 50%; the poverty rate for female-headed households is higher than the poverty rate for male-headed households of the same size. 40  Crime and Violence: Domestic and gender-based violence is highly prevalent in Timor- Leste; a 2010 study found that approximately one-third of women (38 percent) have experienced physical violence since age 15. One percent of women experienced physical violence often, while 28 percent experienced physical violence sometimes in the past 12 months (National Statistics Directorate, et al. 2010. Timor-Leste Demographic and Health Survey 2009-2010. Dili: National Statistics Directorate). Timor-Leste’s Vulnerable Persons Unit reports over 1,000 domestic violence cases per year in Dili alone, and estimates that for every report, ten incidences of domestic violence go unreported. Excessive alcohol consumption and hypermasculine identities that idolize violence contribute to the high rates of familial violence. In contrast, men are disproportionately impacted by criminal and political violence, including violence perpetrated by gangs.  Political participation: Women are well-represented in high-level Ministerial appointments and in Parliament. However, at the sub-national level and within traditional governance structures, women are highly underrepresented. Given the continued importance of traditional or customary law throughout Timor-Leste, particularly for decisions related to family and civil law, women’s underrepresentation at this level of governance could impede women’s access to justice. 40 Gender-disaggregated data from the 2011 Household Income and Expenditure Survey is not yet available. However, the most recent data from the 2007 Living Standards Survey shows higher poverty rates among women and female-headed households. 78 Annex 4: Commitments under the New Deal for Engagement in Fragile States Peacebuilding and State-building Goals (PSGs) 1. Legitimate Politics - Foster inclusive political settlements and conflict resolution 2. Security - Establish and strengthen people’s security 3. Justice - Address injustices and increase people’s access to justice 4. Economic Foundations - Generate employment and improve livelihoods 5. Revenues & Services - Manage revenue and build capacity for accountable and fair service delivery FOCUS 1. Fragility Assessment – A self-assessment of stresses and sources of resilience 2. One Vision, One Plan – To guide Government and development partners 3. Compact – For harmonization and donor coordination 4. Use PSGs to Monitor – targets and indicators to assess progress 5. Support political dialogue and leadership – inclusive of civil society, women and youth TRUST 1. Transparency – in the use of aid and fiscal systems 2. Risk-sharing – joint Government and Development Partner risk mitigation strategies 3. Use and strengthen country systems – strengthening financial systems for use by all 4. Strengthen capacities – build critical capacity of institutions 5. Timely and predictable aid – more flexible and faster 79 Annex 5: Overview of Main Trust Funds The WBG is in discussions with AusAID for development of a 3-year, $15 million single-donor trust fund modeled on the Pacific Facility and other successful arrangements in the region. The proposed trust fund would staff positions based in Timor-Leste, as well as analytical and technical assistance activities in mutually-identified priority areas. This TF is expected to come online in early FY14. Education for All Fast Track Initiative funding supports the Management Strengthening Program, which strengthens PFM, procurement, and evidence-based planning systems within the Ministry of Education. The Global Facility for Disaster Risk Reduction has provided funding for an assessment of climate change/disaster risk reduction. Through the Institutional Development Fund, the WBG is working to build the capacity of procurement institutions in Timor-Leste. The grant supports strengthening of the legal and regulatory framework for procurement, development of a procurement performance evaluation system, and training activities for staff of the National