Technical Assistance Consultant s Report

Technical Assistance Consultant s Report Project Number: 44152 Regional Capacity Development Technical Assistance (R CDTA) August 2012 Democratic Republic of Timor-Leste: Updating and Improving the Social Protection Index (Cofinanced by the Republic of Korea e-asia and Knowledge Partnership Fund) Prepared by Lourenco Camnahas For Asian Development Bank This consultant s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project s design.)

ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank DMC Developing Member Countries DNS Directorate of National Statistics DNASE Directorate of National School Social Action ECCD Early Childhood Care Development GNI gross national income HIES Household Income and Expenditure Survey HDI Human Development Index IDP Internally Displaced People IF Infrastructure Fund MDG Millennium Development Goals ODA Official Development Assistance NSP National Strategic Plan SDP Strategic Development Plan SPI Social Protection Index IT Information Technology SEFOPE Secretaria de Estadp da Formação Profissional e de Emprego (State Secretariat for Vocational Training and Employment) SPEXP Social Protection Expenditure TLSLS Timor-Leste Living Standards Survey TLDHS Timor-Leste Demographic and Health Survey UN United Nations UNDAF United Nations Development Assistance Framework

CONTENTS Page I. INTRODUCTION 1 A. Background 1 B. Definition of Social Protection 1 C. Report Structure 3 II. COUNTRY OVERVIEW 3 A. Geography 3 B. Demographic Profile 3 C. Economy 4 D. Poverty Profile 4 E. Employment and Labor Force 5 III. CURRENT SOCIAL PROTECTION PROGRAMS AND ACTIVITIES 6 A. Data Collection 6 B. Labor Market Programs 6 C. Social Assistance Programs 6 IV. THE SOCIAL PROTECTION INDEX AND ITS DISAGGREGATION 11 V. ANALYSIS OF COUNTRY RESULTS 14 A. Disaggregation by Social Protection Category 14 B. Disaggregation by Depth and Breadth 14 C. Disaggregation by Poverty Focus 15 D. Disaggregation by Gender 15 VI. CONCLUSION AND RECOMMENDATIONS 16

I. INTRODUCTION A. Background 1. Asian Development Bank s (ADB) development of the social protection index contributed to the strengthening of social protection programs in developing member countries (DMCs). ADB will continue its work on updating and improving the Social Protection Index (SPI). The SPI s update will address and incorporate lessons learned from two technical assistance projects 1 that developed the SPI for 35 countries in Asia and the Pacific and introduce new components and institutional arrangements to sustain the effective use of social protection indicators in policy analysis and formulation in the DMCs. 2. These initiatives will be implemented under the ADB commissioned regional technical assistance project 2 that seeks to (i) improve the methodology in defining social protection for each DMC in order to ensure comparability among DMCs; (ii) improve data gathering for statistical analysis on social protection; and (iii) develop capacity of DMCs in monitoring the SPI and allow comparisons between countries and over time on implementation performance. 3. This country study provides updated information and data on social protection arrangements, legislation, and institutions and calculates the SPI for Timor-Leste in view of the revised SPI methodology. The SPI can be updated periodically to assess progress in social protection arrangements in the country and analyse deeper aspects of targeting, coverage and expenditures on various social protection programs; for example, on the breadth (coverage) of social insurance versus social assistance or labour market programs, or on the depth (size of benefit) of various categories of social protection. The revised SPI methodology also provides scope to measure the gender responsiveness of programs, and poverty targeting of programs. 3 4. The primary objective of the Timor-Leste Country Report is to present the results of the research on social protection programs and policies in Timor-Leste from all related ministries, particularly Social, Health, Education and State Secretariat for Employment and Vocational Training; and, summarize quantitative information on these activities to enable the formulation of a national Social Protection Index (SPI). This is the first study to gather information on social policy and programs in Timor-Leste in the formulation of a social protection index. B. Definition of Social Protection 5. Social protection is defined as the set of policies and programs designed to reduce poverty and vulnerability by promoting efficient labor markets, diminishing people s exposure to risks, and enhancing their capacity to protect themselves against hazards and interruption/loss of income. 6. This definition categorizes all programs under the traditional components of social protection as social insurance, social assistance, and labour market programs. Microfinance as a form of social protection is excluded from the calculation of SPI since it does not involve a transfer in cash or kind and beneficiaries incur loans or debt instead of transfers. Thus, by 1 ADB. 2003. Technical Assistance for Social Protection Index for Committed Poverty Reduction. Manila (TA 6120- REG); ADB. 2006. Technical Assistance for Scaling Up of the Social Protection Index for Committed Poverty Reduction. Manila (TA 6308-REG). 2 ADB. 2010. Technical Assistance for Updating and Improving the Social Protection Index. Manila (TA 7601-REG). 3 To be able to calculate with relative accuracy the poverty-targeting rate of programs, household surveys need to contain a social protection data. However, the data of the survey was not available at the time of writing this report.

