Timor-Leste SOCIAL PROTECTION REVIEW Timor-Leste Social Protection Review Published in April 2022 World Bank Indonesia and Timor-Leste Social Protection East Asia Pacific This work is a product of the staff of The World Bank. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colours, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for non-commercial purpose as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-225; email: pubrights@worldbank.org. Timor-Leste SOCIAL PROTECTION REVIEW 4 Timor-Leste Social Protection Review Table of Contents ACKNOWLEDGEMENT 11 EXECUTIVE SUMMARY 13 OVERVIEW 17 1. TIMOR-LESTE ECONOMIC AND HUMAN DEVELOPMENT CONTEXT 25 1.1 Country Economic Overview 25 1.2 Human Capital Objectives and Challenges 27 1.3 Timor-Leste’s Response to COVID-19 31 2. FINANCING SOCIAL PROTECTION 35 2.1 Overall Social Protection Spending and Its Evolution 35 2.2 Composition of Social Protection Spending 38 2.3 Toward More Sustainable Financing of Social Protection: Some Options. 40 3. SOCIAL ASSISTANCE 45 3.1 Social Assistance Landscape, Institutional Arrangements, and Expenditure 45 3.2 Program Overview, Coverage, and Adequacy 47 3.3 Effectiveness and Associated Program Consideration 55 4. SOCIAL SECURITY 61 4.1 Social Security System, Financing and Expenditure 61 4.2 Program Coverage, Adequacy and Sustainability 64 4.3 Effectiveness and Program Considerations 70 5. SYSTEMS GOVERNING SOCIAL PROTECTION DELIVERY 73 5.1 Policy and Legal Framework 73 5.2 Administrative Responsibilities 74 5.3 Implementation: Outreach to Delivery of Benefits and Services 75 5.4 Overview of Country Payment Systems 78 5.5 Opportunities for Reforming Delivery Systems 79 6. CONCLUSIONS AND OPPORTUNITIES FOR REFORM 83 REFERENCES 90 ANNEX 1. Main Features of Non-Contributory Social Protection Programs 92 ANNEX 2. Main Features of Contributory Social Security Programs 98 ANNEX 3. COVID-19 Laws and Regulations in Timor-Leste 101 ANNEX 4. COVID-19 Grant Registration Processes 103 ANNEX 5. Laws and Regulations Governing Social Protection in Timor-Leste 105 ANNEX 6. Details of Social Protection Delivery 107 ANNEX 7. Payment/Transfer Processes 111 ANNEX 8. Social Security Actuarial Assumptions and Methods 113 Timor-Leste Social Protection Review 5 List of Figures & Tables Figure 1. Absolute Expenditure Trends in Largest Social Assistance Programs, 2009-2019 ...................................... 13 Figure 2. Evolution of Timor-Leste’s Main Social Protection Benefits and Services .................................................. 17 Figure 3. Absolute Expenditure Trends in Largest Social Assistance Programs, 2009-2019 ...................................... 18 Figure 4. Social Protection Spending in Timor-Leste, 2009-2019 .............................................................................. 19 Figure 5. Impact on Poverty Headcount by Type of Social Protection Program ....................................................... 19 Figure 6. Raise More and Spend Better for Social Protection ................................................................................... 22 Figure 7. Trends in Government Budget, Non-oil GDP, and ESI+Domestic Revenue ................................................. 26 Figure 8. Annualized Real Consumption Per-Capita Growth, 2007-2014, by Household Decile ................................ 27 Figure 9. COVID-19 Fund Spending (%), April 17 to September 30, 2020 ................................................................. 33 Figure 10. Social Protection Spending, 2009-2019 ...................................................................................................... 35 Figure 11. Social Protection Public Spending as a Share of National Budget, 2009-2019 .......................................... 37 Figure 12. Spending by Different Sectors as a Share of National Budget 2019 .......................................................... 37 Figure 13. Social Protection Budget Execution 2009-2019 .......................................................................................... 38 Figure 14. Social Expenditure by Components, 2009-2019 ......................................................................................... 38 Figure 15. Total Social Protection Expenditure as % of (Non-Oil) GDP in ASEAN and CPLP Countries ........................ 40 Figure 16. Financing Sources of Social Protection Expenditures ................................................................................ 40 Figure 17. Absolute Expenditure Trends in Largest Social Assistance Programs, 2009-2019 ...................................... 47 Figure 18. Distribution of Social Assistance Benefits, 2009-2019 ............................................................................... 47 Figure 19. Number of Bolsa da Mãe Beneficiary Households, 2008-2019 ................................................................. 48 Figure 20. 2014 Share of People Covered by Bolsa da Mãe Program by Consumption Group (Direct and Indirect Beneficiaries) .............................................................................................................. 48 Figure 21. 2014 and 2019 Estimated Share of People Covered by Bolsa da Mãe Program by Expenditure Quintiles (Direct and Indirect Beneficiaries) ..................................................................... 49 Figure 22. Beneficiary Incidence: Proportion of Bolsa da Mãe Program Recipients within Expenditure Quintiles (%) ........................................................................................................................... 49 Figure 23. Relative size of Bolsa da Mãe cash transfer program ............................................................................... 50 Figure 24. Veterans’ Pensions Direct Beneficiaries, 2009-2019 .................................................................................. 51 Share of People Covered by Veterans’ Pension by Consumption Group Figure 25. (Direct and Indirect Beneficiaries), 2019 Estimates .................................................................................... 52 Figure 26. Proportion of Veterans’ Pension Recipients within Expenditure Quintiles (%) .......................................... 52 Figure 27. Social Assistance’s Generosity over The Poorest Quintile (estimates, 2019) ............................................. 52 Figure 28. Relative Amount of Veterans’ Pension ....................................................................................................... 53 Figure 29. Timor-Leste’s Social security System ....................................................................................................... 62 6 Timor-Leste Social Protection Review Figure 30. Absolute Trends in Largest Social Security Pensions and Other Benefits, 2009-2019 ............................. 63 Figure 31. Distribution of Social Security Benefits, 2009-2019 ................................................................................ 63 Figure 32. Number of Beneficiaries and the Old-Age Social Pension Target Group Coverage (%) .............................. 64 Figure 33. Number of Beneficiaries of the Disability Social Pension .......................................................................... 64 Figure 34. Share of People Covered by Elderly and Disability Social Pensions by Consumption Group (Direct and Indirect Beneficiaries) .............................................................................................................. 65 Figure 35. Proportion of Recipients within Expenditure Quintiles ............................................................................. 65 Figure 36. Generosity of Elderly and Disability Pensions ............................................................................................ 66 Figure 37. Relative Size of Annual Benefits of the Elderly and Disability Social Pensions .......................................... 67 Figure 38. Population Dependency Ratios .................................................................................................................. 68 Figure 39. Contributors and Beneficiaries ................................................................................................................... 69 Figure 40. Required Contribution as % of Payroll ....................................................................................................... 69 Figure 41. Pension Fund Assets as % of GDP, 2,5% Real Rate of Return, 15% Contribution Rate .............................. 70 Figure 42. Comparative Impact of Elderly Pension in Reducing Poverty .................................................................... 70 Figure 43. Inter-Ministerial Roles in Social Protection ................................................................................................ 75 Figure 44. Payment Mechanism at Central Level ........................................................................................................ 111 Figure 45. Payment Mechanism at Municipality Level ................................................................................................ 111 Figure 46. Modes of Payment ..................................................................................................................................... 112 Table 1. Key Indicators of Non-contributory Social Protection Programs ................................................................ 20 Table 2. Key Features of contributory Social Security System ................................................................................. 21 Table 3. Timor-Leste Human Capital Index 2020 Compared to CPLP and ASEAN Countries Aggregate HCI by Component ............................................................................................................................................ 28 Table 4. Government Expenditure as Percentage of GDP ........................................................................................ 41 Table 5. List of Social Assistance Main Benefits and Services .................................................................................. 45 Table 6. Number of Beneficiaries (Students and Schools) and Coverage Rate (%) of the School Feeding Program, 2012-2018 .................................................................................................................................................. 54 Table 7. Impact of Programs on Population below the 40% Consumption Line (National Population) .................. 55 Table 8. Recommendations Table ............................................................................................................................ 83 Table 9. Eligibility Criteria and Documentation for Main Non-contributory Benefits ............................................. 107 Table 10. Registration of New Employers and its Workers, Change of Information, Suspension and Termination of Activity ................................................................................................................................................... 108 Table 11. Eligibility Criteria and Required Documentation to Claim Contributory Benefits ...................................... 108 Table 12. Main SA Non-contributory Benefits Payments Overview ........................................................................... 109 Table 13. Contributory Benefits Payment Overview .................................................................................................. 110 Timor-Leste Social Protection Review 7 List of Acronyms and Abbreviations ABND Assessment-Based National Dialogue ADB Asian Development Bank ASEAN Association of Southeast Asian Nations ASP Adaptive Social Protection ATMs Automatic Teller Machines BCTL Central Bank of Timor-Leste BNCTL National Bank of Commerce of Timor-Leste BOMS Beneficiary Operations Management Systems CCHIV SIDA Commission to Fight Against HIV-SIDA CCT Conditional Cash Transfer CEQ Commitment to Equity COVID-19 Coronavirus disease of 2019 CPI Consumer Price Index CPLP Community of Portuguese Speaking Countries CSS Center of Social Solidarity DGSSI General Directorate of Social Solidarity and Inclusion DMIS Demographic Management Information System DNACLN National Directorate of National Liberation and Combatants Affairs DNAS National Directorate of Social Assistance DNASE National Directorate of Social Action DNDS National Directorate of Social Development DNIRC National Directorate of Inclusion and Community Reinsertion DNIRS National Directorate of Inclusion and Social Reinsertion DNRCSS National Directorate of Contributory Social Security Regime DNRNCSS National Directorate of Non-contributory Social Security Regime EAP East Asia and Pacific EDTL Electricity of Timor-Leste ERA Enhancing Rural Access ESI Estimated Sustainable Income ETFPOS Electronic Funds Transfer at Point of Sale F-FDTL Falintil-Forca Defesa Timor-Leste FSF Food Security Fund G2B Government to Business (service providers) G2P Government to People GDP Gross Domestic Product GHI Global Hunger Index GIS Geographic Information System 8 Timor-Leste Social Protection Review GLI Global Legal Group GNI Gross National Income GRP Government Resource Planning GRS Grievance Redress Systems GSB General State Budget HCI Human Capital Index ID Identification number IDP Internally Displaced People IFC International Finance Corporation IFF Illicit Financial Flows ILO International Labor Organization INFORDEPE National Institute for Training of Teachers and Education Professionals INSS National Institute of Social Security IT Information Technology JPDA Joint Petroleum Development Area KONSSANTIL National Council for Food Security, Sovereignty and Nutrition LFS Labour Force Survey LMI Lower Middle-Income Countries MACLN Ministry of National Liberation and Combatants Affairs MAE Ministerio Administrasaun Estatal MAP Ministerio Agricultura e Pescas MDC Matching Defined-Contribution MDF Market Development Facility MFI Micro Finance Institution MIS Management Information System MOE Ministry of Education MOEJD Ministry of Education, Youth and Sports MOF Ministry of Finance MOH Ministry of Health MOPWTC Ministry of Public Works Transport and Communications MSA Ministry of State Administration MSSI Ministry of Social Solidarity and Inclusion MTCI Ministry of Tourism, Commerce and Industry MTOs Money Transfer Operators ND-GAIN Notre Dame Global Adaptation Index NESP National Education Strategic Plan NNS Nutrition National Strategy NSFI National Strategy for Financial Inclusion ODTI Other Deposit-Taking Institutions OECD Organizations for Economic Cooperation and Development PAAS Pessoal Apoio Administrativu Suku PALOP Portuguese-speaking African countries Timor-Leste Social Protection Review 9 PASP Portuguese African Speaking Countries PAYG Pay-As-You-Go PNTL Policia Nasional Timor-Leste POS Point of Service PROST Pension Reform Options Simulation Toolkit PSC Production Sharing Contract PSP Payment Service Providers R4D Roads for Development RDTL Democratic Republic of Timor-Leste RTGS Real-Time Gross Settlement SAII Support of the Elderly and Invalid SDGs Sustainable Development Goals SDP Strategic Development Plan SEFOPE Secretary of State for Vocational Training and Employment SIBS Interbank Society of Services SIGAS Management Information System for Social Assistance SP Social Protection SSRF Social Security Reserve Fund TL-SLS Timor-Leste Survey of Living Standards UN United Nations UNICEF United Nations Children’s Fund  VAT Value Added Tax VPN Virtual private network  WB World Bank WFP World Food Programme 10 Timor-Leste Social Protection Review Acknowledgement The Timor-Leste Social Protection Review was prepared by a team led by Juul Pinxten (Social Protection Specialist, HEASP) and Ilsa Meidina (Social Protection Specialist, HEASP) comprising Rita Fernandes (Consultant), Tanya Adi Putri (Analyst, HEASP), and Amaro Ximenes (IT Analyst). Robert Palacios (Lead Specialist, HEASP), and Gedsiri Suhartono (Consultant) provided valuable input. This report is the result of a close collaboration between the Government of Timor-Leste and the World Bank. The team would like to thank the Ministry of Social Solidarity and Inclusion led by Mr. Rui Manuel Exposto (Director General Social Solidarity and Inclusion) and the development partners who shared input and feedback during the data collection and finalization of this report. Overall guidance was provided by Satu Kahkonen (Country Director, EACIF), Yasser El-Gammal (Practice Manager, HEASP), Achim Schmillen (Practice Leader, HEASP) and Bernard Harborne (Resident Representative, EACIF). The report also benefited from comments and feedback provided by the peer reviewers: Pedro Miguel Gaspar Martins (Senior Economist, EEAM1) and Junko Onishi (Senior Social Protection Specialist, HAWS3). Timor-Leste Social Protection Review 11 Executive Summary Since it