Procurement Commission under the office of the Prime Minister. The FY13 priority will be assisting the government to finalize the Procurement Omnibus Law; future years will focus on procurement capacity building. The Japanese Social Development Fund provided seed funding for preparation of a proposal for a project to understand and ameliorate the causes of malnutrition in Timor-Leste. The follow-on proposal will suggest activities to address malnutrition through multisectoral interventions, and will complement ongoing WBG work. The Justice for the Poor program has been active in Timor-Leste since 2008 and is now moving into its second iteration. This AusAID-funded multi-country TF will examine patterns of spending in major infrastructure projects, as well as consultation processes for infrastructure projects and the elite bargains that emerge around distribution of infrastructure contracts. The program will develop partnerships with civil society to pilot approaches to improved infrastructure spending and consultation mechanisms, and ensure that grievances around infrastructure contracts are addressed. The Rapid Social Response Trust Fund has provided $2 million ($1.45 million in recipient-executed funds and $.55 million for Bank-executed complementary technical assistance) to improve program management of the Ministry of Social Solidarity to implement core cash transfer programs in Timor- Leste in an efficient, reliable, and transparent manner through standardized information management and stronger program implementation and management capacity. Much of the WBG portfolio is funded through free-standing trust funds, with both single and multiple donor sources. The primary donors for these trust funds are Australia and the European Commission. Free-standing trust funds support WBG activities in planning and financial management, governance, education, health, and telecommunications. In the CPS period, the WBG will be pursuing support from several new trust fund facilities. These include the State and Peacebuilding Fund and UN-World Bank trust for activities with the Ministry of Justice on land, the Global Environmental Facility and Global Agriculture and Food Security Program for agriculture and rural development, and the Korean Trust Fund for Fragile States for analytical and advisory activities to understand and address some of the remaining sources of fragility in Timor-Leste. 80 Annex 6: Summary of 2011 IMF/WB Debt Sustainability Analysis Until FY2012, Timor-Leste had no public debt. As a young nation with access to grants from development partners, and with a large petroleum revenue reserve, the government has not borrowed to finance development. However, Timor-Leste will borrow from development partners for the first time during FY2013, recognizing both their potentially favorable financial terms, and the benefits of project cycle assistance. The government’s new fiscal plans aim to frontload capital spending to improve poor infrastructure, which is one of the key constraints to developing the non-oil sector. The 2012 budget allows borrowing of up to $160 million, $43 million of which will be for calendar year 2012. This is part of a wider plan to borrow up to $483 million over 2012-16 to finance capital spending in the Strategic Development Plan (SDP). This amount is about twice the size anticipated at the previous DSA in 2010. About one-third of these loans is expected to be concessional, with the remainder as non-concessional. Planned World Bank lending under the CPS is within these amounts. After 2016, the loan amounts are projected to decrease gradually in line with the previous DSA and the SDP. The total borrowing amount would be 80 percent higher than in the previous DSA. The share of concessional loans is expected to decline gradually, as with rising per capita income, Timor- Leste will no longer be eligible for concessional loans over the long term. Under the baseline scenario, all the debt burden indicators remain below their policy-dependent indicative thresholds. However, debt vulnerability may increase, as suggested by the higher level of debt service in the longer term associated with the repayment of non-concessional borrowing, as evidenced by stress tests. This calls for a cautious approach to such borrowing and emphasizes the importance of prudent debt management. Furthermore, while Timor-Leste’s public debt is still very small, it might consider limits on borrowing as it plans to expand external borrowing. 