2 eliminating microfinance from the coverage of social protection programs, three major programs are left: (i) social insurance (i.e., the categories of old-age insurance, programs for the disabled, and health expenditure on insurance and pensions; (ii) social assistance (i.e., the categories of non-contributory health insurance, conditional cash transfers, child protection, and unconditional cash transfers; and (iii) labour market programs as shown in Table 1. 7. Timor-Leste recognizes the rights of its citizens to social assistance and social security in its Constitution. The Constitution of the Democratic Republic of Timor-Leste outlines the basis for social assistance programs in the country under Section 56: Social Security and Assistance: (i) every citizen is entitled to social assistance and security in accordance with the law; (ii) the State shall promote, in accordance with its national resources, the establishment of a social security system; (iii) the State shall support and supervise the activity and functioning of institutions of social solidarity and other non-profit institutions of recognized public interest, in accordance with the law. Table 1: Social Protection Categories and Types of Programs Social Protection Category Type of Program Social Insurance Programs Pensions Unemployment Benefits Health Insurance - but not universal health insurance Other social insurance (maternity, disability benefits) Social Assistance Assistance for the elderly (e.g., non-contributory basic allowances for the elderly, old-age allowances) Health assistance (e.g., reduced medical fees for vulnerable groups) Child protection (school feeding, scholarships, fee waivers, allowances for orphans, street children initiatives) Family allowances (e.g., in-kind or cash transfers to assist families with young children to meet part of their basic needs) excluding any transfers through the tax system Welfare and social services targeted at the sick, the poor, the disabled, and other vulnerable groups Disaster relief and assistance Cash/in-kind transfer (e.g., food stamps, food aid) Temporary subsidies for utilities and staple foods - only if imposed in times of crisis and if targeted at particular vulnerable groups. General subsidies are excluded even if their rationale is to assist the poor Land tax exemptions Labor Market Programs Direct employment generation through public works programs including food for work programs Direct employment generation through loan-based programs included if loans are subsidized and/or job creation is an explicit objective of the program Labor exchanges and other employment services if distinct from social insurance and including retrenchment programs Unemployment benefits if distinct from social insurance and including retrenchment programs Skills development and training included if targeted at particular groups (e.g., the unemployed or disadvantaged children. General vocational training is excluded). Source: ADB. 2011. The Revised Social Protection Index: Methodology and Handbook. Manila.

3 C. Report Structure 8. The Timor-Leste Country Report is structured as follows: Chapter II contains a brief overview of the social and economic development in Timor-Leste. Chapter III describes current social protection activities and programs in the country using ADB s typology. Chapter IV provides an overview of the derivation of SPI and its disaggregation. Chapter V presents the analysis of the country results. Chapter VI discusses the conclusion and recommendations. II. COUNTRY OVERVIEW 9. This chapter presents a brief overview of the socio-economic characteristics of the Democratic Republic of Timor-Leste, main features of the country s current developmental situation and recent trends. A. Geography 10. Timor-Leste, a small country in Southeast Asia, lies northwest of Australia and occupies the eastern half of the island of Timor, with West Timor being a part of the Republic of Indonesia. It includes the nearby islands of Ataúro and Jaco. B. Demographic Profile 11. The Democratic Republic of Timor-Leste emerged from a history of conflict and civil unrest to become the world s newest nation in 2002. According to the 2010 National Census, the population in Timor-Leste is estimated to be at 1,066,409 people, increasing at 2.4% annually since 2004. Women comprise almost 50% of the country s population, most of who are illiterate and work in the informal sector 4. 12. The demographic challenges that threaten the country s economic and political stability include high population growth rate, increasing population density in rural areas and youth unemployment. The fertility rate of Timor-Leste is one of the highest in the world with the current population increasing to an estimated 1.9 million by 2025 and 3.2 million by 2050 5. Also, more than three-fourths of the population live in rural areas and approximately one-fifth of the population live in Dili, the nation s capital. Lastly, the country has a relatively young population with 45% aged 0-14 years old and only around 3% above the age of 65. 4 UNDP. 2011. Timor-Leste Human Development Report 2011: Managing Natural Resources for Human Development Developing the Non-oil Economy to Achieve the MDGs. Timor-Leste. 5 National Statistics Directorate (NSD) [Timor-Leste], Ministry of Finance [Timor-Leste], and ICF Macro. 2010. Timor- Leste Demographic and Health Survey 2009-10. Dili, Timor-Leste: NSD [Timor- Leste] and ICF Macro.