became the first new sovereign state of the 21stCentury on May 20, 2002, the Government of the Democratic Republic of Timor-Leste has demonstrated commendable leadership in rebuilding the country’s economy with reasonably steady degrees of poverty reduction. The nation’s unwavering commitment to social protection is reflected in a national system that provides a wide range of benefits and services. These programs included pensions for veterans, elderly and disabled as well as a conditional cash transfer program targeting vulnerable households with children. Other benefits and services were introduced in due course, such as disaster recovery programs, child protection services, emergency support to individuals and vulnerable families, support services to victims of gender-based and domestic violence as well as support to prisoners. In 2016, a national contributory social security general scheme was launched and is mandatory for employed workers and voluntary for self-employed and other independent workers. This report presents in-depth analysis of Timor-Leste’s social protection system building on the World Bank’s long-standing analytical and advisory support for the Ministry of Social Solidarity and Inclusion. Envisioned as inputs to Timor-Leste’s National Strategy for Social Protection, this report also serves as a deep-dive to the recently-launched Timor-Leste Public Expenditure Review and it does so by providing extensive analysis on the effectiveness and efficiency of Timor-Leste’s social protection spending. The analysis also looks into coverage, adequacy, and delivery mechanisms of the existing programs as the basis for policy recommendations that the Government of Timor-Leste could consider in implementing the country’s first National Strategy for Social Protection. Figure 1 Absolute Expenditure Trends in Largest Social Assistance Programs 2009-2021 Source: World Bank staff calculations using Timor-Leste State Budgets 2009-2021 Over the past decade, Timor-Leste’s social protection expenditure has both expanded in nominal terms and contracted in terms of non-oil Gross Domestic Product (GDP) share. Excluding veteran’s pensions, Timor-Leste’s social protection expenditure is around 3 percent of the country’s non-oil GDP which corresponds with the Association of Southeast Asian Nations (ASEAN) regional average. The overall expenditure for social protection has increased from US$129 million in 2009 to US$158 million in 2019 which is equivalent to 7% of non-oil GDP.1 In this report, non-oil GDP is used instead of oil GDP. It is assumed that the non-oil GDP is a better proxy for income of the average Timorese than 1 total GDP, which includes the oil sector. A portion of the Timor-Leste Petroleum Fund is taken out to support the government budget, benefiting the non-oil sector. Timor-Leste Social Protection Review 13 This high rate of social protection spending has not seemingly been supplemented by an improvement in welfare. Today, large swaths of spending are allocated for veterans of Timor-Leste’s resistance (up to 64 percent of the 2019 social protection budget) and very little had been effectively channeled to children and youth, particularly the poor and most vulnerable. This proportion is excessively generous considering its coverage of a very restricted group of people - estimated to comprise just 3.7 percent of the poorest 40 percent in 2019 and even fewer of the poor. This report contends that social protection programs will continue to have limited impact on welfare as long as resources are inefficiently distributed. An impact analysis shows that Timor-Leste’s core social protection spending had prevented poverty from increasing by 6.8 percentage points. The Elderly Pension Program has the largest impact in poverty reduction (2.9 percentage points) at a reasonable cost of 2 percent of non-oil GDP. As the only poverty-targeted program, Bolsa da Mãe, barely impacted on poverty reduction due, in part, to the low spending (merely 0.4 percent of non-oil GDP) and issues with targeting. About 47 percent of the beneficiaries were estimated to be non-poor. The amount of benefit, around 6 percent of the average total household in the lowest quintile budget, is markedly too low to make a significant impact. In 2022, the Government announced the piloting of Bolsa da Mãe New Generation which will provide universal benefits to children under 3 years old (first 1,000 days) and pregnant women. The piloting is welcome as it addresses the adequacy and targeting challenges but the long-term fiscal impact should be carefully considered. Meanwhile, the nascent contributory social security system has some potential in protecting working age families from falling into poverty as a result of income shocks. This report, unfortunately, does not benefit from a more updated administrative data that would allow more accurate assessment of the social security system’s adequacy, coverage, and financial sustainability. In 2019, only about one third of the labor force’s public and private sector were registered in the social security general scheme. It is imperative that the system invents innovative ways to attract workers, including those from the informal sector. When it comes to the delivery, the systems governing social protection remains very fragmented. Each programs has its own systems which require beneficiaries to interact with different entities in accessing different types of benefit. Interoperability between systems is also absent mainly due to the absence of a unique identification number. This lack of interconnectedness also deprived key stakeholders and decision makers of an opportunity to conduct monitoring and impact analysis more systematically. T he introduction of a un ique identification number in Timor-Leste is timely and presents an opportunity to develop a more robust social protection delivery system. In late 2021, the Government launched the highly-anticipated National Social Protection Strategy. The strategy provides a comprehensive assessment of the existing social protection landscape and sets out clear goals and targets that also correspond with the findings and recommendations of this report. Further emphasizing Government’s priorities, our review of Timor-Leste’s social protection deduces the following recommendations: 1. Ensure fiscal resources are well utilized and have a significant impact on poverty reduction. More specifically, budget allocated to the Veterans’ Pension could be, based on a political consensus, gradually amended to reduce or at least limit the benefits provided across generations. This reform could generate more fiscal space for raising the coverage and benefit level of more progressive programs such as the Bolsa da Mãe and could also help finance important delivery system improvements. 2. Improve social protection delivery systems as part of broader government efforts to efficiently deliver benefits and services to the people. Improvements include investing in a social registry with a unique identification system and a robust Beneficiary Operations Management Systems (BOMS) that links all processes and stakeholders along the delivery chain. 3. Improve linkages between social protection and human capital outcomes with a particular focus on strengthening support in the early years of life. 14 Timor-Leste Social Protection Review 4. Continue to develop a comprehensive contributory social security system to protect people of working age, including informal workers. 5. Implement the national social protection strategy with dynamic monitoring and evaluation capabilities. The strategy can be used to initiate a government-wide discussion and galvanize efforts to establish a coherent forward-looking social protection system. Equally important is the development of a robust monitoring and evaluation (M&E) framework and tools to assess and improve programs’ performance. Ultimately, the COVID-19 Pandemic has further clarified existing structural challenges in social protection programs including gaps in delivery systems. The pandemic has also reinforced the need to establish an Adaptive Social Protection (ASP) strategy as a precursor to resolve coherent and effective readiness to ensure that the populations are better protected and more resilient in responding to natural disasters and other potential crises in the future. Timor-Leste Social Protection Review 15 16 Timor-Leste Social Protection Review Overview Timor-Leste’s steady economic growth, averaging 5 percent in the past decade, has been driven largely by public spending financed by oil revenues and household consumption. The level of growth has yet to sufficiently result in a marked reduction in poverty rates or a major improvement in human capital outcomes. Immense disparities in poverty have persisted within the country with high poverty rates in rural areas. Children and youth, in particular, are living at a very high risk of poverty. As with almost half of the population comprises children, their wellbeing, health, nutrition, education and access to decent jobs ominously defines Timor- Leste’s growth prospects. Figure 2 Evolution of Timor-Leste’s Main Social Protection Benefits and Services 2006-2007 Provision of aid post-crisis National Recovery Strategy (NRS): Aid support to resettle the displaced, reduce tensions and promote social cohesion 2008 Introduction of first cash transfer programs Non-contributory main cash transfers: • Allowance for the Support of the Elderly and Invalid (SAII) • Veterans’ transfers and benefits • Bolsa da Mãe program Other benefits & services: 2012 • Recovery of victims of natural Introduction of a transitory social security disasters and social conflicts non-contributory scheme • Emergency support to Transitory social security individuals and families in non-contributory vulnerability benefits: 2016 • Funeral transport services • Old age, Disability Launch of a social security • Support services to victims of and Death benefits contributory scheme gender-based violence and for civil servants Social security contributory benefits: domestic violence • Other benefits & • Disability and Old-age pensions for • Child protection services services: workers • Support to prisoners • Maternity, Paternity and Adoption and their social benefits for workers reintegration • Death benefits The 2019 Coronavirus Disease (COVID-19) also poses significant health and socio-economic challenges for Timor-Leste and has amplified the government’s commitment to protect Timorese through social protection. The Presidential declaration of a State of Emergency in March 28, 2020 instigated measures to comprehensively respond to economic, social and financial risks including delivery of a near-universal COVID-19 cash transfer for the amount of US$100 per month per household for two months, allocation of up to 60 percent wage subsidies for formal sector employees, safeguarding three months emergency supply of rice, while food basket program provision between August-September 2020 initially distributed in selected regions was replicated for the entire population later in the year. The COVID-19 pandemic has starkly highlighted differences in social protection programs and gaps in delivery systems. On the other hand, the know-hows have also shown the government diverse possibilities to better utilize technology, harness stronger inter-agency coordination and render an overall effective government response to Timor-Leste Social Protection Review 17 the pandemic (see section 1.3). The MSSI has been key in designing and delivering a successful implementation of the COVID-19 cash transfer. The ministry has also utilized digital solutions to verify household information, track implementation and payment progress. Up until early 2020, application of key digital infrastructure within the MSSI, particularly a beneficiary operations management system known as SIGAS, has proven challenging. This accomplishment has reinforced the need to immediately transform manual systems to fully digital delivery mechanisms. The COVID-19 pandemic has also reinforced the need to establish an Adaptive Social Protection (ASP) strategy to foster effective and coherent disaster preparedness. Figure 3 Absolute Expenditure Trends In Largest Social Assistance Programs, 2009-2021 Source: World Bank staff calculations using Timor-Leste State Budgets 2009-2021 Over the past decade, Timor-Leste’s social protection expenditure has both expanded in nominal terms and constricted in terms of non-oil Gross Domestic Product (GDP) share. As seen in Figure 4, Timor-Leste’s overall expenditure on social protection has increased from US$129 million in 2009 to US$156 million in 2019. However, as a share of non-oil GDP2, this characterizes a significant decrease on social protection expenditures, specifically from 18 percent to 7 percent over the same period. This reduction is also reflected as a share of combined Estimated Sustainable Income (ESI) and domestic revenue3 that, though not as significant, is declining from 26 percent to 20 percent. Nonetheless, Timor-Leste’s spending on social protection comprises the highest share of government spending approximately on par with infrastructure spending. Compared to the rest of the world, Timor-Leste’s spending on social protection is amongst the highest - most of which is attributed to veterans’ pensions. If spending on veterans pensions were excluded, Timor-Leste’s social protection expenditures would have decreased from US$113 million in 2009 to US$53 million in 2019 which would solidify Timor-Leste’s social protection spending to about 3 percent of non-oil GDP - figures which correspond with the Association of Southeast Asian Nations (ASEAN) regional average. 2 In this report, non-oil GDP is used instead of oil GDP. It is assumed that the non-oil GDP is a better proxy for income of the average Timorese than total GDP, which includes the oil sector. A portion of the Timor-Leste Petroleum Fund is taken out to support the government budget, benefiting the non-oil sector. 3 The ESI represents the amount that can be spent from the Petroleum Fund in a particular year without depleting its long-term balance. When combined with domestic revenues, this is a measure of the ‘estimated sustainable spending’ for a given year. 18 Timor-Leste Social Protection Review Figure 4 Social Protection Spending In Timor-Leste, 2009-2019 Social Protection spending Social Protection spending as a share of non-oil GDP as a share of ESI+ Domestic Revenue 30 30 Expenditure as share of ESI+ Domestic Revenue 25 25 % of non-oil GDP 20 20 15 15 10 10 5 5 0 0 2009 2011 2013 2015 2017 2019 2009 2011 2013 2015 2017 2019 2010 2012 2014 2016 2018 2010 2012 2014 2016 2018 Social Protection spending Social Protection spending as a share of national budget in absolute values 30 30 government spending 25 25 Expenditures in 20 20 % of Total 15 US$ millions 15 10 10 5 5 0 0 2009 2011 2013 2015 2017 2019 2009 2011 2013 2015 2017 2019 2010 2012 2014 2016 2018 2010 2012 2014 2016 2018 SP Total SP excl. veterans Source: World Bank staff’s calculations using Timor-Leste State Budgets 2009-2019 While Timor-Leste has one of the highest rates of social protection spending in the developing world, such high expenditure has not translated into a significant improvement on welfare. This report presents estimates of the poverty impact resulting from Timor-Leste’s main cash transfer programs (Bolsa da Mãe, Elderly Pension, Disability Pension and Veteran Pensions) by using the Timor-Leste Survey of Living Standards (TL-SLS) 20144. The analysis shows that in 2014, the latest year for which data is available, Timor-Leste’s social protection spending on core programs had prevented poverty from increasing by 6.8 percentage points from 40.5 percent to 47.3 percent (Figure 5). The Elderly Pension Program has the largest impact in poverty reduction (2.9 percentage points) at a reasonable cost of 2 percent of non-oil GDP. Coming in second to impact poverty reduction is the Veterans’ Pension (amounted to 2.5 percent of non-oil GDP), accomplished at very high costs of 4.5 percent of non-oil GDP. On the contrary, as the only poverty-targeted program, Bolsa da Mãe, barely impacted poverty reduction due, in part, to comparatively low spending (merely 0.1 percent of non-oil GDP). Figure 5 Impact on Poverty Headcount by Type of Social Protection Program Impact On Poverty If Main Non-Contributory Programs Are Removed 50 48 47.3 46 Poverty Headcount 44 43.4 43.0 42 40.5 41.4 40.7 40 38 Benchmark Benchmark 36 Social Benchmark without without Benchmark 34 Protection without Elderly Disability without All program 32 Benchmark Bolsa da Mãe Pension Pension veterans removed 30 Source: World Bank staffs’ calculations using Timor-Leste Survey of Living Standards 2014 Due to the lack of more recent survey data, this report uses TL-SLS 2014. 