Timor-Leste at a crossroads

24 Sep 2014

After taking over the leadership of the Community of Portuguese Language Countries (CPLP), completing its term as chair of the g7+ and ESCAP communities, and becoming the first country in Asia-Pacific to launch a national action plan to implement the United Nations’ Zero Hunger Challenge, all within July-August this year, Timor-Leste is signaling its intent to become a stronger actor on the regional and international scenes. Timor-Leste’s voice has also been important in the global dialogue to establish the new Sustainable Development Goals (SDGs) that will succeed the Millennium Development Goals (MDGs), as well as in the establishment of the New Deal for Aid Effectiveness, to mention some of the country’s achievements.

However, Timor-Leste’s path towards sustainable development is at a crossroads, as 2014 marks approximately the half-way point in time until the anticipated depletion of the currently producing oil and gas fields in 2021, which have produced significant State revenues since 2007. In terms of expected income, the half way point was already passed some time ago. With just under five hundred days remaining to reach the MDGs, now is an opportune time to reflect on the progress made, challenges ahead, and policy options for Timor-Leste in its race against the clock to achieve sustainable human development.

Timor-Leste’s development since achieving independence in 2002 is quite remarkable for such a young country. The Human Development Report 2014 indicated that the country’s Human Development Index is now above the average for the Medium Human Development group of countries, and the World Development Report 2011 suggested that the country has achieved in 10 years the level of stability that normally should be expected to take 15-20 years. Peace has been maintained since 2008, institutions have been created, government capacity has been strengthened, major infrastructure projects have been rolled out and encouraging results are being attained across numerous sectors, from the rehabilitation of roads and local infrastructure to improved sanitation, curriculum revisions, school construction, drafting of legislation, operationalization of mobile courts, and enhanced variety in agricultural production, to mention some examples. The country has developed an ambitious vision through its Strategic Development Plan to become an upper-middle-income economy by 2030, and ongoing efforts are being deployed to transform this vision into reality through the Development Policy Coordination Mechanism, with increased Government coordination, both internally and with development partners.

Timor-Leste’s push for sustainable and peaceful development extends beyond its own borders. Through the g7+, Timor-Leste successfully advocated for the inclusion of peaceful and inclusive societies among the proposed SDGs. Moreover, as Chair of ESCAP from May 2013 to August this year, Timor-Leste helped accelerate progress towards integrated regional development. And now, after taking over the presidency of the CPLP, Timor-Leste is in a strategic position to strengthen diplomatic relations, deepen economic cooperation and foster stability across the Lusophone world.

But despite these advances, Timor-Leste faces numerous development challenges. Among them, food insecurity, malnutrition and poverty remain widespread; and too many people lack access to basic services such as health, education and justice. The economy remains dependent on revenues from finite petroleum resources, and while public spending of the petroleum income has brought double digit economic growth for a number of years, it has also increased inflation. Further, the recent Human Development Report 2014 suggests that significant inequalities exist within the country, above the regional average for East Asia and the Pacific. Timor-Leste, along with other fragile nations, remains far from achieving many of the MDGs.

So what can be done to accelerate progress towards sustainable human development and counter the risks of the “resource curse”?

The Government of Timor-Leste has key decisions to make on how to best exploit revenues from the Petroleum Fund. One choice relates to the speed of withdrawal. For example, Timor-Leste could choose to hold back on withdrawals and make the fund last as long as possible. This comes with an opportunity cost though; in this case some investments laying foundations for future development would have to wait. On the other hand, Timor-Leste could choose to invest more of the money now to progressively develop a stronger non-oil economy. Whatever strategy is chosen, public investment needs to yield positive results on human capital and economic diversification. Anchoring priorities in a human rights-based approach is key to ensuring that people’s needs are duly considered, while strategic planning using a results-based management approach will ensure that the goals and visions of the country’s 2011-2030 Strategic Development Plan are reflected in the day-to-day activities financed by the State budget.