4 C. Economy 13. Since 2005, Timor-Leste received oil and gas revenue for Timor Gap (the area of ocean between Timor-Leste, Indonesia and Australia) oil and gas production that can help rebuild the country. Following independence, the Timor Sea treaty between the Government of East Timor and the Government of Australia for joint exploration of the Timor Sea has been renegotiated with a sharing of proceeds on an agreed area of seabed called the Joint Petroleum Development Area with Timor-Leste receiving 90% share of revenues and 10% for Australia. 14. The Timor-Leste economy is largely dependent on government spending from petroleum revenues and donor funding 6. Official development assistance (ODA) to Timor-Leste totalled $267.1 million in 2010 and averaged 74% of gross national income (GNI) since 2005 7. The rise in world oil prices has boosted public saving with the nation s Petroleum Fund holding about $6.9 billion in offshore investments by the end of 2010 and a projected rise above $14 Billion by 2015. Government expenditure, which is largely funded from offshore petroleum production, increased sharply from $220 million in 2006 to $825 million in 2009 8. 15. The civil unrest in 2006 led to around 150,000 internally displaced people (IDP) that constrained economic activity although there has been renewed economic growth and poverty reduction after 2007. Timor-Leste has experienced rapid economic growth in the past three years. The agricultural sector, constituting majority of the poor population s livelihood, rebounded in 2008 and 2009. 16. Agriculture and fisheries are the backbone of an import-dependent Timorese economy whose trade deficit is mostly financed by petroleum revenues. Agricultural output contributes around 30% of GDP while the overall economic momentum resulted in GDP (excluding offshore petroleum production and UN peacekeeping mission) that averaged double-digit growth in 2007-2010 9. Coffee, the primary non-petroleum export is the main cash crop. Coffee production increased, lending a positive impact on poverty reduction since coffee growers are among the poorest households in the country 10. The agricultural sector provides livelihoods for around 70% of the population. D. Poverty Profile 17. Poverty and inequality are widespread in a country that lacks basic access to health and education, food security and nutrition, as well as income and employment opportunities. The United Nations Development Assistance Framework (UNDAF 2009-2013) estimates that nearly 40% of the people in the Democratic Republic of Timor-Leste live below the national poverty line of US$0.55 a day. Timor-Leste s Human Development Index (HDI) is 0.495, giving the country a low human development ranking of 147 out of 187 countries with comparable data and placing Timor-Leste below the regional average of 0.671 in East Asia and the Pacific. 18. The 2007 Timor-Leste Living Standards Survey (TLSLS) by the Directorate of National Statistics (DNS) of the Ministry of Finance, which contains a detailed assessment of current 6 National Statistics Directorate, Ministry of Finance Timor-Leste and ICF Macro 2010 7 OECD. 2011. Report on International Engagement in Fragile States: Democratic Republic of Timor-Leste. OECD Publishing. 8 ADB. 2011. 9 ADB. 2011. Asian Development Outlook 2011. Manila. 10 World Bank. 2009. A 2009 Update of Poverty Incidence in Timor-Leste using Survey-to-Survey Imputation Method. Washington, DC.

5 living standards on households and poverty conditions, notes that approximately 50% of the population is living in poverty with children in poor households accounting for 49% of the poor. Thus, age is seen as a crucial factor in determining the incidence of poverty. 19. The post-independence Government addressed the development challenge of pro-poor growth in the 2002 National Development Plan (NDP) and subsequently in the Strategic Development Plan (SDP) for 2011-2030 that focuses on developing the non-oil sector, improving rural livelihoods, and ensuring the sectoral allocations of public expenditure from the Petroleum Fund benefit the population equitably. The SDP aims to transform Timor-Leste into an upper-middle income country with a safe, healthy and educated population by 2030. The 2012 Government budget addresses pressing infrastructure needs through scaled-up capital spending directed at implementing the SDP and other medium-term expenditure plans. This capital expenditure is routed through the Infrastructure Fund (IF) set up as part of the State Budget in 2010 and includes key areas of investment such as electricity, transport, and education 11. E. Employment and Labor Force 20. According to 2010 Census and Household survey, the labour force (aged more than 10 years) comprises 748,590 (70.2%) of the country s total population. This labour force consists of 41% who are employed, 5% either unemployed or underemployed, and around 54% considered inactive 12. Since the labour force includes the youth, caution should be taken in interpreting the figures that constitute the overall labour force. 21. The 2009-2010 Timor-Leste Demographic and Health Survey (TLDHS) shows that the proportion of employed men and women increases with age with the lowest employment figures found in the population aged 15-19 at 23% for women and 85% for men; compared with employment figures for women (aged 45-49) at 58% and 96% for men. There are more women employed in rural areas. Since the Timorese economy is largely agrarian, there is a large proportion of employment in subsistence farming. This makes the rural population vulnerable to droughts, flooding, and external shocks brought about by economic and financial crises. These risks can cause transport problems in food and agricultural supplies and contribute to food poverty and insecurity in the country. 22. The Timor-Leste Labour Force Survey 2010 also shows an unemployment rate of 3.6% for 2010. The major causes of unemployment in the country are lack of job opportunities, inadequate skills and training to meet labour market demands, and undeveloped institutional infrastructure that can provide relevant information to employers and connect them with potential job applicants. There is also a surplus of young workers who are unprepared for work in the global economy and addressing this demand gap for skilled and experienced workers constitutes a long-term development priority for the country. The Government has tasked the Secretaria de Estado da Formação Profissional e de Emprego (SEFOPE) to encourage vocational training in reducing unemployment. 11 World Bank. 2011. Navigating Turbulence, Sustaining Growth. World Bank East Asia and Pacific Economic Update 2011, Vol. 2. Washington, DC. 12 The inactive labour force category is relatively high because of school or training, family responsibilities or housework, pregnancy, illness or disability, retirement and other age-related factors that affect work admissibility.