4 Timor-Leste Social Protection Review 19 This report contends that direct improvements in welfare, attributable to social protection will, remain low as long as resources are inequitably distributed. Today, large swaths of spending are allocated for veterans of Timor-Leste’s resistance and very little had been effectively channeled to children and youth, particularly the poor and most vulnerable. Chapter 2 of this report demonstrates just how Veterans’ Pension has consumed up to 64 percent of the 2019 social protection budget while the remainder were allocated to social assistance and non-contributory programs5. Successively, chapter 3 also demonstrates the effectiveness of social assistance programs in poverty reduction. The Veterans’ Pension, which varies between US$1,670 and US$2,264 per person per year, are excessively generous considering the small number of beneficiaries. The analysis shows that the benefit provided covers some 47 percent and 60 percent of the average total household expenditure over the whole population and poorest quintile. It covers a very restricted group of people, even fewer of the poor, estimated to comprise just 3.7 percent of the poorest 40 percent in 2019. Secondly, although the Elderly and Disabled social pensions are well represented in the total social protection budget, the younger population has continued to be excluded from the social protection programs. By the same token, the current mix of programs is thus insufficiently supporting families with children living in poverty and vulnerability. Although the Bolsa da Mãe program has significant potential impact on poverty reduction, it has inadequately covered the eligible group. Approximately 47 percent of its beneficiaries were estimated to be non-poor due to wide-ranging inadequate targeting. The amount of benefit (around 6 percent of the average total household in the lowest quintile budget) is markedly too low to make a significant impact. Although the nascent contributory social security system has some potential in protecting working families from falling into poverty as a result of income shocks, the system is still very new. It was not possible to conduct a detailed analysis on the contributory social security scheme as the TL-SLS 2014 did not include data on the contributory benefits and no administrative data was available at the time of this analysis. Nonetheless, the contributory social security scheme has the potential to increase substantially as effective coverage is still very low (approximately 10 percent of total working age population). Table 1 Key Indicators of Non-contributory Social Protection Programs Transfer as a share of Beneficiary Coverage (%) beneficiary welfare Annual spending incidence (%) (adequacy) (%) as percentage of Program name Year non-oil GDP (%), Poorest Poorest Poorest 2019 Total Total quintile quintile quintile (2014) 19 16 33 : : 0.1 Bolsa da Mãe (2019 Est.) 29 24 : 6 4 (2014) 32 27 31 : : 1.7 Elderly Pension (2019 Est.) 53 45 : 15 10 (2014) 5 4 31 : : Disability Pension (2019 Est.) 5 4 : 14 12 (2014) 3 6 13 : : 4.5 Veterans Pensions (2019 Est.) 7 14 : 60 47 Source: World Bank staffs’ calculations 5 The remaining 3 percent was allocated for social security contributory benefits. 20 Timor-Leste Social Protection Review Table 2 Key Features of Contributory Social Security System Key Features Contribution Benefit Mandatory Shared contributions due on the employee’s gross wage at rates of Main benefits: social security 4% by the employee and 6% by the employer • Old-age pension contributions: • Disability pension • Survivor benefits (Survivor pension, Death grant and Voluntary Self-employed/Domestic workers/Others: 10% of the monthly Reimbursement of funeral social security conventional gross wage. Beneficiaries have to choose the value of expenses) contributions: conventional earnings (from 2 times up to 10 times the value of the • Maternity and Paternity SAII) benefits Effective coverage Active contributors to social security as % of the labor force 34 Active contributors to social security as % of the working age population (15-64) 10 Social Security spending Anual spending as percentage of non-oil GDP (%), 2019 0.2 Source: World Bank staff’s calculations To promote effective allocation of the limited fiscal resources, Government could consider gradual budget reallocation across social protection programs. Budget dedicated to the Veterans’ Pension could be gradually reallocated based on a political consensus, including changes to the current legislation, reducing or at least limiting the benefits provided across generations. The Veterans’ Pension program embodies fiscal rigidity concept6, which posits that large changes or reductions in public spending over a short time are unlikely to occur, which is why gradual reallocations within the sector rather than increases in spending, should be considered and acted on as soon as possible. Completing such a reform could generate more fiscal space for investments in raising the coverage of the poor and benefit level of more progressive programs such as the Bolsa da Mãe cash transfer and could also help finance important delivery system improvements that would advance the social protection system efficiency and effectiveness in general. Rather than expanding coverage of Bolsa da Mãe as it is, an improved welfare assessment or affluence testing system could be introduced to raise the efficiency to be at the level of cash transfer programs with similar coverage levels such as Philippines’ Pantawid Pamilya (51 percent of benefits allocated to the poorest 20 percent in 2015) or Sri Lankas’ Samurdhi (which allocated 37 percent of benefits to the poorest 20 percent in 2013). In 2019, it was estimated that just about 33 percent of Bolsa da Mãe’s benefits are allocated to the poorest 20 percent. Finding alternative revenue sources for social protection is feasible though would require more analysis. Social protection spending has been financed mostly by the General State Budget, which relies heavily on petroleum fund revenues. Based on international experience, there are options to generate resources to increase social protection investments and human capital development. An important policy priority would include improving expenditure quality, for instance, by reallocating existing public expenditure, improving budget execution and consolidating other non-core social protection programs. Reallocating current public expenditure should involve an assessment of the existing budget allocations and its impact on human capital development returns7. See definition in Cetrangolo et al (2010) 6 World Bank (2020), Timor-Leste - Public Expenditure and Financial Accountability Assessment 2018 Public Financial Management Performance 7 Report, Washington, D.C.: World Bank Group. Timor-Leste Social Protection Review 21 Other policy choices that Government may consider include increasing progressive tax revenues and expanding contributory revenues. To increase tax revenues by levying Value Added Tax (VAT) could garner a considerable source of income; though care must be taken to ensure that part of the VAT revenues are redirected to protect the poor and vulnerable from higher prices. There is great potential in increasing social security coverage and therefore contributory revenues, particularly when only a third of the labor force is insured. The recent World Bank’s Timor-Leste Public Expenditure Review discusses these options in greater detail. Figure 6 Raise More and Spend Better for Social Protection Improve Raise the quality of expenditure more revenue Reallocate expenditures away from regressive Expand contributory revenues social spending programs Improve budget execution Reduce subsidy spending Consolidate other non-core social Increase progressive tax revenue protection programs Equally important, the highly fragmented social protection delivery systems would benefit from some key reforms. Timor-Leste’s social protection system includes a wide range of benefits and services; systems governing social protection delivery are still very fragmented, mainly originating from program-specific legal and institutional framework. Although the existing legal framework has been flexible, there remain certain benefits and services not currently supported by law or regulations. On the subject of administrative responsibilities, for example, while each ministry maintains overall responsibility for their programs’ management and implementation, it also has to coordinate with other institutions equipped to support the delivery of benefits and services with no authoritative oversight function. To cite a different example, current payment processes which relies heavily on cash and bank transfers are yet cost-effective. Another challenge emanating from the lack of an adequate communication and coordination strategy is that not all stakeholders involved conceivably understand their responsibilities and channels within which they may operate effectively. Chapter 5 provides a comprehensive review of Timor-Leste’s social protection delivery system across the delivery chain, while Chapter 6 synthesizes the recommendations that Government could consider when implementing the recently-launched National Strategy for Social Protection. 22 Timor-Leste Social Protection Review Timor-Leste Social Protection Review 23 “The Democratic Republic of Timor-Leste has become one of the most oil-dependent economies in the world, with unwavering commitments to poverty reduction and human capital development.” 24 Timor-Leste Social Protection Review 1 Timor-Leste Economic and Human Development Context Timor-Leste has come a long way since independence but continues to struggle with political and economic issues in recent years. This chapter highlights Timor-Leste’s social protection system by examining key economic indicators of this most oil-dependent nation. Having enjoyed steady economic growth in the past decade, it has been facing a crossroads of transitioning from its steady but constrictive economic performance to address human capital challenges and less dependent oil-based economy. Despite the high level of social spending, Timor-Leste still lags behind in a range of social and economic indicators felt most by the poor and vulnerable. Nevertheless, the Government has shown a clear commitment to social protection through a system that provides a wide range of benefits and services and has set strategic goals and made commitments to address human capital challenges. 1.1 Country Economic Overview The Democratic Republic of Timor-Leste (RDTL) is a small young island nation that has become one of the most oil-dependent economies ever since its independence in 2002. Having surmounted political and social crises in 2006, Timor-Leste began investing in nation building for peace, stability, economic growth and development. Supported by robust increase of oil revenues, Timor-Leste has recorded a period of substantial growth averaging 11 percent between 2007 and 2018 and averaging at 5 percent pre-COVID 19 since 2011. Despite an overall economic slowdown since 2012, the country had markedly reduced poverty from 50.4 percent in 2007 to 41.8 percent in 20149. In 2018, Timor-Leste is a lower middle-income country with a per capita Gross National Income (GNI) of US$1,820 populated by 1.2 million people10. As Timor-Leste seeks to transition to a non-oil-based economy, the country faces significant economic challenges. While the rate of Timor-Leste’s economic growth has averaged 5 percent since 2011, there has been a clear declining trend that raises questions about the impact of public spending on economic activity and living standards (i.e. low quality of spending). Timor-Leste’s growth had phenomenally reached 11 percent in 2008 but its economic performance has since slackened with a negative non-oil GDP growth (-3.5 percent) in 2017, the first time in the last ten years. Non-oil GDP growth averaged around 5 percent during the period 2008-201811 and it is projected to remain approximately 5 percent in the medium term12. Growth projection, however, was calculated prior to the COVID-19 global pandemic hence actual growth would most likely be lower than was previously projected. Economic growth is driven mostly by public spending financed by oil revenues. In 2019, the Petroleum fund balance is estimated at US$17.4 billion13. Oil production was starting to drop, and petroleum revenues have been expected to continue declining until entirely used up which is predicted around 203414. While the government has committed to prudent management of the petroleum fund to secure adequate revenues, it has continued to withdraw amounts beyond the permissible ESI15. 8 World Bank (2019), Timor-Leste Economic Report: Moving Beyond Uncertainty (English), Washington, D.C.: World Bank. 9 World Bank (2019), Timor-Leste Poverty and Equity Brief: Spring 2019 (English). Poverty and equity brief, Washington, D.C.: World Bank. 10 https://data.worldbank.org/country/timor-leste 11 Author´s calculation based on data available at https://data.worldbank.org. 12 IMF (2019), Timor-Leste Country Report 2019, Washington D.C.: IMF. 13 Ibid. 14 Ibid. 15 The Estimated Sustainable Income (ESI) is calculated on an annual basis and corresponds to the amount that Timor-Leste can spend from the Petroleum Fund without depleting its long-term balance. The ESI is set at 3 percent of the Petroleum Wealth that includes the Petroleum Fund balance and the forecasted net value of the future petroleum revenues. Future revenues do not include Greater Sunrise. Timor-Leste Social Protection Review 25 Reforms are underway to improve scant domestic tax revenue. Although fiscal reforms on tax and non-tax collections have repeatedly been delayed due to political stalemates16, the government expects domestic revenue to recover its strength as a result of improvements in administration, fiscal reform and the introduction of new fiscal instruments17. The Government intends to improve tax compliance and diversify revenue streams through extending taxation to fishery, mining and forestry sectors18. Domestic revenues, which fell short of 13 percent of total government expenditure in 2019, would need to be fortified to secure fiscal sustainability over the medium-term. Figure 7 Trends in Government Budget, Non-oil GDP, and ESI+Domestic Revenue 2,500 2,000 in Millions of US$ 1,500 1,000 500 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 GDP non-oil Total Government Budget ESI+Domestic Revenue Source: World Bank staff’s calculations using RDTL government budget documents, MOF-General Directorate of Statistics Reports on National Accounts 2000-2017 and, IMF estimates for GDP 2018 and 2019 Inflation in Timor-Leste has been low in the past five years despite substantial increases until 2013. The Consumer Price Index (CPI) increased by an average of 0.6 percent annually between 2013 and 2018 compared to an average of 8 percent per year for the period 2007-200819. Low international commodity prices, particularly food and oil have contributed to keep the CPI low. Inflation was estimated at 0.9 percent in 2019 and is expected to increase in 2020-2022, to an estimated 1.9 percent in 202220,21. Since a considerable quantity of goods and services, particularly food items, are imported, it is essential to highlight the high impact of price increase on goods, especially food, on the poorest population. Given recent trends in consumer prices, cost of living in Timor-Leste has remained constant over the past few years. Estimates on the cost of living provided by the World Bank and Ministry of Finance (MOF) of Timor-Leste indicate an increase of 1.8 percent between 2014 and 2018. This means that the cost of living is estimated at an average monthly consumption of US$60 per person or US$344 per household in 2018. Figure 8 below illustrates slow growth in real consumption per capita, which has been affecting the bottom 40 percent of the population the most where the poorest decile consumption growing at a lower rate (1.06) compared the richest 10 percent (2.12)22. This significant difference has resulted in relative deterioration of total inequality with Gini coefficient increasing from 0.28 to 0.29 between 2007 and 2014.23 16 World Bank (2019), Unleashing the Private Sector, Timor-Leste economic Report, Washington, D.C.: World Bank. 17 MOF (2019), State Budget 2019 – Budget Overview Book 1, Dili: MOF. 18 IMF (2019), Timor-Leste Country Report 2019, Washington D.C.: IMF. 19 World Bank (Forthcoming), The Cost of Living in Timor-Leste: Price Levels and Labour Market Outcomes, Washington, D.C.: World Bank. 20 IMF (2019), Timor-Leste Country Report No. 19/124, Washington, D.C.: IMF. 21 World Bank (2020), Timor-Leste Economic Report Towards a Sustained Recovery, Washington D.C.: World