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Petroleum Revenues are declining along with production meaning that the level of withdrawals from the Fund and the return from investment are the main drivers of
the size of the Petroleum Fund.
Table 2.6.3.3.2: Estimated Petroleum Fund Savings 2014-2020 m
2014 Actual
2015 Estimate
2016 Budget
2017 2018
2019 2020
Opening PF Balance 14,952.1
16,538.6 16,605.2 16,914.9
16,740.0 16,060.1
15,297.5
Petroleum Revenue excluding PF Interest
1,817.0 861.9
718.7 349.2
335.4 106.8
51.6 Petroleum Fund Interest,
Net 501.6
532.2 874.8
919.6 922.0
883.0 844.6
Total Withdrawals 732.0
1,327.5 1,283.8
1,443.7 1,937.3
1,752.4 1,497.3
Closing PF Balance 16,538.6
16,605.2 16,914.9
16,740.0 16,060.1
15,297.5 14,696.3
net of management and market revaluation
Source: Petroleum Fund Administration Unit, Ministry of Finance, 2015
2.7: Financing
2.7.1. Definition of Financing
The total budgeted expenditure for 2016 is higher than the domestic revenue that will be collected over the same period. This results in a non-oil deficit domestic
revenue minus expenditure which is financed by withdrawals from the Petroleum Fund PF, loans and use of the cash balance. The total amount of financing is equal
to the non-oil deficit and covers the gap between the budgeted expenditure and domestic revenue. Table 2.7.1.1 below shows the amount drawn from each of the
financing items.
Table 2.7.1.1: Financing m
2016 2017
2018 2019
2020 Total Financing
1,390.8 1,799.1
2,303.2 1,894.7
1,533.1
Estimated Sustainable Income ESI 544.8
534.5 519.8
490.1 464.9
Excess Withdrawals from PF 739.0
916.2 1,417.2
1,244.2 1,029.0
Use of Cash Balance 0.0
0.0 0.0
0.0 0.0
Borrowing Loans 107.0
348.4 366.2
160.5 39.2
Source: National Directorate of Economic Policy, Ministry of Finance, 2015
The economic impact of the financing items is different from that of domestic revenue. Domestic revenue, which is collected from taxes and charges paid by
individuals and companies in Timor-Leste, represents a transfer of income from one sector of the economy to another. Consequently, there is no significant change in
the overall demand in the economy, as the increase in demand from Government spending is approximately matched by a reduction in demand from private spending
companies and individuals.
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On the other hand, withdrawals from the PF both the Estimated Sustainable Income ESI and excess withdrawals and financing through loans will increase demand in
the year that such expenditure occurs, which will cause inflation. In the case of loans, this will be followed by a negative impact on overall demand in the future
when the Government begins to repay the loans.
2.7.2: ESI and Excess Withdrawals
The ESI can be thought of as the amount that can be withdrawn from the PF each year, forever, without the fund ever running out of money. The ESI is equal to 3 of
the net petroleum wealth and is 544.8 million in 2016. Further details on the ESI and petroleum wealth can be found in Section 2.6.3 of the Budget Book.
In addition, the Government plans to withdraw 739.0 million in excess of the ESI. This e ess ithd a al is i li e ith the Go e
e t’s poli on frontloading, and a detailed justification can be found in Annex 4.1. These excess withdrawals are being
used to finance core infrastructure, which is necessary for long-term growth.
2.7.3: Loans
In order to finance major infrastructure projects, the Government has a choice between taking loans and withdrawing excess amounts from the Petroleum Fund.
Withdrawing money from the Petroleum Fund, instead of taking loans, reduces the Fund balance, and potential interest earnings. Over the past few years, the
Government has adopted a prudent policy of using concessional loans with grace periods from development partners, because such loans have a number of
advantages for Timor-Leste. Loans allow greater budgetary flexibility, and in particular, reduce pressure
upo a o e ea ’s udget e elope. The Government will take loans to finance infrastructure projects when the financial
cost of borrowing is lower than the return on the Petroleum Fund. The Government is well aware of the potential disadvantages of excessive indebtedness, and has
ensured that all loans agreed to date have a cost of borrowing below the return on the Petroleum Fund as stated in the Public Debt Law, thus ensuring that the future
debt
epa e ts e ai ell ithi the ou t ’s apa it to pay. To date five there have been 5 Loan Agreements for financing road projects. They
are all for upgrading and strengthening arterial roads, these are:
x Road Network Upgrading Project RNUP of Dili-Liquica and Tibar-Gleno signed by GoTL and Asian Development Bank ADB in 2012
x Road Upgrading Project of Dili-Baucau signed by GOTL and JICA in 2012