6 III. CURRENT SOCIAL PROTECTION PROGRAMS AND ACTIVITIES 23. This chapter presents an overview of the data collection process, objectives, and current social protection activities in the Democratic Republic of Timor-Leste including challenges and difficulties encountered during the course of the study. The two-fold objectives of this chapter is to present the main features of the social protection programs in the country and provide quantitative information that will serve as the basis for the formulation of the Social Protection Index. A. Data Collection 24. There are 8 major existing social protection programs in Timor-Leste. These programs are classified into three major SP components: (i) labour market programs; (ii) social assistance; and, (iii) social insurance. The major social protection activities and programs in Timor-Leste are implemented by government agencies and centrally managed. Only government programs are covered in this study. 25. The main points of contact for interviews and data collection were the directors and department heads of the Ministry of Social Solidarity; Ministry of Education and Ministry of Health, including the State Secretariat for Vocational Training and Employment (SEFOPE). The sources of social protection information were collected through direct interviews with directors in the Ministry of Social Solidarity; particularly, the Directorate of Social Protection, Directorate of Social Reintegration, Directorate of Disaster Relief, and Directorate of Humanitarian Assistance. 26. Social protection information for the school-feeding program was obtained from the Directorate for School Social Action (DNASE) and Basic Education Program while information for the labour market programs were retrieved from the Directorate of Vocational Training and Employment and State Secretariat for Vocational Training and Employment. Other information collected were generated from the Timor-Leste 2010 Census and Household Survey, Timor- Leste Labour Force Survey, Timor-Leste Demographic Health Survey, Timor-Leste National Statistic Directorate, Timor-Leste Directorate of Revenue and Expenditure, Timor-Leste Ministry of Finance, IFIs, and government financial reports and published documents on social protection programs. 27. The lack of formal definition for social protection in Timor-Leste and the relatively new data collection process and infrastructure which resulted in data management delays were some of the difficulties encountered during data collection which resulted in insufficient social protection information in calculating the SPI. B. Labour Market Programs 28. There are three major social protection programs implemented by the State Secretariat for Vocational Training and Employment (Secretaria Estado da Formacao Profissional e Emprego or SEFOPE) in the area of labour markets. These three programs are cash-for-work, labour exchange program and market-oriented training activities. 1. The cash-for-work program 29. The Programa de emprego mao de obra intensivo or intensive work program is a labour market program implemented by the government since 2008. Activities covered in this program are maintenance of rural roads and opening of new rural roads to isolated hamlets or villages.

7 Table 2: Cash for work program Year Funding Beneficiaries 2008 2,000,000 42,208 2009 1,000,000 12,219 2010 6,700,000 55,812 Source: Report, National Directorate for Employment, SEFOPE), Timor-Leste, January 2011 30. This cash-for-work program seeks to provide employment to rural communities, decrease isolation of the rural population and encourage local money circulation among people in rural areas. This program is offered to each village or suco 13 with each village entitled to only one project. One person from each family is entitled to participate in the project. Any family member who has permanent employment is no longer eligible for participation. Priority is given to unemployed members of the villages with a strong focus on women. The program aims to reach isolated communities and offer economic benefits to beneficiaries. Table 2 presents the total funding allocated for this program. On average, each beneficiary received $47 in 2008, $82 in 2009 and $120 in 2010. 31. Programa de emprego mao de obra intensivo is the largest program of the State Secretariat for Vocational Training and Employment (SEFOPE). Each worker is awarded $3 per day and a family member could work between 15 to 40 days in a year, depending on the length of road determined in a project. While this program does not provide work security to beneficiaries, it has helped thousands of people in need of extra income. It is not intended a sole income for a family throughout the entire year; rather as a stimulation for community participation in the development program. 2. Market focus training programs 32. The objective of market focus development training programs is to set skills standards that meet labour market needs and empower beneficiaries to deliver quality work to clients. These programs cover a whole range of areas from civil construction, tourism and hospitality, mechanics and automotive, agriculture, fisheries, landscaping, plumbing, small hand industries, carpentry, English language training, information technology, cooperative administration and management, welding for small industries, bamboo art, journalism, and sewing. Table 3: Market focus Development Program Training Component Annual Funding Beneficiaries 2008 265,495 485 2009 279,357 1,295 2010 880,507 1,558 Source: Annual Reports of National Directorate for Professional Training, SEFOPE, Timor-Leste, 2011 33. Of the 485 beneficiaries for 2008, 42% were women and 58% were men. Women s participation in training programs was relatively low in 2008 but slightly higher than men in 2009 13 Suco is village, the lowest level in Timor-Leste s government structure.