Bank. 22 World Bank (2019), Timor-Leste Systematic Country Diagnostic: Pathways for a New economy and Sustainable Livelihoods, Washington, D.C.: World Bank 23 World Bank database (2021) 26 Timor-Leste Social Protection Review Figure 8 Annualized Real Consumption Per-Capita Growth, 2007-2014, by Household Decile 3.5 3.0 2.5 Growth Rate (%) 2.0 1.5 1.0 0.5 0 1 2 3 4 5 6 7 8 9 10 Real Growth Rate (%) Mean Growth Source: World Bank (2019) 1.2 Human Capital Objectives and Challenges Timor-Leste ranks 128 out of 174 countries on the Human Capital Index (HCI), with a score of 0.45.24 The HCI measures the human capital that a child born today can expect to attain by age 18 years, given the risks of poor health and poor education prevailing in the country in which he/she lives. A value of 0.45 means that a child born in Timor-Leste today will be 45 percent as productive when he/she grows up as he/she could be (and the future GDP per worker is only 45 percent of what it could be), if he/she enjoyed complete education and full health. This score is below the global average of 0.56 but above the average for lower-middle income countries of 0.37. The Index components indicate that nearly half of children under five are stunted, and learning outcomes are low. Specifically, on average, children in Timor-Leste attend 10.6 years of school, but when quality is considered, this figure drops to only 6.3 years – learning-adjusted years of schooling.25 Timor-Leste is in the bottom quartile globally for the child mortality, test score, and stunting metrics, and in the second to lowest quartile for the expected years of schooling, learning-adjusted years of schooling, and adult survival metrics. Table 3 below illustrates how Timor-Leste has a lower HCI compared to the average of the Community of Portuguese Speaking Countries (CPLP) and ASEAN countries. Low HCI also suggests that while the economy has contributed positively to poverty reduction in Timor-Leste, it has not been inclusive. According to the TL-SLS 2014, there remain great disparities within the country with a poverty headcount in rural areas being much higher than in urban areas (47 percent compared to 28 percent, respectively). Poverty estimates also indicate a variation across municipalities. Dili has the lowest poverty incidence (29.1 percent), followed by Lautem (32.2 percent), Aileu (35.1 percent) and Viqueque (36.9 percent). Oecusse has the highest poverty incidence (62.5 percent), followed by Ermera (56.7 percent), Covalima (53.1 percent) Bobonaro (51.7 percent). All over, children are the most susceptible to poverty (49 percent), more so than other groups. Children account for almost half of the poor population with no significant gender disparities. The proportion of youth between 15 and 24 years of age living in poor households is also very high standing at 39.5 percent. 24 World Bank (Upcoming), Timor-Leste Human Capital Review. The index incorporates measures of health (child survival, childhood stunting, and adult survival rates) and the quantity and quality of schooling (expected years of schooling and “quality” as measured by achievement on international test scores). These domains are combined using economic analysis methods to estimate the expected productivity (or future GDP per worker) of a child born today as a future worker, relative to a common benchmark of complete education and full health. 25 Ibid. Timor-Leste Social Protection Review 27 Table 3 Timor-Leste Human Capital Index 2020 Compared to CPLP and ASEAN Countries Aggregate HCI by Component HCI Component HCI Component 2: School HCI Component 3: Health 1: Survival Countries Fraction of Expected Years of Harmonized Test Survival Rate Survival to Age 5 Children Under 5 School Scores from Age 15-60 Not Stunted CPLP countries* 0.956 10.38 397.30 0.80 0.60 Angola** 0.920 8.1 326 0.73 0.62 Mozambique 0.927 7.6 368 0.681 0.577 Timor-Leste** 0.950 10.6 371 0.86 0.54 Brazil 0.986 11.9 413 0.861 : Portugal 0.996 13.9 509 0.933 : ASEAN countries 0.977 12.1 441 0.858 0.747 Myanmar 0.954 10.0 425 0.805 0.706 Cambodia 0.972 9.5 452 0.838 0.676 Lao 0.953 10.6 368 0.822 0.669 Philippines 0.972 12.9 362 0.817 0.697 Indonesia 0.975 12.4 395 0.85 0.723 Brunei Darussalam 0.988 13.2 438 0.879 0.803 Singapore 0.997 13.9 575 0.952 : Thailand 0.991 12.7 427 0.869 0.895 Malaysia 0.992 12.5 446 0.877 0.793 Vietnam 0.979 12.9 519 0.867 0.762 East Asia and Pacific 0.978 11.9 432 0.864 0.759 Source: https://www.worldbank.org/en/publication/human-capital#Data?cid=GGH_e_hcpexternal_en_ext Note: *No data available for São Tome and Principe, Guinea Bissau and Cape Verde; ** Has an additional indicator for HCI Component 2: Learning-adjusted Years of School is 4,2 for Angola and 6,3 for Timor-Leste Even though Timor-Leste has made some progress on education, challenges remain. Whereas pre-school and basic education enrollment has been consistent with the growing trend of its population groups26, overall enrolment rates have not expanded as expected. Although basic education’s net enrollment rate (NER) has been performing better, it remains below the 95 percent target and the current system continues to disregard around 19.4 percent of children aged 6-14 who are not attending school27. Despite significant increase in the secondary education system enrolment28, coverage of secondary education remains lower than primary education, suggesting that a large proportion of students do not continue their study beyond primary education29. Furthermore, repetition rates remain a serious concern, especially during the early years of schooling. According to the TL-SLS 2014, approximately 70 percent of household heads only managed to complete primary education which may explain Timor-Leste’s low adult’s literacy. At 68 percent, Timor-Leste is lagging behind the East Asia and Pacific (EAP) average of 96 percent30. Considerable headway remains despite noticeably improved health outcomes. Timor-Leste was able to improve life expectancy at birth, reduce under-five mortality, halve infant mortality and decline maternal mortality ratio over the past two decades31. Several high-level categories, unfortunately, persisted compared to other countries 26 Pre-school Net Enrolment Rate (NER) increased from 12 percent in 2013 to 22 percent in 2018; NER for compulsory education improved from 89.4 percent in 2013 to 93 percent in 2018 at http://data.uis.unesco.org/. 27 GPE/MOE/World Bank (2018), Analysis of the Education Sector in Timor-Leste, Washington, D.C.: World Bank. 28 Secondary NER improved from 45 percent to 63 percent between 2013 and 2018 at http://data.uis.unesco.org/. 29 Ibid. 30 Adult literacy rate increased from 51 percent in 2007 to 68 in 2018 at https://data.worldbank.org/indicator/SE.ADT.LITR.ZS?locations=TL-Z4 31 Life expectancy has increased from 61 to 69 years between 2002 and 2017; Under-five mortality rate has reduced from 97 in 2002 to 48 per 1,000 live births in 2017; Infant mortality has declined from 77 per 1,000 live births in 2002 to 41 per 1,000 live births in 2017 and; Maternal mortality ratio has decreased from 668 in 2002 to 142 in 2017 at https://data.worldbank.org/country/timor-leste 28 Timor-Leste Social Protection Review in the region. Under-five mortality rate, for example, stood at 48 per 1,000 live births in 2017 compared to 16 per 1,000 live births in the EAP region. Similarly, Timor-Leste’s maternal mortality ratio was 142 in 2017 compared to an average of 69 in the region32. Malnutrition, commonly associated with inadequate diet, food unavailability or food insecurity, lack of safe water and poor sanitation, remains a serious concern with 46 percent of children under five stunted (short for age) and 24 percent wasted (thin for height) - correspondingly four times and six times higher than others in the EAP region. The general Timorese population lack micronutrients, which is likely to impact their overall health and is particularly poignant that, according to the 2016 Timor-Leste Demographic and Health Survey (TL-DHS). Separately, only half of the population had access to sanitation and just about 79 percent had access to safe drinking water - which is likely to impact families’ and children’s health. Poorer households are obviously more vulnerable as they tend to spend less for food and consume poor diet. By the same token, almost half of the poor households have no access to sanitation facilities and around one quarter still does not have access to safe drinking water. The high proportion of young people in the country offers great potential for development of the future workforce, productivity and economic growth. The estimated reduction in fertility rates by 2020 (3.3 children per woman) is expected to lead to a labor force that can initially grow faster than the population dependent on it (decreasing dependency ratio)33. This situation can lead to more opportunities for savings and investments in human capital. Possibly, income per capita may rapidly increase, paving the way to improve people living conditions. The demographic dividend is an important element to consider in policy interventions aimed at sustaining economic growth and human capital development. It depends critically on an adequately functioning labor market and well-equipped labor force. A major upgrade of the Timorese workforce known to comprise of mainly low-skilled workers, largely searching for employment, mostly employed in informal and low paid jobs, is therefore essential. If productive jobs for the additional working-age population are created, Timor-Leste will be able to take advantage of the demographic bonus. According to the Labor Force Survey (LFS) results, the labor force participation rate has significantly increased from 24.0 percent in 2010 to 46.9 percent in 201634. The rise has been particularly relevant for women as the figure almost doubled. In line with growing participation, the employment-to-population rate has also increased from 22.1 percent in 2010 to 42.0 percent in 2016 whilst gender gap narrowed by 14.2 percentage points. Correspondingly, youth labor force participation rate increased from 8.5 percent in 2010 to 25.8 percent in 2016 as well as the youth employment-to-population ratio, which increased from 6.8 percent in 2010 to 17.3 percent. These records demonstrate that the economy has been trying to accommodate the growth of employment and has even contributed to lower the national unemployment rate (about 10.4 percent in 2016 compared to 11.0 percent in 2013). Despite the noticeable improvements in key labor force indicators, vulnerable employment35 constitutes more than half of the total employment. Vulnerable employment comprises own-account workers and contributing family workers, which are less likely to have formal work arrangements and are therefore not covered by social protection. The total share of vulnerable employment has increased from 47.5 percent in 2010 to 58.0 percent in 2016, with women in employment being more vulnerable than men (73.5 percent compared to 47.1 percent in 2016). Furthermore, youth and women are the most exposed to the risk of unemployment. According to the LFS results, the number of unemployed women exceeded men in 2016. Similarly, youth unemployment rate increased from 20.9 percent in 2010 to 32.9 percent in 2016. The risk of unemployment is even higher among 32 https://data.worldbank.org/?locations=TL-Z4 33 ”The period of falling fertility rates, leading on a situation where the share of the dependent population, namely children, is falling and the share of the working-age population is increasing, is often referred to as the demographic dividend. Smaller numbers of children typically lead to larger investments per child. When the working-age population is better educated and in good health and are provided with jobs, it can translate into a ’demographic dividend’” See at ESCAP (2019, Harnessing the Second Demographic Dividend: Population Ageing and Social Protection in Asia and the Pacific, Social Development Working Papers, Bangkok: ESCAP available at https://unescap.org/sites/default/files/ SDWP%202019-03_Demographic%20Dividend.pdf 34 ILO (2019) Timor-Leste Labor Force Surveys 2010-2013-2016 main trends based on harmonized data, Jakarta:ILO. 35 Vulnerable employment is defined as the sum of the employment status groups of own- account workers and contributing family workers. See at ILO/SEFOPE/MOF (2019), Timor-Leste Labour Force Surveys 2010-2013-2016 Main Trends Based on Harmonized Data, Dili: ILO Timor-Leste Social Protection Review 29 the youth with higher education. Young persons with higher education expect higher salaries and are less likely than their less-qualified peers to find jobs that match their salary expectations. For that reason, they become unemployed or lack motivation to join the labor force. According to the 2016 LFS results, some 29.2 percent of youth (aged 15-24) were neither in employment, education nor training, which was a 0.5 percentage points increase from 2013. For the working-age population, individual qualifications are not always aligned with their jobs. The LFS results show that 12.2 percent of persons employed in 2016 were working in occupations above their educational attainment. The over-qualified figure represents a 7.4 percentage points increase from 2010. Left unresolved, the ongoing employment skill mismatch will most likely negatively affect the return on investment in education and training. The Government has set strategic goals and made commitments to address human capital challenges. The Timor-Leste SDP 2011-2030 recognizes the importance of social capital, which is very well aligned with the 2030 Agenda for Sustainable Development Goals (SDGs)36. The SDGs recognizes the importance of removing barriers to access quality education, investing in school infrastructure and teaching workforce. They also acknowledge the need for good health care, improvement of children’s low nutritional status and make necessary progress towards accessibility of clean drinking water and sanitation. Both the Ministry of Education (MOE) and the Ministry of Health (MOH) have also respectively developed national strategic plans for the same period that establish a comprehensive set of priority programs and respective financing aiming at achieving efficient and effective systems. Specifically, a Nutrition National Strategy (NNS) 2014-2019 was developed to tackle malnutrition and micronutrient deficiency among children and women. Timor-Leste, through the National Council for Food Security, Sovereignty and Nutrition (KONSSANTIL), has endorsed the Zero Hunger Challenge, which aims to eradicate hunger and malnutrition by 2025, expanded agricultural production and diversified individuals’ diet. The MSSI launched an ABND process which led to the launch of the first national social protection strategy which focuses on human capital components throughout the lifetime. Government efforts to address the country’s human capital challenges will have positive impact on poverty reduction. Analysis of TL-SLS 2014 shows that the probability of becoming poor decreases considerably as education levels rise. The likelihood of being among the poorest 20 percent was 29 percent for individuals without educational qualifications, and 7 percent for individuals with higher education levels. An analysis by the World Bank also indicates that education has direct impact on economic and social development37. Analogously, incentives to complete primary and secondary level is relatively high. Individuals with primary and secondary levels of education may earn respectively 12.5 percent and 11.7 percent more than those without an education. Seen from another perspective, a 3 years increase in students’ learning is estimated to add nearly 1 percentage point to Timor-Leste’s long-term economic growth38. Education also brings about non- economic outcomes particularly those related to individuals’ behavioral changes in various aspects of human development. In Timor-Leste, most telling human development indicators such as fertility, maternal and child health have also simultaneously improved as individuals’ qualification increases39. Moreover, malnutrition has been estimated to possibly lead to 34 percent of childhood mortality and a loss of US$ 41 million annually on the national economy40, representing 3.3 percent of GDP or 2.2 percent of non-oil GDP. For that reason, addressing human capital gaps is, indeed, an important pathway out of poverty in Timor-Leste. 