Overseas Development Assistance (ODA) in Timor-Leste has dropped dramatically in later years. According to OECD/DAC, the ODA in 2012 represented only about 5.8% of the Gross National Income (GNI). This means that most development activities in the country are financed by the Government itself, and mostly from the income generated by the petroleum sector. Given the relatively short window of time during which this income remains available, development actions must be strategic and cost-effective.

To make more domestic resources available for development will depend to a large extent on economic diversification and an inclusive approach to development. The private sector will need to play a significant role in fostering growth and job creation alongside the direct development initiatives of the Government. Timor-Leste therefore urgently needs to develop its private sector, diversify its economy and attract investors to the country. This implies creating an enabling environment for private investment through adequate legal and regulatory frameworks to ensure good governance, transparent public institutions and the rule of law. At the same time, development actions need to include local communities, not only to reduce inequalities but also to harness the great potential that lies in people’s own ownership of their development. While successful local infrastructure initiatives are already in motion, there may be a need for a more comprehensive approach to ensure that rural communities can fully participate in the country’s development.

One option to consider is an Area-Based Development approach. Perhaps the best known example of this approach is the Development Programme for Displaced Persons, Refugees and Returnees in Central America (PRODERE programme) that started in six Central American countries in 1989, but many other examples can be taken from later years. An Area-Based Development approach consists in identifying a problem specific to a geographic area and addressing it in an integrated, inclusive and participatory manner. Adopting this approach in Timor-Leste would enable the Government and development partners to address development needs specific to different rural areas, thereby maximizing resources and local knowledge.

In Timor-Leste, a particularly interesting area-specific initiative is going ahead right now. The Oe-Cusse Special Economic Zone for Social Market Economy has been initiated to foster local governance and sustainable development in Oe-Cusse district, an enclave facing numerous development challenges due to its geographic isolation, among other factors. This initiative has great potential to become a model for inclusive rural development with local communities’ involvement in planning, implementing and monitoring this large-scale project.

Another approach with great potential is social entrepreneurship. This focuses on linking communities with business opportunities to foster local development, rather than engaging in business activities solely for monetary profit. Of course, to be viable, social businesses also need to yield a positive return, but the difference is that business choices are made to benefit local communities rather than distant shareholders. Social business projects can create employment and sustainable incomes, thereby engaging larger portions of the population in the formal economy and creating sustainable inclusive markets. This could contribute to much needed inclusive and diversified economic development in Timor-Leste.

Although ODA to Timor-Leste is decreasing, the international community still has an important responsibility to support the country’s path towards sustainable human development. Coordinated and focused support from development partners is needed to help the Government push forward in key priority areas, and to build its capacity to fully deliver on all aspects of its development programmes. At the July Timor-Leste Development Partners Meeting (TLDPM), the need for enhanced coordination among development partners, as well as among line ministries, was highlighted. Indeed, strengthened coordination, strategic planning and budgeting aligned with the overarching goals and vision of the Strategic Development Plan, is needed on all fronts. As development partners, we must enhance dialogue and coordination among us and search for new synergies and mutual partnerships. We must also provide focused, selective and demand-driven capacity development support; improve knowledge sharing and learn from our best practices and failures; and continuously align our work with the country’s overarching development goals.

To conclude, let me congratulate the Government of Timor-Leste for its string of recent development achievements at the national, regional and global levels, and highlight the exciting development opportunities ahead, including potential membership of the Association of South East Asian Nations. Development partners must help the Government bring these opportunities to bear through focused, inclusive and sustainable actions. Timor-Leste only has a very limited window of time to make use of today’s great opportunities and best exploit oil and gas revenues before they run out. Let me repeat what the Government said in July: We need an attitude of “halo ohin” – do it today!

By Mr. Knut Ostby, UN Resident Coordinator & UNDP Resident Representative

UNDP Around the world

You are at UNDP Timor-Leste 
Go to UNDP Global