8 and 2010. Female beneficiaries accounted for 51% in both 2009 and 2010 14. Timor-Leste s 2010 Labour Force Survey similarly indicates that participation of women in vocational training remains is low. For instance, the State Secretariat for Vocational Training and Employment notes that in 2010, only 29% out of the 88,000 attended training were women. In contrast, men s participation in vocational training reached 70%. 3. Labour exchange program 34. The labour exchange program started in 2009 with beneficiaries sent to South Korea, Australia and Malaysia for employment. Agriculture, maritime, fisheries and industry are the areas covered in the exchange program. In order to be eligible for the exchange program, the applicant should possess certain skill areas of interest. 35. For years 2008 to 2010, there is no funding information provided by the government for the exchange program. Though the government does not provide funding for the beneficiaries, it facilitates and establishes cooperation with countries to employ the beneficiaries. A total of 525 people have benefitted from the program. Despite the effort to standardize vocational skills and training with potential employees, there is still a need to extend program coverage in order to reach a greater number of beneficiaries. C. Social Assistance Programs 36. There are five major social assistance programs: (i) assistance for elderly and people with disabilities; (ii) social assistance for widowed and disserted women; (iii) social assistance for vulnerable groups; (iv) disaster relief program; and, (v) school feeding program. The Ministry of Social Solidarity manages the first four programs while the school feeding program is managed by the Ministry of Education. Each program is managed by a Directorate and funded by government. 1. Social assistance for elderly and people with disabilities 37. The social assistance for elderly initiated in 2008 aims at developing sustainable social security to elderly persons. It is non-contributory; targeting only the elderly and people with disabilities. The Directorate of Social Protection manages the program by performing the functions of policy development, elderly registration and payment provision through established channels at all government levels. An applicant should be an East Timorese, aged 60 years old, having lived in the country for a minimum one year at the time of application in order to be eligible as a beneficiary. Table 4: Social Assistance for elderly and invalids 2008 2009 2010 Funding ($) 16,031,760 17,801,860 30,793,170 Beneficiaries 66,799 72,675 86,977 Source: National Directorate for Social Protection, Ministry of Social Solidarity, Timor-Leste, August 2011 14 Diresaun Nacional da Formacao professional, 2008.

9 38. Benefit eligibility for social assistance requires a person with disability to be East Timorese, 18 years of age and above, having lived in the country for a minimum one year at the time application, and bearing a medical certificate of mental and physical incapacity. The program definition of people with disability focuses only on people who are physically and mentally disabled and completely dependent on support from other people. 2. Bolsa da mae program (Social assistance program to widowed and deserted women) 39. Bolsa da mae is a cash-transfer program started as a pilot program in March 2008 and managed by the Ministry of Social Solidarity. It provides monetary transfers to selected children beneficiaries on the condition that they attend school regularly, successfully completing each level of schooling, and participate in health clinics. The cash payments are designed to assist poor households and vulnerable families, particularly single mothers and widows, in feeding and educating their children through the provision of a monthly subsidy. The program promotes basic compulsory school attendance and access to primary healthcare. In the long-term, the program aims to reduce poverty and increase social equity through public employment opportunities, education and health services for poor families. Table 5: Social Assistance for Widowed Women 2008 2009 2010 Funding ($) 558,800 796,760 876,800 Beneficiaries 7,051 9,582 11,230 Source: National Directorate of Social Registration, Ministry of Social Solidarity, September 2011. 40. The target beneficiaries are widowed women living in a family with children 17 years old and below, without secure agricultural land, unemployed with irregular or no means of income. The amount of support given to each family depends on family circumstances as set in the program criteria. Funding and number of beneficiaries are presented in Table 5. 3. Social assistance for vulnerable groups program 41. This non-contributory program has been started since Timor-Leste s independence in 2002. The program aims to minimize inequality of vulnerable groups in the community, promote peace and harmony within communities, and provide social protection for vulnerable groups. Target groups for this program are independence veterans, victims of natural disaster, women victims of abuse and violence, people with disabilities, the elderly, orphans, youth in crisis, and HIV/AIDS victims. Social assistance is given in the form of monetary and food-distribution. There is an overlap of beneficiaries for this program with social assistance for elderly and people with disabilities. Table 6: Social Assistance to Vulnerable Groups 2008 2009 2010 Funding ($) 3,340,735 16,203,258 62,494 Beneficiaries 54,609 264,865 121,361