36 RDTL (2017), Timor-Leste Roadmap for the implementation of the 2030 Agenda and the SDGs, Dili: RDTL. 37 Calculation based on the TL-SLS 2014 conducted under the GPE/MOE/World Bank (2018), Analysis of the Education Sector in Timor-Leste, Washington, D.C.: World Bank. 38 World Bank (2019), Timor-Leste Systematic Country Diagnostic: Pathways for a New economy and Sustainable Livelihoods, D.C.: World Bank. 39 Specifically, the average age of women at first birth increases, the probability of giving birth at home decreases, the likelihood of a woman being vaccinated against tetanus during pregnancy increases, the use of prenatal care increases, and the probability of assisted delivery by qualified medical personnel increases. For further details please see at GPE/MOE/World Bank (2018), Analysis of the Education Sector in Timor-Leste, Washington, D.C.: World Bank Group. 40 MOH (2014), Timor-Leste National Nutritional Strategy 2014-2019, Dili: MOH. 30 Timor-Leste Social Protection Review 1.3 Timor-Leste’s Response to COVID-19 Early into the COVID-19 Pandemic, Timor-Leste has one of the lowest COVID-19 incidence rates in the world at about 22 cases per million inhabitants41. As of October 18, 2020, Timor-Leste recorded only 29 confirmed cases of COVID-19 with 0 deaths42. The first COVID-19 case was found on March 21, 2020, and the Government of Timor-Leste promptly declared an initial nation-wide state of emergency for three months commencing March 28, 2020. Immediate public health measures were put in place to prevent the COVID-19 outbreak which included travel restrictions, mandatory quarantine for people arriving in the country, remote schooling, gathering restrictions, mandatory use of face mask, education on the importance of frequent hand washing and social distancing rules. Despite rapid containment by the Government, the ongoing COVID-19 pandemic has cripplingly impacted Timor- Leste’s economy and welfare. It was expected that the largest fall in GDP since Timor-Leste’s independence may amount to approximately 7 percent in 2020, which would have certainly translated to higher poverty levels by 5 to 7 percentage points.43 The United Nations Development Programme (UNDP) rapid impact assessment of COVID-1944 key findings showed a drastic reduction in household income with more than half of the survey respondents said they had to survive without any income. By and large, at least one person in every household had lost their job; an increase of women’s time spent on domestic work and childcare, and poorest households reported that food had become increasingly scarce (food insecurity). Consequently, the most common coping mechanism most households resorted to was to reduce non-food spending while for small business owners the only option was closing their businesses. The impact will likely be more severe in rural areas where more impoverished households tend to reside. Although the Government had prepared a strong policy response to cope with COVID-19, it inevitably faced implementation delays that are attributable to lack of fit for purpose delivery systems. The Parliament had established a COVID-19 Fund with a budget of US$219,5 million to finance both health and economic measures as stipulated by Law No.5/2020 of June 3045. On April 20, 2020, the Government approved an economic response package to mitigate COVID-19 adverse effects on welfare46 which included several measures on transportation and connectivity, distribution of essential goods, telecommunications, essential services, credit as well as direct household income support measures. The direct support measures included a one-time US$200 COVID-19 grants to households with a monthly income below US$500, food basket program targeting the entire Timor- Leste population by providing food and personal care products up to US$25 per-month during November- December 2020, a wage subsidy in case of employment contract suspension or reduction by providing 60 percent of remuneration for around 30,000 workers registered as participants in Timor-Leste social security scheme, a social security contribution payments waiver for both employers and employees registered in the contributory social security system, rent exemptions on state property, and student subsidy to cover Timorese students living costs abroad. The Government has also received support from Development Partners to provide COVID-19 emergency response programs.47 In general, the COVID-19 Grants had a significant positive impact on supporting households with immediate needs. A study conducted by the Asia Foundation48 found that the majority of beneficiary households interviewed experienced hardships, mostly due to loss of income and food insecurity, during the initial three months of the state of emergency. The Grants were well placed to help poor households to address parts of their short-term 41 https://www.worldometers.info/coronavirus/#countries; As of November 2021, Timor-Leste registered over 19,800 COVID-10 cases with 122 deaths. 42 https://www.covid19.who.int/region/searo/country/tl 43 World Bank (Forthcoming), Timor-Leste Economic Report: Toward a Sustained Recovery, Washington D.C: World Bank. 44 UNDP (2020), Socio-Economic Impact Assessment of COVID-19 in Timor-Leste, Dili: UNDP. 45 For further details , please see at http://www.mj.gov.tl/jornal/public/docs/2020/serie_1/SERIE_I_NO_26_C.pdf 46 http://timor-leste.gov.tl/?p=24159&lang=en&n=1 47 The ILO has contributed an extra US$0,75 million to the Fund to support operational costs directly related to the implementation of the cash transfer approved by the Decree-Law No.15/2020 of April 30. Meanwhile, the ADB (financed by the Government of Japan) and UNDP have respectively contributed US$1 million and US$ 105,335 for food basket program that reached more than 30,000 people in five of Timor-Leste’s municipalities. 48 The primary method employed semi-structured interview with 60 people (38 of which received the cash transfer and 22 other did not receive any payment). For further details see Timor-Leste COVID-19 Household Cash Transfer: Initial Socio-Economic Impacts And Effects On Gender Dynamics, Dili: The Asia Foundation (2020). Timor-Leste Social Protection Review 31 needs. Most respondents reported spending their cash benefits on food. Others expended on education, small businesses (more common in Dili), clothing, transportation, and household items, repaying loans and saving. Customarily, spending decisions in male-headed households (majority of the beneficiary households) were jointly determined by husbands and wives. In female-headed households, conversely, the women managed and made all the decisions about spending. A cash transfer is generally reported to benefit the whole family’s interest. There were, however, reports of exclusion particularly among the vulnerable and marginalized. The same study by the Asia Foundation also revealed that a number of marginalized people excluded from receiving the cash benefit for a number of prejudices including sexual and gender orientation, mother with children living in shelters and single households. A small-scale survey focusing on farmers and small businesses led by the Market Development Facility (MDF)49 confirmed that all households had received the cash transfers, which improved short-term food security and supported rural businesses to reopen and to re-establish trade. Due to the high levels of spending on food and other goods such as their children’s education, the cash transfer may have had also benefited other people, businesses and trade in rural communities. Another report from Mata Dalan Institute (MDI) and Oxfam on informal businesses50 confirmed that 78 percent of the respondents perceived an increase in sales while 80 percent of the respondents reported better prices for their products and services after the cash transfer was received. The COVID-19 situation has also shown the government alternative ways to better utilize technology and harness stronger inter-agency coordination to render effective overall government response to the pandemic. The Ministry of Social Solidarity and Inclusion (MSSI) has been key in designing and delivering a successful implementation of the COVID-19 cash transfer and has had the opportunity to showcase digital solutions to verify household information in the field and track implementation as well as payment progress. The breakthrough has reinforced the need to transform payments and other delivery mechanisms from manual systems to a fully digital solution. The implementation of COVID-19 grants, which was led by MSSI, also highlights the need to establish a shock- responsive social protection delivery system. The grant provides Timorese households registered in the ‘Livro de Registo Uma Kain’51 earning less than US$500 monthly income with two transfers of US$100/month in May and April 2020 respectively. To deliver the program, the MSSI established a new national taskforce and coordination teams at municipal and local levels to support planning and the disbursement of the cash52. A standard operating procedure was quickly put together and everyone involved is subject to a training on the procedure. Analysis shows that the cost-transfer ratio for the program is 0.02, meaning that 2 percent was spent on administrative costs for every dollar transferred to households.53 The overall cost-effectiveness shows a relatively well-implemented scheme but the implementation highlights the importance of a robust delivery system and mechanism. This includes the importance of an integrated social protection information system that includes social registry and beneficiary registries that can be deployed to generate list of eligible beneficiaries and execute payments in a speedy manner, a case management and grievance redress mechanism that is shock-resilient (could respond to sudden influx of cases), as well as protocols for data interoperability across government agencies. Had the government invested in an integrated information system and unique identifier for every citizen, verification across multiple sources and complementary systems could have prevented multiple errors and progressed with a timely response to the COVID-19 emergency context. 49 The small-scale interview included 70 participants from ten municipalities (58 farmers and 34 businesses). For further details please see Rapid Analysis Of The Market Impact Of Cash Transfers, Australia: MDF/DFAT (2020), 50 The Mata Dalan Institute (MDI) in partnership with Oxfam surveyed 446 informal businesses in 7 municipalities to learn about how the state of emergency affected informal businesses. For further details please see The Informal Sector In Timor-Leste During COVID-19, Dili: MDI & Oxfam (2020). 51 This is a Household Registration Book that is available in each suco (village). 52 Teams were established at the local level for each of the 452 sucos, which included one MSSI officer, one Ministerio Administrasaun Estatal (MAE)/ Pessoal Apoio Administrativu Suku (PAAS) officer, Chief of aldeia (sub-village), one Policia Nasional Timor-Leste (PNTL) officer and one Falintil-Forca Defesa Timor-Leste (F-FDTL) officer. At municipal level, coordination teams were established to provide support to the local teams. The coordination teams comprised a government representative or development partners equipped with a car and driver. 53 Source: World Bank Staffs’ calculation based on MSSI and MOF budget execution data 32 Timor-Leste Social Protection Review The pandemic also reinforced the need to establish an Adaptive Social Protection (ASP) strategy as a precursor to effective preparedness and responses to natural disasters and other crisis such as COVID-19. Annex 4 further describes COVID-19 grants implementation details. As of September 2020, approximately US$123 million of the COVID-19 Fund were disbursed, mostly for households’ cash transfer54. Figure 9 below shows COVID-19 spending by type of policy response. The largest portion (66.6 percent) being economic and social support to the population affected by COVID-19 hardship. Safeguarding food security by importing rice to build national food stocks accounted for the second largest spending (13.4 percent). Spending on preventative health and treatment measures was much lower (8.5 percent), which is partly due to difficulty surrounding importing medical supplies and equipment. Figure 9 Covid-19 Fund Spending (%), April 17 to September 30, 2020 Support to the prevention and mitigation of COVID-19 operations COVID-19 Contingency Plan Increase of food and vegetables production and productivity Trade and food security through the National Logistic Centre (NLC) Ensure adequate quarantine Supervise the COVID-19 prevention and mitigation activities Identify COVID-19 cases and trace contacts Isolate and treat COVID-19 cases Establish the NLC at municipal level Reinforce social distancing measures, hygiene and personal protection in the community Source: Ministry of Finance at https://www.mof.gov.tl/budget-spending/fundo-covid19/?lang=en The number excluded spending for food voucher initiative and food basket program 54 Timor-Leste Social Protection Review 33 With the expected decline in petroleum production, the government needs to spend better while exploring options to generate sufficient fiscal space to ensure that social protection helps close the gap in human capital. 34 Timor-Leste Social Protection Review 2 Financing Social Protection This chapter describes the Government social protection spending patterns over the decade. Such expenditures include contributory and non-contributory benefits under the budgets of MSSI, INSS and MACLN. It comprises expenditures on social assistance programs under MOE, and the Ministry of Tourism, Commerce and Industry (MTCI). In this analysis, social security contributory benefits include income replacement due to old-age, disability and death, maternity, paternity, and adoption benefits, while non-contributory and social assistance benefits include cash transfer programs, public works, and food programs.55 2.1 Overall Social Protection Spending and its Evolution Over the past years, Timor-Leste’s social protection expenditure has increased in nominal terms but has declined as a share of non-oil GDP and of combined Estimated Sustainable Income (ESI) and domestic revenue. Figure 10 shows trends in social protection expenditure. Timor-Leste’s social protection expenditure has increased from US$ 129 million in 2009 to US$ 156 million in 2019 which appears to be moderate as it included the food security fund set up in 2009 in response to international food crisis. This means that without the food security component, Timor-Leste’s social protection expenditure would have increased from US$82 million in 2009. Analogously, as a share of non-oil GDP, social spending has also declined from 18 percent of non-oil GDP in 2009 to 7 percent in 2019. At the same, social protection cutbacks as a share of combined ESI and domestic revenue were reduced from 26 percent to 20 percent between 2009 and 2019. Social protection expenditures have moved from primarily non-MSSI to more MSSI-dominated. In the years following Timor-Leste’s independence, the government-led social assistance programs were primarily focused on providing households with non-cash benefits including rice distribution, school feeding programs and disaster relief support. In 2009 and 2010, the Food Security Fund (FSF) was enormous and the shift from non-MSSI to MSSI social programs reflects the reduction in spending on the FSF as of 2011 and shift of veterans’ transfers from the MOF to MACLN in 2018. Figure 10 Social Protection Spending, 2009-2019 http://budgettransparency.gov.tl/ Expenditure amounts are approved budget amounts as recorded in the Timor-Leste Budget Transparency 55 Portal. The current budget categories allow most of the required disaggregation of social protection expenditure starting from aggregate ex- penditures, by type of Ministry, type of social spending and by specific programs. Timor-Leste Social Protection Review 35 Source: Authors’ calculations using Timor-Leste State Budgets 2009-2019 Note: Social Protection (SP) Main is an aggregate of the public transfer budget for the MSSI and MACLN Directorates that house the elderly and disability (National Directorate of Non-contributory Social Security Regime-DNRNCSS), Bolsa da Mãe (National Directorate of Social Development -DNDS), veterans (National Directorate of National Liberation and Combatants Affairs-DNACLN) and contributory social security pensions and benefits (National Directorate of Contributory Social Security Regime-DNRCSS). SP Other include public transfer budget for the other MSSI Directorates: National Directorate of Social Assistance (DNAS), National Directorate of Inclusion and Community Reinsertion-DNIRC, Ministers’ Office and Commission to Fight Against HIV-SIDA (CCHIV-SIDA). Non-MSSI/MACLN includes Cash for Work; School Feeding Program; Food Security Fund. Spending on social protection cannot be surmised simply by using the ‘private transfer’ category of the budget for all items, because some categories included non-transfer spending and some spending on private transfers