81 82 Annex 7: Development Partner Focal Areas and Links to the Government’s Program Asian Development Bank (ADB). ADB has been involved in the reconstruction and development of Timor-Leste’s economy and social and physical infrastructure since late 1999. Timor-Leste became a member of ADB in 2002. Over the 2011–2015 period, ADB will support the upgrade of the country’s infrastructure (including provision of a long for upgrading the Dili-Bobonaro road corridor), Dili water supply, and complementary initiatives in financial services, private sector development, and skills training. Assistance will also be provided for good governance and capacity development, gender equity, knowledge solutions, and helping Timor-Leste integrate with Asian economies. Australian Agency for International Development (AusAID). Australia is Timor-Leste’s largest partner, with an allocation of AUD$127.1 million (US$129.1 million) in Official Development Assistance (ODA) to Timor-Leste in 2012-13. Australia and Timor-Leste signed a new development partnership in November 2011, focusing on rural development, particularly rural roads and rural water and sanitation; health; education; governance and security. European Union (EU). The European Commission opened a fully-fledged Delegation in Dili in early 2008 to respond to the needs of intensified dialogue and cooperation between the Government of Timor-Leste and the European Union. The majority of EU resources (43.5 million Euro, 54%) are indicatively allocated to support sustainable rural development; 18 million Euros (22%) for capacity building in the sector of Justice, Parliament and Media; and 9.75 million (12%) for health; leaving 7 million Euro allocated to other actions, particularly support to Non State Actors, and 2.5 million Euro for PALOP (Portuguese speaking countries of Africa and Timor-Leste) programs. France. France does not provide ODA to Timor-Leste. France’s main efforts in favor of Timor-Leste are channeled through the United Nations and the UN Security Council (core funding of peacekeeping mission and UN agencies), and through the European Union and the European Development Fund (France contributes to 20% of the EDF). However, France intends to maintain bilateral cooperation with Timor-Leste by having a small cooperation office based in Dili. The French Embassy also provides small grants to Timorese NGOs, French NGOs, or French experts to implement projects. German Government. German-Timorese Development Cooperation is concentrated on the focal area of peace building. A strategic intervention in the maritime sector has been a further priority. These activities are meant to contribute to social and economic prosperity, and peaceful development of the country. Japan International Cooperation Agency and Government of Japan. In 2012, the government of Japan extended the first-ever foreign loan to Timor-Leste, for approximately US$70 million, for the purpose of upgrading the road between Dili and Baucau, Timor-Leste’s second largest city. This infrastructure investment is the key feature of Japan’s “Country Assistance Policy�, a five-year strategy document that was completed in April of 2012. New Zealand Aid Programme. The New Zealand Aid Programme is currently consulting with the Government of Timor-Leste on the draft “Strategic Framework for Development� 2012-2015 for Timor-Leste, which will guide New Zealand’s official development assistance to Timor-Leste. The content and scope of the draft Framework was consulted very closely with key development partners and government over the period 2009-2010. The proposed focal areas of the Framework for Development are: Education and Training; Security and Justice; and Private Sector Investment, in support of the pillars of Timor-Leste’s Strategic Development Plan 2011-2030. 