10 Source: National Directorate of Social Assistance, Ministry of Social Security, September 2011 4. Disaster relief program 42. The National Directorate for Disaster Relief and the Ministry of Social Solidarity manages this government-funded program implemented since 2002. The program objective is to alleviate the suffering of communities affected by the impact of disaster. Target groups include victims of natural and man-made disasters such as flood, landslide, strong wind, fire, drought, pest, earthquake, tsunami, and social conflict. It covers all groups in affected communities, particularly elderly women and children. The benefits of the program are cash and in-kind transfers providing unconditional assistance to victims of disaster including house recovery programs. Information on funding and estimated number of beneficiaries is presented in Table 7. Table 7: Disaster Relief Program 2008 2009 2010 Funding ($) 308,368 1,595,000 2,700,000 Beneficiaries 6,040 7,200 9,514 Source: National Directorate of Social Assistance, Ministry of Social Security, September 2011 5. School feeding program 43. The Directorate for School Social Action (DNASE), Ministry of Education, a new directorate, manages the school feeding program. The objective of this program is to improve the student learning process through enhancing children s capacity to learn at school via adequate nutrition support. The target beneficiaries of the program are year 1-9 school students or primary school students. There are 312,000 beneficiaries in Timor-Leste as presented in Table 8, allocating $0.25 per student per day over 219 school days. The ideal annual cost needed to provide food to students is $17,082,000.00 excluding operational costs. Table 8: School Feeding program 2008 2009 2010 Funding 9,178,500 9,178,500 6,273,000 Beneficiaries 305,000 308,000 312,000 Source: National Directorate for Basic Education Program, Ministry of Education Timor-Leste, September 2011 44. While the Ministry of Education is responsible for the planning, operational cost and management of the program, the procurement of food is managed by the Ministry of Tourism, Economy and Industry. There are some implementation issues encountered by the directorate such as infrastructure and procurement problems such as the inability of bean and rice to be transported to schools during bad weather road conditions, and the poor quality of imported beans and rice. D. Summary of Social Protection Programs 45. Table 9 presents the eight major existing social protection programs identified by the Government of Timor-Leste. Most of the programs are administered by the Ministry of Social

11 Solidarity, the State Secretariat for Vocational Training and Employment and the Ministry of Education. All these program ms are managed centrally from each ministry or state secretariat. Table 9: Major Government Social Protection Programs in Timor-Leste Social Assistance Labor Market Programs Elderly and People with Disabilities Programa de emprego mao de obra intensivo Bolsa da mae Program (Widowed and Deserted Market Focus Development Program Women) Vulnerable Groups Program Labor Exchange Program Disaster Relief Program School Feeding Program Note: There are no major social insurance programs in Timor-Leste although there is a proposed contributory pension for public servants sent to the National Parliament for approval. 46. Among the 3 social protection components, social assistance programs have the highest coverage in Timor-Leste. In terms of labour market programs, women s participation in marketoriented vocation training, particularly the poor that need to gain skills to land future employment opportunities, remains low. Presently, there is no social insurance program in the country. However, plans are being laid out to establish this kind of social protection. IV. THE SOCIAL PROTECTION INDEX AND ITS DISAGGREGATION 47. The revised Social Protection Index (SPI) has a unitary indicator that can be disaggregated for analytical purposes. The revised SPI is calculated by Total Social Protection Expenditures per Total Potential Beneficiaries by 25% of the GDP per capita (representing average poverty line expenditures). In other words, the total social-protection expenditures spread across all potential beneficiaries are compared to poverty-line expenditures in each country. 48. The revised SPI is calculated by Total Social Protection Expenditures per Total Potential Beneficiaries by 25% of the GDP per capita (representing average poverty line expenditures). In other words, the total social-protection expenditures spread across all potential beneficiaries are compared to poverty-line expenditures in each country. 49. The revised SPI index can be disaggregated into two components, one for the depth of coverage and the other for the breadth of coverage of social protection programs. The first indicator is the Total Social Protection Expenditures divided by the Total Actual Beneficiaries (i.e., the average size of benefits actually received or depth ). The second indicator is the Total Actual Beneficiaries divided by the Total Potential Beneficiaries (i.e., the proportion of potential beneficiaries actually reached or breadth ). 50. The revised SPI can also be disaggregated by the major categories of social protection programs: social insurance, social assistance and labor market programs. When the total expenditures per total potential beneficiaries for each major program are weighted in population terms, the program SPIs add up to the total SPI. 51. Furthermore, the revised SPI can also be disaggregated by expenditures per potential poor and non-poor beneficiaries. Finally, gender-wise data allows the disaggregation of expenditure by gender.

12 52. The derivation of SPI poor/non-poor and SPI women/men used poverty and gender targeting rates. The said rates are based on the results of household surveys, administrative reports of social protection implementing agencies and in some instances, on the professional judgment of the compilers. A. Basic Statistics Table 10: Basic Statistics for 2009 Statistic Unit 2009 Value (USD) Source of Data Notes GDP (current prices) USD 788,000,000 United Nations calendar year GDP per capita (current National account USD 710 United Nations prices) (2009) National Directorate of GNI (current prices) USD 2,435 Macro Economy, Ministry of Finance, Timor-Leste calendar year (2009) Total Population Unit 1,066,409 National Statistic Directorate Timor-Leste Midyear population estimate Number of unemployed/ Unit 128,754 25% of employed see changes log under-employed Derived from 2010 Population aged 60 National Statistics Unit 87,567 Timor-Leste labor years and over Directorate Timor-Leste workforce survey Employed Population Unit 515,016 2010 Census see changes log Population living below national poverty line Unit 438,294 Disabled population Unit 129,304 Children aged 0 to 14 years Disaster Affected Population Per capita poverty line income (annual) Unit 441,906 Unit 150,000 Report p5 Units Average household size persons 5.7 Exchange rate**** US$1= 1 Source: Country Sources, 2011 B. Social Protection Expenditure and Beneficiaries Asian Development Bank National Statistics Directorate Timor-Leste National Statistics Directorate Timor-Leste Poverty Assessment National Statistics Directorate Timor-Leste; ICF Macro Banking and Payment Authority Poverty Assessment 2010 census midyear population estimate ICF Macro, Calverton, Maryland, USA conducted Demographic Health Survey in 2009 calendar year 53. The total expenditure that the Government of Timor-Leste spent on social protection is approximately $46.9 million in FY2009. The amount of social protection expenditure is about 5.9% of the country s GDP valued in 2009 at $788 million.