was included under other budget categories. Therefore, this category overall budget was also supported by program documents and discussions with program staff. Notwithstanding volatility over the years, Timor-Leste’s s ocial protection expenditures have always been prioritized in shares of the national budget. Between 2011 - 2019, social protection expenditures averaged about 10 percent shares of the national budget. Justified by priority spending on food security, social protection expenditure reached its peak in 2009 (19 percent of the national budget) and was significantly reduced by 2011. In absolute amounts, social protection spending had actually increased by 33 percent in the period 2011-2019. If it were not for the major budget revision in 2016, social protection spending would have been less fluctuant between 2011 and 2019. Veterans’ Pensions have also contributed significantly to social protection overall budget. If the Veterans’ Pension were to be excluded from social protection overall budget, the total expenditure would reduce by 54 percent in 2019, which corresponds to only 4 percent of the national budget and 3 percent of non-oil GDP. 36 Timor-Leste Social Protection Review Figure 11 Social Protection Public Spending as a Share of National Budget, 2009-2019 20% Expenditure as a share of national budget 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 SP Other SP Main Non-MSS/MACL N Total SP SP exc Veterans Source: Authors’ calculations using Timor-Leste State Budgets 2009-2019 Since 2018, the Veterans’ Pension benefit was moved to a separate Ministry and spending on social protection has now largely concentrated in two ministries: the MSSI and the MACLN. In the 2019 original budget, both the MSSI and MACLN were respectively allocated 4 percent and 7 percent of the total national budget. Ten years ago, the budget allocated for MSSI-delivered programs excluding veterans corresponded to 9 percent while Veterans’ Pension benefits only amounted to around 2 percent of the total government budget. In 2019, the social protection budget as a share of total government budget was higher than other sectors such as education (6 percent), health (3 percent) and agriculture and fisheries (1 percent) (Figure 12). Social protection spending, when the veteran allowance is included, is only surpassed in volume by the Ministry of Public Works (10 percent) and the Infrastructure Fund (25 percent). Figure 12 Spending by Different Sectors as a Share of National Budget 2019 Ministry of Public works Ministry of National Liberation of Combatants Affairs Ministry of Education Human Capital Development Fund Secretary of State for Professional training and Employment Ministry of Social Solidarity and Inclusion Ministry of Interior Ministry of Justice Ministry of Health Ministry of Agriculture & Fisheries Source: World Bank staff’s calculations using Timor-Leste State Budgets 2019 Unrelenting political strife has adversely affected social protection budgets and execution. Between 2009 - 2019, social protection total budget implementation averaged 92 percent, which was above the national average budget execution rate for the same period (83 percent). Delays in budget approval by Parliament and promulgation by the President due mostly to political reasons have certainly affected the quality and execution of state budgets. These delays, which resulted in tighter timeline, combined with the low internal capacity makes the implementation even more challenging. Timor-Leste Social Protection Review 37 Figure 13 Social Protection Budget Execution 2009-2019 100 98% 96% 97% 95% 92% 95% 95% 92% 88% 83% 76% 75 Budget Execution (%) 50 25 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Salaries & Wages Goods and Services Minor Capital Capital and Development Transfers Total SP Budget execution Source: World Bank staff’s calculations using Timor-Leste State Budgets 2019 2.2 Composition of Social Protection Spending Social protection budget comprises mainly non-contributory programs, with the Veterans’ Pension accounting for the largest portion. The Veterans’ Pension allocation amounted to 5 percent of non-oil GDP and 13 percent of combined ESI and domestic revenue in 2019. While the budget for Veterans’ Pension has expanded since 2009, the remaining expenditure on non-contributory programs was reduced from 15 percent to 2 percent of non-oil GDP (or from 23 percent to 7 percent of combined ESI and domestic revenue) in 2019. After 2010, budgets for programs such as food assistance and support to IDP, which were the largest bulk of non-contributory programs’, was significantly reduced. Concurrently, other programs targeting specific groups and vulnerable people started attracting larger budget shares. Figure 14 Social Expenditure by Components, 2009-2019 38 Timor-Leste Social Protection Review Source: Author’s calculations using Timor-Leste State Budgets 2009-2019 As of 2019, around 33 percent of social protection public expenditures were allocated for non-contributory programs other than Veteran’s Pension and only 3 percent were allocated for contributory pensions and other social security benefits (Figure 14). The low share for contributory pensions and other social security benefits is primarily due to the fact that the scheme was in its early stage of implementation. For the first time in 2014, a small budget was allocated to a new National Directorate for Social Security under the MSSI although no contributory programs existed at that time. Between 2014 and 2016, budget was devoted exclusively to the transitory social security regime, which was non-contributory until it was integrated in the new contributory social security general scheme in 2017. In this context, public expenditure for social security benefits has increased from 1 percent to 3 percent of the total social protection budget between 2014 and 2019, representing the lowest share of social protection budget. Timor-Leste has one of the highest rates of social protection spending in the developing world due to its generous budget allocation for Veterans’ Pension. In 2019, its total social protection expenditure is 7 percent of non-oil GDP which is far above the 3 percent GDP average across ASEAN countries. Excluding veterans, the island nation’s social protection spending corresponds to ASEAN regional average of approximately 3 percent GDP. In the Community of Portuguese Speaking Countries (CPLP) countries, social protection’s spending is more varied, ranging from 4 percent of GDP in Sao Tome and Príncipe and Angola to about 24 percent of GDP in Portugal. Any increase on social protection spending in Timor-Leste to address high poverty rates and multiple risks, would require developing a long-term fiscal sustainability approach that could both contribute to poverty reduction and improvement of people’s welfare while managing fiscal sustainability. Timor-Leste Social Protection Review 39 Figure 15 Total Social Protection Expenditure as % of (non-oil) GDP in ASEAN and CPLP Countries ASEAN Countries 0% 1% 2% 3% 4% 5% 6% 7% 8% CPLP Countries 0% 5% 10% 15% 20% 25% 30% Myanmar (2015) Angola (2015) Cambodia (2015) Sao Tome & Principe (2015) Laos (2015) Philippines (2017) Mozambique (2015) Indonesia (2016) Guinea Bissau (2017) Brunei Darussalam (2011) Singapore (2015) Cape Verde (2016) Thailand (2015) Timor-Leste (2011) Malaysia (2015) Brazil (2015) Vietnam (2015) Timor-Leste (2019) Portugal (2015) Source: SP Country Reviews and Assessments for Angola, Philippines, Indonesia; ILO Report for Brunei and CPLP countries except Angola; ADB Report 2019 on SP for Asia for remaining countries 2.3 Toward More Sustainable Financing of Social Protection: Some Options. To date, Timor-Leste’s social protection spending is financed mostly by the General State Budget (GSB) resources, which has been supported by petroleum fund revenues. An increase in social protection budget has relied on spending in excess of the ESI of the Petroleum Fund. Very little comes from social security contributions or from the Social Security Fund interest as shown in Figure 16 below. With the expected decline in petroleum production, the government needs to explore options to generate sufficient fiscal space to extend social protection and bridge existing gaps in human capital. This also includes exploring the opportunity to reallocate across programs. Figure 16 Financing Sources of Social Protection Expenditures 100% 1% 2% 18% Social Securities Revenue Income 12% 90% Social Securities Revenue Complements 85% 12% from the GSB 80% Social Securities Revenue Contributions 70% 69% 60% 50% Social Assistance General State Budget 40% 30% 20% 10% 0% 2017 2019 Source: 2017 and 2019 Approved Budget Books Note: The Social Security Fund was established in 2016 under the Law that created the Social Security Regime, but the Fund has yet to be regulated. Meanwhile, annual surpluses since 2017 has been saved in the social security bank account at the Central Bank of Timor-Leste (BCTL). 40 Timor-Leste Social Protection Review Reallocating existing public expenditure involves an assessment of current budget’s efficiency and effectiveness. Instead of looking to spend more, Timor-Leste could first consider reallocating from within the social protection expenditures as well as from sectors with very low returns in human capital. Government investments in defense is comparable to health while government spending on Veterans’ Pension remains to dominate social protection expenditure. Detailed in Table 4, an investment in veteran’s affairs is equivalent to total investment in health as well as social solidarity and inclusion sectors. Despite the need for continued infrastructure investments, understanding the impact of the current allocations, including those with higher impact on human capital, should be a priority. Table 4 Government Expenditure as Percentage of GDP National Social Infrastructure Public Liberation Total Education Interior Solidarity and Defense Health Fund Works Combatants Inclusion Affairs Timor-Leste (2019) (a) 65.0% 14.0% 6.0% 4.5% 4.0% 3.0% 3.0% 2.0% 2.0% Lower-Middle Income Countries : : : : 4.0%-6.0% (b) : : : 5.9% (c) Source: (a) Authors’ calculations based on expenditure data provided by the MOF at the budget transparency portal retrieved on 27 December 2019 and GDP non-oil at current prices (2018 Est.). (b) Recommended education spending under the Incheon Declaration 2030 Agenda. (c) World Bank Public Expenditure Review on Health Such unbalanced spending is a critical constraint in budget allocations for priority sectors. For instance, in Asia and Pacific countries, an additional investment of 1 percent of GDP could cover a social pension for all citizens from the age of 70 years together with disability benefits for children and adults and a child benefit for all children aged 0-4 years at a value of 10 percent and 4 percent of GDP per capita, respectively56. A closer look at the social protection budget execution rate also reveals potential for improvement. Overall social protection budget execution rate fares reasonably satisfactory, varying between 83 percent and 98 percent during the past decade. Dissected by categories, however, discrepancies abound. While Salaries & Wages, Transfers, as well as Capital & Development have improved and attained good execution rates, other components have fallen behind. Most under spending occurs in Goods & Services as well as Minor Capital budget items. In-depth analysis to understand the reasons for under spending would be beneficial to identify potential internal reallocation of funding. Increasing social security coverage and subsequently contributory revenues is another sensible approach to finance social protection. In 2019, approximately 13 percent of total social expenditure is funded by social security contributions, which yet reveals potential for further improvement. Although this accomplishment is indeed an exceptionally demanding feat to achieve, when succeeded, fiscal space could be expanded through expanding coverage and collection of social contributions, especially to informal sector workers. According to the Labor Force Survey (LFS) 2013, around 72 percent of employed Timorese worked in the informal sector, with a relatively high rate (90 percent) among those aged 15 to 24 years old. Informal sector includes employed workers without any protection, enterprises employers, enterprises workers, as well as family workers who are often tangled in precarious economic situations. Despite the likely challenges inherent in raising coverage amongst informal workers, there are ample successful examples from other countries that can serve as inspiration. For example, a mechanism called Monotax has helped micro and small enterprises as well as vulnerable workers to be part of the social security schemes in Brazil, Argentina, Uruguay and Ecuador57. Extending social security coverage also represents an UN ESCAP (2018), How to Finance Inclusive Social Protection, Social Development Policy Guides, Bangkok: ESCAP. 56 ILO (2019), Simples National: Monotax Regime for Own-Account Workers, Micro and Small Entrepreneurs: Experiences from Brazil, Geneva: 57 ILO. Timor-Leste Social Protection Review 41 important opportunity to encourage some degree of formalization of the informal economy and build a culture of tax compliance in exchange for social protection benefits. Even if informal workers, particularly self-employed can be one of the hardest groups to convince to make social security contributions, a key lesson learned is that it matters to charge, albeit lower, tax and contributions’ amounts for workers in certain sectors. Though the main priority should be reallocating existing expenditures within the social protection sector, there are additional opportunities to create fiscal space outside of the petroleum fund. While the full range and depth of these measures are not discussed in this report, they include reducing subsidy spending, raising progressive tax revenues and expanding contributory revenues. Subsidy reform, in particular, will need to be prudently managed at a slow pace given the potential impacts on social cohesion of removing electricity subsidy, which will inevitably raise consumer prices. As is elsewhere, this type of reform is unquestionably complex but not impossible particularly if subsidy reform is deliberately administered, supplemented by targeted compensation that harness on existing social protection programs and accompanied by clear communication campaigns in parallel with other efforts to improve the allocative efficiency of social protection spending58. Greater detail on these and other aspects related to the fiscal environment can be found in recent World Bank’s Public Expenditure Review for Timor-Leste. ADB Sector Assessment on Energy under the Country Partnership Strategy highlights four main factors associated to inefficiencies and losses: 58 (i) technical losses in the form of electricity lost as heat on transmission and distribution; (ii) non-technical losses that include unmetered con- sumption; (iii) under-collection of invoices with prepaid meters installed in the capital, lack of collection and access to a payment office outside the capital; (iv) low residential tariffs. 42 Timor-Leste Social Protection Review Timor-Leste Social Protection Review 43 While Timor-Leste has one of the highest rates of social protection spending in the developing world, such high expenditure has not translated into a significant improvement on welfare 44 Timor-Leste Social Protection Review 3 Social Assistance This chapter provides an overview of Timor-Leste’s social assistance programs, examines expenditure trends and composition within the sector as well as analyzes program’ performance in terms of coverage, adequacy and effectiveness. Analysis of Bolsa da Mãe program and Veterans’ Pensions performance relies on the TL-SLS 2014, which contains information on household expenditures and public cash transfers received. Independently, assessment of the School Feeding Program is based on secondary information limited to the analysis of coverage and adequacy. It is important to note that the public works programs’ performance is not discussed due to lack of available data at the writing of this report. 