83 Norway. The government of Norway channels its support through multilateral institutions (UNDP, UN Women, UNICEF), civil society/NGOs, and the Government of Timor-Leste. Portugal. Timor-Leste is Portugal’s main beneficiary ODA. Portuguese aid is largely allocated for education and training, in addition to good governance, participation and democracy, sustainable development and the fight against poverty, and cluster cooperation. United States Agency for International Development (USAID). The US Government operates in Timor-Leste under the terms of the Agreement for Economic and Technical Cooperation between the Government of the United States of America and the Government of the Democratic Republic of Timor-Leste dated June 6, 2003. The US Government supports programs in the following areas: Governing Justly and Democratically, Investing in People (health and higher education), Economic Growth and the Millennium Challenge Cooperation (which includes activities in anti-corruption and immunizations). USAID is in the process of drafting a new five year strategy, with intent to focus on economic growth, good governance, maternal and child health, water and sanitation, higher education, and global climate change for the duration of its five year strategy. Portugal World Bank Group Germany Norway UN Agencies ILO Australia EU FAO. IOM Japan New Zealand ADB United States Sectors and subsectors 1. DEVELOPMENT OF SOCIAL CAPITAL 1.1 Health 1.2 Education 1.3 Education and Professional Training 1.4 Social Inclusion 1.5 Environment 1.6 Culture and Heritage 1.7 Media - Diversity and Independence 2. INFRASTRUCTURE DEVELOPMENT 2.1 Roads and Bridges 2.2 Water, Sanitation and Drainage 2.3 Electricity 2.4 Sea ports 2.5 Airports 2.6 Land Transportation 2.7 Telecommunications 2.8 Major project procurement 3. ECONOMIC DEVELOPMENT AND JOB CREATION 3.1 Agriculture 3.2 Petroleum 3.3 Tourism 3.4 Encouraging Jobs Growth 4. CONSOLIDATION OF THE INSTITUTIONAL FRAMEWORK 4.1 Economic Policy 4.2 Good Governance in the Public Sector 4.3 Peace, Stability and International Relations 84 Annex 8: Standard Country Assistance Strategy Annexes Standard Annex A2: Country at a Glance Timor-Leste at a glance 2/14/13 East Lower Key Development Indicators Timor- Asia & middle Leste Pacific income Age distribution, 2010 (2011) Male Female Population, mid-year (millions) 1.2 1,962 2,519 75- 79 Surface area (thousand sq. km) 15 16,302 23,579 60- 64 Population growth (%) 2.9 0.7 1.5 Urban population (% of total population) 28 46 39 45- 49 30- 34 GNI (Atlas method, US$ billions) 3.1 7,249 4,078 15- 19 GNI per capita (Atlas method, US$) 2,730 3,696 1,619 GNI per capita (PPP, international $) 3,600 6,657 3,632 0-4 10 5 0 5 10 GDP growth (%) 10.6 9.7 6.9 percent of total population GDP per capita growth (%) 7.5 8.9 5.3 (most recent estimate, 2005–2011) Poverty headcount ratio at $1.25 a day (PPP, %) 37 14 .. Under-5 mortality rate (per 1,000) Poverty headcount ratio at $2.00 a day (PPP, %) 73 33 .. Life expectancy at birth (years) 62 72 65 200 Infant mortality (per 1,000 live births) 46 20 50 180 Child malnutrition (% of children under 5) 45 6 25 160 140 Adult literacy, male (% of ages 15 and older) 59 96 80 120 100 Adult literacy, female (% of ages 15 and older) 43 91 62 80 Gross primary enrollment, male (% of age group) 119 111 110 60 Gross primary enrollment, female (% of age group) 115 112 104 40 20 0 Access to an improved water source (% of population) 69 90 87 1990 1995 2000 2010 Access to improved sanitation facilities (% of population) 47 66 47 Tim or-Lest e Eas t As ia & Pac ifi c a Net Aid Flows 1980 1990 2000 2011 (US$ millions) Net ODA and official aid 1 0 231 292 Growth of GDP and GDP per capita (%) Top 3 donors (in 2010): Australia 0 0 82 124 20 Portugal .. 0 53 34 15 Japan 0 0 29 28 10 5 0 Aid (% of GNI) .. .. 71.6 9.2 -5 Aid per capita (US$) 1 0 279 256 -10 -15 Long-Term Economic Trends -20 95 05 Consumer prices (annual % change) .. .. -0.3 3.4 GDP implicit deflator (annual % change) .. .. 