13 Table 11: Social Protection Expenditure by Social Protection Category 2009 Annual Percent Expenditure (%) (USD) Pensions Health Insurance Unemployment Benefit Other Social Insurance (e.g. maternity, disability benefits) ALL Social Insurance Assistance for Elderly 17,801,860 21.0 Health Assistance Child Protection 9,178,500 10.8 Disaster Assistance and Relief 1,595,000 1.9 Other Social Assistance 17,000,018 36.3 ALL Social Assistance 45,575,378 97.3 Labor Market Programs 1,279,357 2.7 Total SP Expenditure 46,854,735 100.0 GDP 788,000,000 SP Expenditure Indicator 5.9% Source: Country Sources, 2011 54. The categorization of social protection expenditure shows that the most social protection spending is in social assistance, having 97.3% of the total expenditures. Other social assistance (36.3%) composed of food based social assistance to vulnerable groups and social assistance to the widowed and disserted women is the main contributors to social assistance. 55. Elderly assistance (21.0%) earns the second largest portion of expenditures followed by child protection (10.8%) programs that cover mostly primary school children. 15. The contribution of social protection to labour market programs of about 2.7% is relatively low. Vocational training programs have just been implemented in 2008 and are still being discussed for policy improvement. 56. Social protection contribution for social insurance programs is nominal. There is no funding allocated by the government for pensions, health insurance, unemployment benefit and other social insurance since Timor-Leste generally adopts universal health coverage and health service is free to all citizens. Policies for these programs are under development and policy improvements for social insurance programs are being discussed. 57. In addition, social insurance information is not readily available because social insurance is not a current priority in Timor-Leste. The only insurance company available in the country is the National Insurance for Timor-Leste (NITL), recently established in 2010. It provides insurance premiums to most NGOs and international staff but has not extended its premium services to government public servants or the general public. Health insurance scheme are also mostly limited to international staff. There are no social insurance schemes for public and 15 Since the restoration of its independence on 20 May 2002, Timor-Leste experienced four constitutional governments. The 1 st to the 3 rd government was led by the FRETILIN party (Frente Revocionario Timor Leste Independecia) or Revolutionary Front for Independence of Timor-Leste, a major political party in the country. The current government is the 4 th constitutional government led by AMP (Alianca Maoria Parliamentaria, Major Parliamentary Alliance) with CNRT as the dominant party.

14 private sector employees although there are discussions on a pension proposal for government employees, armed forces, and police members as well as private sector employees. Political support is needed to pass the majority voting in the parliament to achieve legal basis for the proposed scheme. Due to these reasons, the index for the social insurance category could not be calculated. V. ANALYSIS OF COUNTRY RESULTS A. Disaggregation by Social Protection Category 58. Analysis of the country s social protection results is based on government social protection spending in Timor-Leste during FY2009. The revised SPI shows the spread of total social protection expenditure across all potential beneficiaries compared to the poverty line expenditure of a country. The resulting SPI are summarized in Table 12. The 2009 overall SPI is 0.140 and the indices for social assistance and labor market programs are 0.136 and 0.004, respectively. As previously discussed, derivation of index for social insurance is not yet possible for 2009. 59. The 2009 indices reveals that government s average per capita expenditures is about 14.0% of the poverty line expenditures, while for social assistance is about 13.6%. The index for labor market programs is only about 0.4% of the poverty line expenditures. The overall SPI is the summation of the indices by social protection categories. Table 12: Disaggregation by Category Social Insurance Social Assistance Labor Market Programs All SP Programs Total SP Expenditure (USD) 0 45,575,378 1,279,357 46,854,735 Beneficiaries (000s) 0 662,322 13,514 675,836 Reference Population (000s) 602,583 1,159,504 128,754 1,890,841 25% of GDP per capita 178 178 178 178 SPI 0.000 0.136 0.004 0.140 Source: Consultant estimates, 2011. B. Disaggregation by Depth and Breadth 60. The revised SPI index can also be disaggregated into two components, one for the depth of coverage and the other for the breadth of coverage of social-protection programs. The first indicator is the Total Social-Protection Expenditures divided by the Total Actual Beneficiaries (i.e., the average size of benefits actually received). The depth of coverage for Timor-Leste is 0.391, which indicates that the average social protection benefits are about 39.1% of the poverty line expenditures. Higher depth value implies that the country has better average benefits of social protection. Social assistance has a higher depth compared with labour market programs in Timor-Leste. 61. The second indicator, breadth, is the Total Actual Beneficiaries divided by the Total Potential Beneficiaries (i.e., the proportion of potential beneficiaries actually reached). The overall breadth of social protection for Timor-Leste is 0.357. The breadth index implies that in