3.1 Social Assistance Landscape, Institutional Arrangements, and Expenditure Timor-Leste’s Social Assistance programs consist of two main cash transfer programs59 and a number of smaller other programs that provide in-kind and cash benefits. The main s ocial a ssistance cash transfer programs include the Conditional Cash Transfer (CCT) Bolsa da Mãe program implemented by the MSSI, and Veterans’ Programs implemented by the Ministry of National Liberation and Combatants Affairs (MACLN). Other smaller cash and in-kind benefits implemented by the MSSI include a wide range of on-demand social support programs, namely: Natural Disaster and Social Conflict Recovery Program; Funeral Services; Emergency Support to Individuals and Families in Vulnerability; Emergency Support to Victims of Gender-based Violence and Domestic Violence; Support to Prisoners and their Social Reintegration; and Support to Children in Conflict with the Law. There are a few other programs implemented by other ministries and agencies such as the School Feeding Program led by the MOE; Food security support implemented by the Centre of National Logistics under the Ministry of Tourism, Commerce and Industry (MTCI)60; Enhancing Rural Access (ERA), a Cash for Work program funded by the European Union and led by the counterpart Secretary of State for Vocational Training and Employment (SEFOPE) and; Roads for Development (R4D) funded by the Australian Government managed by Ministry of Public Works, Transport and Communications (MTPTC). There are two intensive employment programs not included in the scope of this report. Main features of non-contributory social protection program, however, are outlined in Annex 1. Table 5 List of Social Assistance Main Benefits and Services Program Benefits & Frequency Department/Institution CCT Program Bolsa da Mãe US$5 per child per month, maximum US$15 Emergency Support to Individuals National Directorate Depending on the level vulnerability. of Social Assistance (DNAS)/MSSI and Families in Vulnerability Funeral services Fee waiver of funeral costs 59 In the Social Protection Review conducted by the World Bank in 2013, main social assistance cash transfers included the Bolsa da Mãe pro- gram, Veterans’ Pension and the Allowance for the Support of the Elderly and Invalid (SAII - or social pensions for the elderly and disabled) all of which were non-contributory programs providing social assistance benefits. Following the implementation of the social security system in 2016, SAII was categorized as a social security component dubbed ‘Citizenship Social Security’ despite being non-contributory. Section V on social security will elaborate with further information. 60 The Centre for National Logistics was established in 2014 and it is indirectly administered by the Ministry of Tourism, Commerce and Industry. The Centre for National Logistics has its own budget since 2017, in which the vast majority is allocated to social security (87 percent in 2019 Budget). Timor-Leste Social Protection Review 45 Program Benefits & Frequency Department/Institution Emergency Support to Victims of Gender-based Violence and Case by case. Cash and shelters. Domestic Violence National Directorate of Inclusion and Support to Prisoners and their US$200 Social Reinsertion (DNIRS)/MSSI Social Reintegration Support to children in Conflict with Depends on vulnerability and needs - no Law defined amount. Natural Disaster and Social Conflict Provided based on severity of house General Directorate of Social Solidarity and Recovery Program damage: Inclusion (DGSSI)/MSSI • Full damage: around US$900/household • Medium damage: US$600 • Slight damage: US$400 Veterans’ Pension Monthly recipient ranges between from National Directorate of National Liberation and US$ 200 to US$500 Combatants Affairs (DNACLN)/MACLN School feeding program US$ 0.25 per child National Directorate of Social Action (DNSA) Food security support Currently MSSI receive a proposal from Centre of National Logistics/MTCI vulnerable families/group and MSSI will deliver accordingly. Cash for Work program US$2/days initially with government SEFOPE program. In addition, ILO also has cash for work program at around US$5 per day. Roads for Development MTPTC Budget for social assistance programs has varied since 2009 though the trend to converge funding in some programs continues. Figure 17 shows absolute spending trends of the largest programs in the past ten years. The Food Security Fund had by far absorbed the largest proportion of social assistance expenditures amounting to US$ 47 million in 2009, and in due course was significantly reduced to US$2 million in 2019. Similarly, transfers to Internally Displaced People (IDPs) under the DNAS were the second highest expenditures in 2009, consuming a large parcel of US$33 million. The DNAS budget, however, was substantially reduced to one-fourth of its previous amount in 2019. By the same token, budget for other natural disasters support in 2018 was US$ 0.9 million and none was allocated for 2019. In contrast, budget for Veterans’ Pension had increased significantly after 2009 and reached its peak in 2015 with US$130 million approved and ultimately plummeted to approximately US$96 million in 2019. A one-off payment kicked off in 2012, contributing to a substantial increase in Veterans’ Pension since then. In 2019, the budget for Veterans’ Pensions absorbed the majority of Timor-Leste’s social assistance expenditure (Figure 18). Budget for the Bolsa da Mãe program under the DNRS had steadily increased from US$ 3 million to US $11 between 2009 and 2015, before it progressively lessened to US$ 8,5 million in 2019. Remarkably the Cash-for-work programs had experienced variations in budget allocation. It increased from US$2 million in 2009 to almost US$21 million in 2012 and eventually contracted to US$ 0.4 million in 2019. Similarly, the school feeding program budget had also varied over time. According to the MOE, the public grants started in 2012 when only food was provided. Allocated budget for public grants in 2014 was four times higher than 2012 attributable to an increase in the unit cost from US$ 0,15 per student per day to US$ 0,25 per student per day. In 2017, the school feeding program was decentralized to municipalities. In 2019, excluding the Veteran’s Pension, all social assistance programs represent less than 1 percent of non-oil GDP. The Veterans’ Pension alone made up to 4.5 percent of non-oil GDP. 46 Timor-Leste Social Protection Review Figure 17 Absolute Expenditure Trends In Largest Social Assistance Programs, 2009-2021 Source: Authors’ calculations using Timor-Leste State Budgets 2009-2021 Figure 18 Distribution of Social Assistance Benefits, 2009-2019 Source: World Bank Staff calculations using Timor-Leste State Budgets 2009-2019 3.2 Program Overview, Coverage, and Adequacy Bolsa da Mãe Program The Bolsa da Mãe program is a CCT, the only program in Timor-Leste that targets poor and vulnerable households with children, aims to reduce poverty, promote attendance of compulsory nine years basic education and increase use of primary health care services. The program benefits are contingent upon meeting specified conditions in education and health. It offers US$5 cash transfers per child per month for up to three children such that US$15 is the maximum amount a household may receive per month. The program has been implemented by the National Directorate of Social Development of the MSSI since its launch in 2008. Bolsa da Mãe program beneficiaries have increased significantly over the past years. In 2019, there were 60,525 vulnerable households with children eligible for the Bolsa da Mãe program, which signifies a 37 percent of Timorese households,61 compared to the initial 7,051 households in 2008. Or 29 percent of total households with at least one child, if calculation considers only the actually-paid beneficiary households, as some house- 61 holds, for some reasons did not receive the grants. Timor-Leste Social Protection Review 47 Figure 19 Number of Bolsa da Mãe Beneficiary Households, 2008-2019 70,000 61,705 60,970 60,525 60,000 55,488 54,090 51,759 50,000 40,000 32,872 30,000 20,000 13,458 13,908 13,931 10,000 7,051 8,723 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019* Source: MSSI Note (2008-2012 represents the pilot phase; for 2019, the number refers to eligible beneficiary households rather than paid as there are about 13,000 payments pending approval and the MSSI is planning to make those payments in 2020). Although the number of beneficiaries has been expanding, considerable gaps in coverage remains. Figure 20 presents the 2014 coverage for the Bolsa da Mãe program in terms of total beneficiaries. Bolsa da Mãe program coverage rate of the population bottom quintile is 19 percent, leaving behind the vast majority of the poorest population. Estimates for 2019 program coverage is shown in Figure 21 which clearly demonstrates that program coverage rate has improved significantly, from 19 to 29 percent in five years, particularly for the poorest 20 percent. Although substantial gap remained with estimated 71 percent and 75 percent uncovered by the program in the poorest two quintiles in 2019, the gradual improvement attests to Government efforts to improve coverage. In 2011, Bolsa da Mãe program coverage rate program was about 3 percent62. Figure 20 2014 Share of People Covered by Bolsa da Mãe Program by Consumption Group (Direct and Indirect Beneficiaries)63 160 100% 141.9 90% 140 Per capita consumption (US$) 80% 120 70% 100 Coverage (%) 60% 80 50% 79.1 58.1 40% 60 44.9 30% 40 30.3 20% 20 10% 19% 16% 17% 13% 9% 0 0% 1st Quintile 2nd Quintile 3rd Quintile 4th Quintile 5th Quintile Coverage of Bolsa da Mãe program Monthly average real per capita consumption in US$ Source. TL-SLS 2014 World Bank (2013), Timor-Leste Social Assistance Public Expenditure and Program Performance Report, Washington, D.C.: World Bank. 62 Direct beneficiaries are recipients of the program transfer who themselves obtained the benefit. Indirect beneficiaries include other members 63 of a household in which at least one member received the transfer. 48 Timor-Leste Social Protection Review Figure 21 2014 and 2019 Estimated Share of People Covered by Bolsa da Mãe Program by Expenditure Quintiles (Direct and Indirect Beneficiaries) 40% 35% 30% 29% 25% 25% 25% 20% 19% 19% 15% 16% 17% 14% 10% 13% 9% 5% 0% 1st Quintile 2nd Quintile 3rd Quintile 4th Quintile 5th Quintile Coverage 2014 Coverage 2019 (Est) Source: World Bank staffs’ estimate based on TL-SLS 2014 Note: Coverage 2019 was computed by dividing (A) Est. 2019 people covered by (B) Est. 2019 population. A constant 2014 level of incidence was multiplied by the actual number of beneficiaries paid in 2019 to estimate (A). A population annual growth of 1.70 percent was used to estimate (B). Another way of analyzing performance is through the share of beneficiaries found in the lowest-expenditure groups as a proportion of all beneficiaries.64 Figure 22 presents the beneficiary incidence or beneficiary households receiving Bolsa da Mãe cash transfer as a proportion of all beneficiaries, ranked from the poorest to richest groups, using quintiles of expenditure. The bottom 20 percent accounted for 33 percent of the beneficiaries compared to 7 percent for the richest group (top 20 percent). As Bolsa da Mãe was designed to reach the poorest 20 percent, the low level of beneficiary incidence in the poorest 20 percent, and also the poorest 40 percent is substantial. More than half of the beneficiary households are drawn from the poorest 40 percent of the population, which reflects that the program is only moderately pro-poor as the remaining recipients are from higher quintiles (top 60 percent). To note that, not only are the majority of the poor population under-covered by the Bolsa da Mãe cash transfer, but a large share of spending is essentially allocated to wealthier population groups. Figure 22 Beneficiary Incidence: Proportion of Bolsa da Mãe Program Recipients within Expenditure Quintiles (%) 35% 30% 33% Coverage rate among income groups (%) 25% 25% 20% 22% 15% 14% 10% 5% 7% 0% Poorest 20% 2nd Quintile 3rd Quintile 4th Quintile Richest 20% Per capita monthly expenditure Source: TL-SLS 2014 Beneficiary incidence analysis is a key tool in social protection program analysis. It also forms part of the Commitment to Equity (CEQ) analysis, 64 last conducted in Timor-Leste by the Asian Development Bank (ADB). The CEQ analysis goes further than beneficiary incidence analysis in that it seeks to attribute poverty and inequality reduction to programs directly by linking beneficiary incidence with their spending volume. To the extent that the authors can surmise from an excerpt found in a 2019 State Budget book annex, the Timor-Leste CEQ analysis appears to con- duct full pre-transfer welfare adjustments for all programs which significantly distorts the allocative efficiency representation; veterans pen- sions’ transfers have been incredibly large that simulating their removal would render the majority of beneficiaries to appear poor (although in reality they are likely to have significantly accumulated wealth that would not be captured in their consumption levels). The composition thus gave the impression that the allocation of social assistance spending composition appears to be more pro-poor than it is in reality. Timor-Leste Social Protection Review 49 Bolsa da Mãe program’s benefit adequacy relative to the average total household expenditure is irrefutably low. The current benefit is only around 4% of the general population’s household budget and only amount to about 6 percent of the average household budget of the poorest quintile.65 This benefit level is also low compared to other CCT programs that vary from 17 to 29 percent of consumption among all beneficiaries66. The amount of transfer can also be compared to other indicators to contrast the benefit adequacy against the context of Timor-Leste. Figure 23 below shows the relative size of the Bolsa da Mãe cash transfer program, which is a very low source of income, estimated at 4 percent of national minimum wage and 5 percent of per capita non-oil GDP. The benefit accounts for 11 percent and 12 percent of the national and international poverty lines, respectively. Figure 23 Relative Size of Bolsa da Mãe Cash Transfer Program 0% 2% 4% 6% 8% 10% 12% 14% Ratio of Benefit to the international poverty line 12% (extreme poverty) Ratio of Benefit to the National poverty line 11% Ratio of Benefit to the National minimum wage 4% Ratio of Benefit to Average wage 1% Ratio of Benefit to Non-oil GDP per capita 5% 0% 2% 4% 6% 8% 10% 12% 14% Source: World Bank staff calculations based on LFS 2013, TL-SLS2014, TL-SLS 2019 Estimates, IMF Country Report No. 19/124 May 2019 for Non-oil GDP estimates and, NSD-MOF Population projections 2004-2050. In 2021, the GoTL approved the piloting of B olsa d a Mãe Jerasaun Foun in three districts with the highest rates of poverty and malnutrition: Ainaro, Bobonaro and Oecussi. The “new generation” of BdM will introduce universal cash transfer to children and pregnant mothers with additional disability allowance for children with certified disabilities and chronic illnesses. Expecting mothers will receive US$15/month while children under 17 will receive US$ 20/month. This benefit level will be annually reviewed and adjusted to keep pace with inflation rate and maintain purchasing power of the transfers.67 The program is expected to be fully implemented in 2025 by which around 274,000 beneficiaries would have been covered. This initiative is expected to universally address the adequacy and coverage issue previously discussed. However, it is important to note that the costs for non-conditional and universal cash transfer tend to fall on the higher end. Before long the GoTL would need to explore sustainable sources of funding and regularly revisit the program design to identify opportunities to further enhance the human capital impact of the transfers. After all, improvement in health and education outcomes in particular will benefit from introducing some degree of conditionality. Veterans’ Pension The Veterans’ Pension was designed to recognize and compensate national former combatants for their past service especially those who were involved during the struggle for independence. The program targets former combatants, veterans as well as martyrs and their families. Previously implemented by the MSSI, the program has since 2018 been implemented by the MACLN. There are three types of benefits to Veteran’s Pension: 65 World Bank staff estimates based on TL-SLS 2014 66 World Bank (2015), Assessing the Bolsa da Mãe Benefit Structure: A preliminary analysis, Washington D.C.: World Bank. 67 Information Brief: Bolsa da Mãe – Jerasaun Foun, Partnership for Human Development (draft), September 2021. 50 Timor-Leste Social Protection Review 1. Pensions for Former Combatants and Martyrs of National Liberation covers the following sub-categories: • Special Retirement Pension targeted at veterans with at least 15 years of full-time participation in the struggle; • Special Subsistence Pension devoted to former combatants with at least 8 years of service in the resistance and; • Survival Pension for the martyrs´ heirs, prioritizing in the order of: widows, orphans, parents and siblings. 