3.0 8.9 GDP GDP per c apita Exchange rate (annual average, local per US$) .. .. 1.0 1.0 Terms of trade index (2000 = 100) .. .. .. .. 1980–90 1990–2000 2000–11 (average annual growth %) Population, mid-year (millions) 0.6 0.7 0.8 1.2 2.5 1.1 3.2 GDP (US$ millions) .. .. 316 1,054 .. .. 5.6 (% of GDP) Agriculture .. .. 25.8 .. .. .. .. Industry .. .. 18.5 .. .. .. .. Manufacturing .. .. 2.8 .. .. .. .. Services .. .. 55.7 .. .. .. .. Household final consumption expenditure .. .. 111.7 .. .. .. .. General gov't final consumption expenditure .. .. 35.2 .. .. .. .. Gross capital formation .. .. 25.6 .. .. .. .. Exports of goods and services .. .. .. .. .. .. .. Imports of goods and services .. .. .. .. .. .. .. Gross savings .. .. -34.7 .. Note: Figures in italics are for years other than those specified. 2011 data are preliminary. .. indicates data are not available. a. Aid data are for 2010. Development Economics, Development Data Group (DECDG). 85 Timor-Leste Balance of Payments and Trade 2000 2011 Governance indicators, 2000 and 2010 (US$ millions) Total merchandise exports (fob) 5 15 Voice and accountability Total merchandise imports (cif) 242 286 Net trade in goods and services -289 -269 Polit ical stability and absence of violence Current account balance 38 813 Regulat ory quality as a % of GDP 12.0 77.1 Rule of law Workers' remittances and compensation of employees (receipts) .. .. Control of corruption Reserves, including gold .. .. 0 25 50 75 100 Country's percentile rank (0-100) Central Government Finance 2010 2000 higher values imply better ratings (% of GDP) Source: Worldw ide Governance Indicators (w w w .govindicators.org) Current revenue (including grants) 21.2 124.6 Tax revenue .. .. Current expenditure 10.7 19.3 Technology and Infrastructure 2000 2010 Overall surplus/deficit 2.7 92.8 Paved roads (% of total) .. .. Highest marginal tax rate (%) Fixed line and mobile phone Individual .. .. subscribers (per 100 people) 2 54 Corporate .. .. High technology exports (% of manufactured exports) .. 0.0 External Debt and Resource Flows Environment (US$ millions) Total debt outstanding and disbursed 0 0 Agricultural land (% of land area) 23 25 Total debt service 0 0 Forest area (% of land area) 57.4 49.9 Debt relief (HIPC, MDRI) – – Terrestrial protected areas (% of land area) 5.1 6.1 Total debt (% of GDP) 0.0 0.0 Freshwater resources per capita (cu. meters) 9,250 7,469 Total debt service (% of exports) .. .. Freshwater withdrawal (billion cubic meters) .. .. Foreign direct investment (net inflows) .. .. CO2 emissions per capita (mt) 0.18 0.18 Portfolio equity (net inflows) .. .. GDP per unit of energy use (2005 PPP $ per kg of oil equivalent) .. 11.8 Composition of total external debt, 2010 (data are not available) IMF, 0 IBRD, 0 Energy use per capita (kg of oil equivalent) .. 58 IDA, 0 Other multi- Private, 0 lateral, 0 Short-term, 0 Bilateral, 0 World Bank Group portfolio 2000 2010 (US$ millions) IBRD Total debt outstanding and disbursed 0 0 Disbursements 0 0 Principal repayments 0 0 Interest payments 0 0 US$ millions IDA Total debt outstanding and disbursed 0 0 Disbursements 0 0 Private Sector Development 2000 2011 Total debt service 0 0 Time required to start a business (days) – 103 IFC (fiscal year) Cost to start a business (% of GNI per capita) – 5.0 Total disbursed and outstanding portfolio – – Time required to register property (days) – .. of which IFC own account – – Disbursements for IFC own account – – Ranked as a major constraint to business 2000 2010 Portfolio sales, prepayments and (% of managers surveyed who agreed) repayments for IFC own account – – n.a. .. .. n.a. .. .. MIGA Gross exposure – – Stock market capitalization (% of GDP) .. .. New guarantees – – Bank capital to asset ratio (%) .. .. Note: Figures in italics are for years other than those specified. 2011 data are preliminary. 2/14/13 .. indicates data are not available. – indicates observation is not applicable. Development Economics, Development Data Group (DECDG). 