15 2009, the actual beneficiaries who received some social protection are about 35.7% of the targeted beneficiaries. The breadth values across types of programs show that social assistance has a better reach of potential beneficiaries of 35.0% compared to labor market programs with relatively low depth of 0.7%, indicating that the reach of potential beneficiaries is very low. Table 13: Disaggregation by Depth and Breadth Social Insurance Social Assistance Labor Market Programs All SP Programs Depth 0.000 0.388 0.533 0.391 Breadth 0.000 0.350 0.007 0.357 SPI 0.000 0.136 0.004 0.140 Source: Consultant estimates, 2011 C. Disaggregation by Poverty Focus 62. The revised SPI can also be disaggregated by expenditure per potential poor and nonpoor beneficiaries as shown in Table 14. Table 14: Disaggregation by Poverty Status Poor Non-Poor SP Expenditure (USD) 20,406,450 26,448,285 Reference Population (000s) 1,890,841 1,890,841 25% of GDP per capita 178 178 SPI 0.061 0.079 Source: Consultant estimates, 2011 63. The disaggregated data shows that the SPI for the poor is lower, 0.061, than the 0.079 for non-poor. These figures suggest the social protection benefits received by poor is about 6.1% of the poverty line expenditures while 7.9% went to non-poor beneficiaries. Having higher index for non-poor may also indicate some program leakage thus benefitting non-poor. D. Disaggregation by Gender 64. The gender wise data allows the disaggregation of expenditure by gender as shown in Table 15. The SPI for men is higher than women but there is not much variation for men and women in Timor-Leste. This suggests that social protection expenditure benefits slightly more men than women in 2009. However, it should be noted that in the absence of gender disaggregated data, most of the gender targeting rates used for the programs are best approximations, while the actual delivery of the service could have more disparities. Table 15: Disaggregation by Gender Women Men SP Expenditure (USD) 21,057,393 25,797,342 Reference Pop (000s) 1,890,841 1,890,841 25% of GDP per capita 178 178 SPI 0.063 0.077 Source: Consultant estimates, 2011

16 65. The index for women is 0.063 while for men is 0.077. These indices indicate that on the average, the per capita social protection benefits received by women is about 6.3%, while men received about 7.7% of the poverty line expenditures. VI. CONCLUSION AND RECOMMENDATIONS 66. This chapter summarizes the findings; provide commentaries on how to improve social protection in Timor-Leste; highlight exemplary and problematic issues; and provide a policy assessment and conclusion. 67. The analysis of social protection programs for Timor-Leste reveals that generally the total expenditure among the social protection category is high for social assistance programs. However, even if social protection expenditure indicator is high in the country, it does not provide a strong base for poverty alleviation. Future attention should still be given to increasing expenditure on labour market programs in order for vocational training programs to respond strongly to labour market needs and lessen government dependency on social assistance programs. Social insurance programs are largely absent and could still be further developed. 68. The depth of social protection benefits is 0.391 for Timor-Leste. Compared to, social assistance, labor market programs has a very good depth, which means the average benefits of labor market programs are relatively high. The overall breadth for Timor-Leste is 0.357, which is somewhat higher than the SPI value although lower than the depth. The social protection programs in Timor-Leste have a fairly good reach of potential beneficiaries, with about 35.7% of the potential beneficiaries. The extent of social assistance programs in the country ensures better reach of potential beneficiaries. 69. Further disaggregated data shows that social protection expenditure on poor is lower compared to expenditure on non- poor. Thus, more non-poor beneficiaries rather than poor beneficiaries were recipients of the government s social protection expenditures. 70. The gender-disaggregated data shows a minimal variation of social protection for men and women in Timor-Leste. Social protection expenditures reached slightly more men than women in 2009 although limitations of the study should be noted in formulating these interpretations. 71. Overall, data implies that social protection programs in Timor-Leste still remain largely undeveloped. There is a challenge to develop a clear definition of social protection in the country to better target the poor and explore social insurance programs that reduce risk and vulnerability in the public and private sector. In comparison to social assistance programs, labour market and social insurance programs are inadequate and receive a lesser share of government expenditures. Developing labor market programs and social insurance systems can gradually cover the informal and agricultural sector, whose substantial majority of Timorese economy that are frequently exposed to unpredictable weather conditions and market forces. Finally, since majority of government spending comes from the Petroleum Fund, it might be worthwhile to consider labour market programs that support revenues from the non-oil industry.

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