Financial Crime World

Weak Budget Process Hampers Timor-Leste’s Financial Accountability

Dili, Timor-Leste - A recent assessment has highlighted significant weaknesses in Timor-Leste’s budget formulation process, which hinders effective financial accountability and transparency.

Challenges in Budget Formulation

The Public Expenditure and Financial Accountability (PEFA) Assessment 2018 revealed that the lack of adequately costed sector strategies reduces the relevance of the budget formulation process, while reporting on performance remains weak. The assessment found that:

  • Consolidation of treasury systems and reporting procedures at the level of line ministries and agencies has improved, but information on transfers to RAEOA remains inadequate.
  • Fiscal impact of new policies beyond the upcoming budget year and reporting on fiscal outcomes remain weak, limiting scrutiny by external auditors and Parliament over budget allocation and execution.

Weaknesses in Procurement Systems

The report also highlighted weaknesses in procurement systems and the lack of independence of the external audit function, which hinders accountability mechanisms and efficient service delivery. On a positive note:

  • Commitment and cash management systems were found to be solid and effective.
  • The strength of the process for consolidated annual financial statements enables effective oversight by the Camara de Contas (CdC) and Parliament.

Way Forward

To address these weaknesses, the government must prioritize strengthening its budget formulation process, procurement systems, and external audit function. Additionally:

  • Reporting on performance and fiscal outcomes should be improved.
  • Development partners’ support to service delivery sectors should be fully integrated into government systems.

PFM Reform Agenda

Timor-Leste has been undergoing a continuous process of Public Financial Management (PFM) reform since its independence in 2002. The country’s approach to PFM reforms mirrors the remarkable commitment and good progress achieved in nation-building.

Key Reform Initiatives

The report highlighted three key reform initiatives undertaken between 2014 and 2017:

  • Fiscal reform: aimed at diversifying revenue sources and supporting fiscal sustainability.
  • Performance management reform: focused on tackling capacity gaps among PFM professionals.
  • Program-based budgeting reform: aimed to focus government strategic priorities on service delivery.

Challenges Remaining

Despite progress made, the link between budget and planning remains weak due to the lack of an adequately costed comprehensive medium-term expenditure framework (MTEF).

Conclusion

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To ensure financial accountability and transparency in Timor-Leste, it is essential that the government learns from these weaknesses and takes concrete steps to address them. A more coordinated approach to PFM reform, with greater focus on country-led and targeted assistance, is needed.