86 Millennium Development Goals Timor-Leste With selected targets to achieve b etween 1990 and 2015 (estimate closest to date shown, +/- 2 years) Timor-Leste Goal 1: halve the rates for extreme poverty and malnutrition 1990 1995 2000 2010 Poverty headcount ratio at $1.25 a day (PPP, % of population) .. .. 52.9 37.4 Poverty headcount ratio at national poverty line (% of population) .. .. 39.7 49.9 Share of income or consumption to the poorest qunitile (%) .. .. 6.7 9.0 Prevalence of malnutrition (% of children under 5) .. .. 40.6 45.3 Goal 2: ensure that children are able to complete primary schooling Primary school enrollment (net, %) .. .. .. 85 Primary completion rate (% of relevant age group) .. .. .. 65 Secondary school enrollment (gross, %) .. .. 34 56 Youth literacy rate (% of people ages 15-24) .. .. 23 .. Goal 3: eliminate gender disparity in education and empower women Ratio of girls to boys in primary and secondary education (%) .. .. .. 98 Women employed in the nonagricultural sector (% of nonagricultural employment) .. .. 35 .. Proportion of seats held by women in national parliament (%) .. .. .. 29 Goal 4: reduce under-5 mortality by two-thirds Under-5 mortality rate (per 1,000) 180 148 109 54 Infant mortality rate (per 1,000 live births) 135 112 86 46 Measles immunization (proportion of one-year olds immunized, %) .. .. 56 66 Goal 5: reduce maternal mortality by three-fourths Maternal mortality ratio (modeled estimate, per 100,000 live births) 1,000 880 610 300 Births attended by skilled health staff (% of total) .. 26 24 29 Contraceptive prevalence (% of women ages 15-49) 25 23 8 22 Goal 6: halt and begin to reverse the spread of HIV/AIDS and other major diseases Prevalence of HIV (% of population ages 15-49) .. .. .. .. Incidence of tuberculosis (per 100,000 people) .. .. 498 498 Tuberculosis case detection rate (%, all forms) .. .. 62 87 Goal 7: halve the proportion of people without sustainable access to basic needs Access to an improved water source (% of population) .. 52 54 69 Access to improved sanitation facilities (% of population) .. 37 39 47 Forest area (% of land area) 65.0 .. 57.4 49.9 Terrestrial protected areas (% of land area) .. .. 5.1 6.1 CO2 emissions (metric tons per capita) .. .. 0.2 0.2 GDP per unit of energy use (constant 2005 PPP $ per kg of oil equivalent) .. .. .. 11.8 Goal 8: develop a global partnership for development Telephone mainlines (per 100 people) .. .. .. 0.3 Mobile phone subscribers (per 100 people) 0.0 .. .. 53.4 Internet users (per 100 people) 0.0 .. 0.0 0.2 Computer users (per 100 people) .. .. .. .. Education indicators (%) Measles immunization (% of 1-year ICT indicators (per 100 people) olds) 125 100 60 100 50 75 75 40 50 50 30 25 20 25 0 10 2000 2005 2010 0 0 1990 1995 2000 2010 2000 2005 2010 Prim ary net enrollment ratio Tim or-Lest e Eas t As ia & Pac ifi c Fix ed + m obi le s ubs cribers Int ernet users Ratio of girls to boy s in primary & sec ondary educ ation Note: Figures in italics are for years other than those specified. .. indicates data are not available. 2/14/13 Development Economics, Development Data Group (DECDG). 87 Standard Annex B2: Selected Indicators of Bank Portfolio Performance and Management Indicator 2010 2011 2012 0 Portfolio Assessment Number of Projects Under Implementation a 6 8 6 0 Average Implementation Period (years) b 3.0 3.1 3.8 0.0 Percent of Problem Projects by Number a, c 50.0 37.5 16.7 0.0 Percent of Problem Projects by Amount a, c 23.0 8.8 2.2 0.0 Percent of Projects at Risk by Number a, d 66.7 62.5 50.0 0.0 Percent of Projects at Risk by Amount a, d 51.6 35.3 17.6 0.0 Disbursement Ratio (%) e 28.7 27.6 19.6 0.0 Portfolio Management CPPR during the year (yes/no) Supervision Resources (total US$) Average Supervision (US$/project) Memorandum Item Since FY 80 Last Five FYs Proj Eval by OED by Number 20 2 Proj Eval by OED by Amt (US$ millions) 9.9 0.0 % of OED Projects Rated U or HU by Number 55.0 50.0 % of OED Projects Rated U or HU by Amt 100.0 0.0 a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year. 88 Standard Annex B3: IBRD/IDA Program Summary Proposed IBRD/IDA Base-Case Lending Program a Fiscal year Proj ID US$(M) 2013 TP: Road Climate Resilience Proj - AF 40.0 Sub-Total 40.0 2014 Timor-Leste Coffee Sector Development 7.0 TP Telecomms and ICT Develop Project 7.0 Sub-Total 14.0 Total 54.0 89 Standard Annex B5: Social Indicators Latest single year Same region/income group East Low er- Asia & m iddle- 1980-85 1990-95 2005-11 Pacific incom e POPULATION Total population, mid-year (millions) 0.7 0.9 1.2 1,961.6 2,518.7 Grow th rate (% annual average for period) 2.6 2.8 3.0 0.7 1.6 Urban population (% of population) 18.6 22.5 28.3 45.9 39.4 Total fertility rate (births per woman) 5.3 6.4 5.5 1.8 2.9 POVERTY (% of population) National headcount index .. .. 49.9 Urban headcount index .. .. .. Rural headcount index .. .. .. INCOME GNI per capita (US$) .. .. 2,730 3,696 1,619 Consumer price index (2005=100) .. .. 139 131 140 INCOME/CONSUMPTION DISTRIBUTION Gini index .. .. 31.9 Low est quintile (% of income or consumption) .. .. 9.0 Highest quintile (% of income or consumption) .. .. 41.3 SOCIAL INDICATORS Public expenditure Health (% of GDP) .. 8.5 5.1 2.0 2.0 Education (% of GNI) .. .. .. 3.8 4.0 Net prim ary school enrollm ent rate (% of age group) Total .. .. 85 93 85 Male .. .. 86 93 87 Female .. .. 85 94 83 Access to an im proved w ater source (% of population) Total .. 52 69 90 87 Urban .. 67 91 97 93 Rural .. 48 60 84 83 Im m unization rate (% of children ages 12-23 months) Measles .. .. 66 95 80 DPT .. .. 72 94 79 Child malnutrition (% under 5 years) .. .. 45 6 25 Life expectancy at birth (years) Total 42 51 62 72 65 Male 41 50 62 70 64 Female 43 52 63 74 67 Mortality Infant (per 1,000 live births) 159 112 46 20 50 Under 5 (per 1,000 live births) 215 148 54 24 69 Adult (15-59) Male (per 1,000 population) .. .. 259 157 244 Female (per 1,000 population) .. .. 223 105 175 Maternal (per 100,000 live births) .. 880 300 89 300 Births attended by skilled health staff (%) .. .. 29 91 57 CAS Annex B5. This table w as produced from the CMU LDB system. 02/14/13 Note: 0 or 0.0 means zero or less than half the unit show n. Net enrollment rate: break in series betw een 1997 and 1998 due to change from ISCED76 to ISCED97. Immunization: refers to children ages 12-23 months w ho received vaccinations before one year of age or at any time before the survey. 90 Standard Annex B6: Key Economic Indicators Actual Estimate Projected Indicator 2007 2008 2009 2010 2011 2012 2013 2014 2015 Non-Oil Gross domestic producta 525.2 665.0 788.2 875.1 1054 1252 1487 1767 2099 Agriculture 144.6 164.8 181.0 187.5 .. .. .. .. .. Industry 54.7 71.5 85.5 100.9 Manufacturing, Mining, and Quarrying, and other industry 20.8 24.3 32.7 36.8 Construction 33.9 47.2 52.8 64.1 Services 324.5 439.8 521.6 590.5 Wholesale and retail trade, Transportation and Storage, Accomodation a 105.2 159.1 183.2 210.8 Information and Communication 31.7 39.4 44.4 44.8 Financial and Insurance Activities 8.7 11.8 12.7 15.0 Real Estate Activities 75.6 87.2 90.3 101.2 Professional, Scientific, technical, administration and support services 11.8 16.4 18.4 20.5 Public admin, defence, education, human health and social work activitie 84.2 115.2 161.7 187.8 Other services activities 7.3 10.7 10.9 10.4 Non-oil value added, GROSS 523.8 676.1 788.1 878.9 Plus: Taxes on products 18.8 19.3 30.2 31.9 Less: Subsidies on products 17.4 30.4 30.1 35.7 Total Consumption .. .. .. .. .. .. .. .. .. Gross domestic fixed investment .. .. .. .. .. .. .. .. .. Government investment .. .. .. .. .. .. .. .. .. Private investment .. .. .. .. .. .. .. .. .. Exports (GNFS)b .. .. .. .. .. .. .. .. .. Imports (GNFS) .. .. .. .. .. .. .. .. .. Gross domestic savings .. .. .. .. .. .. .. .. .. Gross national savings c .. .. .. .. .. .. .. .. .. Memorandum items Gross domestic product (US$ million at current prices) 1838 3065 2633 3198 4315 4073 4161 .. .. Non-oil GDP 525 665 788 875 1054 1252 1487 Oil GDP 1313 2400 1845 2323 3261 2821 2674 GNI per capita (US$, Atlas method) 1850 2900 2250 2730 .. .. .. .. .. Petroleum Fund balance (US$ millions) 2086 4197 5377 6904 9338 10923 12297 Petroleum Fund balance (% of non-oil GDP) 422 661 681 788 886 872 827 Public debt (US$ millions) 0 0 0 0 0 43 123 Real Sector Real non-oil GDP growth 11.7 14.6 12.8 9.5 10.6 10.0 10.0 CPI (annual average) 10.3 9.0 0.7 6.8 13.1 8.0 8.0 CPI (end-period) 8.6 7.5 1.7 9.2 13.1 8.0 8.0 Balance of Payments (US$ ) Current account balance 1177 2023 1363 1538 2375 1773 1506 (in % of GDP) 65 67 52 48 55 44 36 Trade Balance -169 -297 -376 -374 -666 -795 -861 Exports (GNFS)b 7 14 9 18 22 33 29 .. .. Imports (GNFS)b 176 311 385 392 689 829 890 .. .. Petroleum Revenue 1313 2400 1845 2323 3261 2821 2674 FDI ($m) .. 39 30 5 46 55 64 Overall balance 147 -20 39 156 -3 160 151 Public Foreign Assets (end-period) 2316 4407 5627 7310 9743 11487 13013 .. in months of goods and service imports 158 170 175 224 170 166 175 (Continued) 91 Key Economic Indicators (Continued) Actual Estimate Projected Indicator 2007 2008 2009 2010 2011 2012 2013 2014 2015 Central government operations (as % of GDP at market prices)e Revenue 75.4 80.8 72.5 75.2 78.1 54.6 68.1 .. .. Domestic Revenue 2.7 1.7 2.5 2.6 2.6 3.3 3.8 Petroleum Revenue 72.6 79.1 70.0 72.6 75.6 51.3 64.3 Expenditure 13.5 19.6 23.8 24.8 28.0 43.3 37.0 .. .. Recurrent Expenditure 8.8 13.5 15.4 16.5 13.0 16.7 17.1 Capital Expenditure 4.8 6.1 8.4 8.4 15.0 26.6 19.9 Overall Balance 61.9 61.2 48.7 50.4 50.1 11.3 31.1 .. .. Non-oil Overall Balance (in % of non-oil GDP) -39.6 -85.3 -71.1 -81.1 -113.6 -130.0 -92.8 .. .. a. GDP at b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfers excluding official capital grants. 92 Standard Annex B8: Operations Portfolio (IBRD/IDA and Grants) Closed Projects 22 IBRD/IDA * Total Disbursed (Active) 19.70 of w hich has been repaid 0.00 Total Disbursed (Closed) 12.14 of w hich has been repaid 0.00 Total Disbursed (Active + Closed) 31.84 of w hich has been repaid 0.00 Total Undisbursed (Active) 26.13 Total Undisbursed (Closed) 0.28 Total Undisbursed (Active + Closed) 26.41 Active Projects Difference Between Last PSR Expected and Actual Supervision Rating Original Amount in US$ Millions Disbursements a/ Development Implementation Project ID Project Name Fiscal Year IBRD IDA GRANT Cancel. Undisb. Orig. Frm Rev'd Objectives Progress P092484 Planning & Fin Mgt CapacitS S 2006 7 0.123115 -0.30943 P125032 Timor Leste Road Climate R MS S 2011 20 17.66024 2 P116520 TL Second Chance Educati S MS 2011 5 4.398733 -0.453181 P106220 TP - Youth Development PrMS MS 2009 2.118 0.113161 0.2084204 P095873 TP-Education Sector SuppoS S 2007 11 3.600375 -1.511865 P104794 TP-Health Sector Strategic MU MU 2008 1 0.230463 0.2407558 13.66527 Overall Result 46.118 26.12608 0.1747009 13.66527 93 124º E 125º E 126º E 127º E Wetar Island I N DO N ES I A 10º N 10º N Romang Island TIMOR- LESTE Atauro Biquele Island a i t Alor Atauro S t r Island t a r Berau W e Com Cape Tei DILI Laivai Lautem Mehara Tutuala Rantar Maínal Cape Cutchá Island Baucau Jaco Bucóli Fuiloro Manatuto Laga Island DILI Metinaro Vemasse Afagua Lospalos DILI BAU CAU BAUCAU Luro cal Liquiça Laleia Manufai Sei Cape Maubara Bazartete Quelicai LAUTÉM LA UTÉM Venilale Baguia Corimbala LIQUIÇA LIQUIÇ A clo Railaco AILEU La MANATUTO Gleno Aileu Uatucarbau Iliomar Cape de Loré Fatu Beso Ermera Laclubar Ossu Savu S ea Atabae VIQUEQU E VIQUEQUE Hatolla Letefoho Maubisse Turiscai Uatolari Dilor Aliambata Marko Viqueque ERMERA Hatobuilico en C Sah Batugade BOBONARO Atsabe Tata Mai Lau Haotio Bé Aco iere Maliana (2963 m) Cape Deilubún 9º N Balibo Same Natarbora 9º N To Ainaro Welaluhu Naikliu d Bobonaro MANUFAHI n Mape AINARO Sakato l a Fatolulik Zumalai Hatoudo Pante Macassar s Lolotoe Betano I Cape OECUSSI COVA LIMA Beco Calétec Citrana Baqui r Tilomar Nítibe Bobometo o Suai m To 127º E Passabe i Kuala Lumpur Cape Tafara T Timor Sea T IM OR-L EST E INDON ES I A MAIN CITIES AND TOWNS DISTRICT CAPITALS 0 10 20 30 Kilometers NATIONAL CAPITAL 0 10 20 30 Miles RIVERS 8 MAIN ROADS JANUARY 2011 IBRD 33496R This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information DISTRICT BOUNDARIES shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any INTERNATIONAL BOUNDARIES endorsement or acceptance of such boundaries. 124º E 125º E 126º E