2. Lump sum cash transfers for Former Combatants and families of Martyrs of National Liberation. The lump sum cash transfer is a one-off payment for those former combatants with 4 to 7 years of full service in the struggle. Payments to the martyr´s family or direct relatives are about twelve times the minimum wage and started to be disbursed in 2012. In the event that there is no living successor, a one-off survival pension payment is made available to the martyrs’ family members (related until the 4th degree of the martyrs’ collateral family). The lump sum benefit also corresponds to twelve times the amount of the survival pension if martyr´s direct relatives were alive. 3. Scholarships for Children of former Combatants and Martyrs of national Liberation. Scholarships are provided to the children of martyrs covering all levels of education from primary school to university. The scholarships are granted annually corresponding to the level of education. Over the past ten years, Veterans’ Pension beneficiaries had substantially increased. Figure 24 shows that the relative coverage of the program has steadily increased since 2011. In 2019, some 28,123 veterans received payments compared to only 4,093 recipients in 2009. In 2012, the Government introduced the one-off payments that contributed to a large increase in spending. These one-off payments accounted for 37 percent of total Veterans’ Pension, but this number sharply decreased to 3 percent in the following year. Figure 24 Veterans’ Pensions Direct Beneficiaries, 2009-201968 35,000 30,000 30,999 25,000 28,123 20,000 15,000 19,933 19,406 10,000 11,228 5,000 9,261 0 4,093 2009 2010 2011 2012 2013 2014 2019 Source: MSSI 2009-2015 and MACLN 2019 Note: (1) Direct beneficiaries include the following benefits: the special retirement pension, special subsistence pension, survival pension, one- off payments and scholarships; (2) 2019 data refer to the actual number of beneficiaries paid. The Veterans’ Pension was principally designed to support war veterans rather than reduce poverty. Figure 25 shows that the Veterans’ Pension had reached some 14 percent of the richest 40 percent compared to only 8 percent of the poorest 40 percent in 2014. Figure 25 also presents an estimate for the share of people covered in 2019, showing a similar pattern but with a coverage increase across all consumption groups most pronounced in the higher consumption groups. It was estimated that in 2019 the Veteran’s Pension had reached 41 percent of the richest 40 percent and about half of that coverage for the poorest 40 percent. Usually, beneficiary incidence incurs by adjusting beneficiary welfare to what it would have been prior to receiving the transfer. In the case 68 of Veterans Pensions, the transfer is so generous that a large share of recipients would be categorized as being poor if the transfer value was removed before estimating beneficiary incidence. That said, these households are likely to have alternative sources of income that are not captured or reflected in the welfare measure in the TL-SLS (consumption expenditure) and so pre-transfer adjustments are not made for this program. Pre-transfer adjustments were conducted for other programs but are not presented in the report. In brief, pre-transfer adjustments are generally known to have made programs appear slightly better allocated to poor households than without a pre-transfer adjustment. Timor-Leste Social Protection Review 51 Figure 25 Share of People Covered by Veterans’ Pension by Consumption Group (Direct and Indirect Beneficiaries)69, 2019 Estimates 25% 20% 21% 20% 15% 15% 13% 10% 7% 8% 5% 6% 6% 5% 3% 0% 1st Quintile 2nd Quintile 3rd Quintile 4th Quintile 5th Quintile Coverage 2014 Coverage 2019 (Est) Source: World Bank staffs’ estimate based on TL-SLS 2014 In terms of benefit incidence, the poorest population is barely covered by the Veterans’ Pension. As shown in Figure 26, a sizeable share of spending goes to the wealthiest households, reflecting the uncompromising nature of the program. Households that fell in the poorest group (bottom 20 percent) accounted for 13 percent of all beneficiaries, compared to more than the double by the richest groups (4th and 5th quintiles). Figure 26 Proportion of Veterans’ Pension Recipients within Expenditure Quintiles (%) 30% Coverage rate among 25% income groups (%) 24% 20% 22% 22% 15% 18% 10% 13% 5% 0% Poorest 20% 2nd Quintile 3rd Quintile 4th Quintile Richest 20% Per capita monthly expenditure Source: TL-SLS 2014 The Veterans’ Pension is a very generous benefit. In contrast to other social assistance programs, it is estimated that the Veterans’ Pension may have financed up to 60 percent of the average total household expenditures of the bottom 20 percent in 2019 (Figure 27). Figure 27 Social Assistance’s Generosity over the Poorest Quintile (Estimates, 2019) 80% 60% 60% 40% 47% 20% 0% Generosity over whole population Generosity to poorest Quintile Source: World Bank estimate based on the TL-SLS 2014 Direct beneficiaries are recipients who themselves obtained the benefit. Indirect beneficiaries include other members of a household in which 69 at least one member received the benefit. 52 Timor-Leste Social Protection Review Compared to other specific indicators, Veterans’ Pension is a very large source of household income. As shown in Figure 28 it is estimated that Veterans’ Pension amounts to approximately 32 percent of the average wage, 145 percent of minimum wage, 361 percent of national poverty line and 414 percent of international poverty line. The transfer amount could go as high as 155 percent of the non-oil GDP per capita. Figure 28 Relative Amount of Veterans’ Pension 0% 50% 100% 150% 200% 250% 300% 350% 400% 450% Ratio of Benefit to the international poverty line 414% (extreme poverty) Ratio of Benefit to the National poverty line 361% Ratio of Benefit to the National minimum wage 145% Ratio of Benefit to Average wage 32% Ratio of Benefit to Non-oil GDP per capita 155% 0% 50% 100% 150% 200% 250% 300% 350% 400% 450% Source: Author’s calculations based on LFS 2013, TL-SLS2014, TL-SLS 2019 Estimates, IMF Country Report No. 19/124 May 2019 for Non-oil GDP estimates and, NSD-MOF Population projections 2004-2050. School Feeding Program School Feeding Program is a program designed to combat hunger and promote school attendance. It targets students between 3 and 15 years old. The program provides one hot meal per day at school. Each school receives US$0.25 per child and per school day.70 Students of the first and second cycles of basic education (first 6 years of schooling) receive an extra 75 grams of rice. The program started as a pilot in 2006 and was eventually transferred to the MOE in 2010. While the MTCI provides the rice for the program, the MOE allows each school to buy, as needed, basic goods such as vegetables, beans, meat and fish, from local producers. Parents and teachers’ association in every school are responsible for the preparation of the daily hot meal. Students benefiting from the School Feeding Program have slightly increased since 2012, albeit at a very low pace. In 2018, there were 329,403 students benefiting from the program (9,820 at pre-school and 319,583 at basic education) compared to 311,390 students in 2012 (Table 10). After four years of directly managing the program, the WFP had handed over the Program delivery to the MOE in 2010. Since then, the MOE has established partnerships with the MTCI for purchase and distribution of rice and the Minister of Agriculture and Fisheries (MAP) to support the acquisition of local products, such as vegetables, cereals and fish, as well as with local actors with the sole intention of strengthening the program and generating positive spillover effects through decentralization. The School Feeding Program has a good coverage rate for 6-15 years old children but fell short for pre-school age children. The highly satisfactory coverage of 6-15 years old children reflects the praiseworthy capacity of the first and second cycles of the basic education system (first 6 years of education) to accommodate eligible population. On the contrary, the School Feeding Program had benefited only about 11 percent of children aged 3-5 years old in 2018 (Table 6), which reflects the pre-school education ineptitude to accommodate the eligible group of children. While first and second cycles of the basic education system are almost universal, pre-school enrolment has remained very low due to the lack of infrastructure in the country. In 2019, the government is planning to double the level of the benefit (WFP, 2019) 70 Timor-Leste Social Protection Review 53 Table 6 Number of Beneficiaries (Students and Schools) and Coverage Rate (%) of the School Feeding Program, 2012-2018 2012 2016 2018 Pre-school education : 14,871 9,820 Number of beneficiaries Basic education 311,390 320,040 319,583 Pre-school education : 260 271 Number of schools Basic education 1,245 1,265 1,189 Pre-school education : 16% 11% Coverage rate (%) Basic education 105% 103% 103% Source: Boavida (2016) for 2012 data; UN/ILO/MSS (2018) for 2016 data and; MOE for 2018 data The amount of benefits allocated to each student at school should be calculated properly to ensure that children might have at least one adequate hot meal per day. School feeding for children is critical not only to boost participation and access to school but also to promote increased learning capacity through provision of all necessary micronutrients. A 2019 WFP study71 revealed that a wholly nutritious diet (containing adequate sources of energy, protein and 13 micronutrients) would on average cost US$0.41 for school children and US$0.28 for infant per day in Timor-Leste. Considering that a meal at school may be the only proper meal some children can have, the amount of benefit provided seems insufficient. Compared to other countries, the benefit provided under the school feeding program is below the international standard. Timor-Leste’s 2018 school feeding program cost around US$48.5 per child per year for basic education or US$47.8 per child per year for pre-school72, which is well below the combined (pre-school and school feeding) average cost of US$72 per child per year, across LMICs73. The same study found a wide variation in costs for different outcomes, ranging from US$43 to US$15574. It is also important to note that the pandemic has put a halt on the school-feeding program. With mobility restriction and remote learning imposed as measures to contain COVID 19 pandemic, around 320,000 school children aged 6-15 years old are impacted.75 Other Social Assistance Programs Food Security Fund/Support. A Food Security Fund was created in 2009 to regulate food prices and address high demand for food, particularly rice. In 2009 and 2010, the MTCI made a significant investment for the acquisition of rice and maize, distribution and subsidy of rice to reduce market prices76. Price subsidies ended in 2011 due to consecutive low crop yields. Although food imports has continued, the food security investment had dropped significantly over the past few years. As of 2017, the food security budget was moved to the National Logistic Centre, which was established as a public institution in 2004. Cash for Work Program (Rural Employment). Rural Employment program is cash for work program that provides short-term employment opportunities for rural communities. The program targets individuals aged 17-59 years old living in rural communities capable of working in rural communities. It provides them US$3 per day in exchange of short-term labor-intensive work. Work activities are proposed by rural communities through community-driven process and involve local authorities at sub-national levels. The program is implemented by the SEFOPE. 71 WFP (2019), Fill the Nutrient Gap Timor-Leste, Final Report, Dili: WFP. 72 Considering the total of 194 school days for basic school education and 191 school days for pre-school in 2018. 73 Kristhansson, E.A.; Gelli; V.; Welch, V.; Greenhalgh, T.; Liberato, S.; Francis, D. and; Espejo, F. (2016), Costs, and cost-outcome of school feeding programs and feeding programs for young children. Evidence and recommendations, International Journal of education Development, May Volume 48, Pages 79-83. 74 Ibid. 75 WFP (2020), Timor-Leste Annual Country Report, Dili, Timor-Leste 76 World Bank (2013), Timor-Leste Social Assistance Public Expenditure and Program Performance Report, Washington D. C.: World Bank. 54 Timor-Leste Social Protection Review Roads for Development (R4D). The main objective of the R4D program is to ensure that all women and men living in rural areas can benefit from investments in rural road rehabilitation and maintenance using labor- intensive work and technologies. One component of the program aims to create short-term employment opportunities for women and men, particularly aiming for gender equality in the workforce. The program also offers opportunities to employ people with disabilities. The program targets individuals capable to work living in rural communities. The R4D program provides US$5 per day for unskilled workers and US$10 per day for skilled workers in exchange of labor-intensive works. R4D main activities include road construction, rehabilitation and maintenance. The program is implemented by the MTPTC. 3.3 Effectiveness and Associated Program Considerations Poverty continues to be a serious concern in Timor-Leste, complemented with high spending on social protection, which calls into question the effectiveness of social assistance programs. The analysis of the programs’ effectiveness were conducted using TL-SLS 2014 that included household expenditures information and public cash transfers. This is achieved by comparing the pre-transfer scenario in relation to the 40 percent consumption line to actual post-transfer position and assumes that per capita expenditures among beneficiary households are reduced by the amount they receive in assistance. The analysis shows that the main social assistance programs’ impact varies from negligible to small impact on national welfare. Table 7 indicates the impact of each program on poverty reduction. The Bolsa da Mãe program has gradually prevented people from falling below the poverty line by 0.9 percentage points from 40.5 percent to 41.4 percent. Meanwhile, the Veterans’ program has prevented poverty from increasing by 2.5 percentage points from 40.5 percent to 43 percent. Although the veterans’ pension program appears to be quite effective, this facade comes at a great opportunity cost, discussed below. Table 7 Impact of Programs on Population below the 40% Consumption Line (National Population) Poverty Headcount Baseline 40.5 Increase if programs were discontinued (change in percentage points) Bolsa da Mãe 0.9 Elderly Pension 2.9 Disability Pension 0.3 Veterans 2.5 All removed 6.8 Source: TL-SLS 2014 and World Bank staffs’ calculations As the only program targeting poor households with children, Bolsa da Mãe remains a far cry from achieving relevant poverty impacts at national level. With an allocation of 2.5 percent of the MSSI total budget in 2019 (or 0.1 percent of non-oil GDP), the program has achieved an almost negligible reduction in the national poverty rate. This is likely due to the very small benefit level and low coverage of the poor population. The proportion of the program benefit—estimated at an average 6 percent of total household budget for the lowest quintile households (10 times less than the veterans’ benefit level)—is indeed too low to affect household welfare status. Not to mention that due to the lack of an effective targeting system, about 47 percent of the beneficiaries were actually estimated to be non-poor. Timor-Leste Social Protection Review 55 Findings from past impact simulation suggest that increasing the average monthly grant amount could have a major impact in poverty reduction.77 Increasing both coverage and grant amount to at least 15 percent consumption among poor beneficiaries (or an average monthly US$34 per household) could help to reduce poverty incidence and narrow poverty gap by a rough estimated 2 and 32 percentage points, respectively. The increase would cost around US$39 million to cover 95,000 beneficiary households as the estimated target population. This amount is equivalent to approximately 3 percent of the total government budget or around 2 percent of non-oil GDP in 2019. Further impact simulations conducted recently suggests that a larger poverty impacts with lower overall costs can be expected through increased spending on two core programs. It is estimated that poverty could be reduced by about 7.2 percentage points at a cost of 4.4 percent GDP if Bolsa da Mãe benefit levels were raised fivefold and the elderly social pension benefit level was doubled. This means that by focusing on improving two core programs’ spending, Timor-Leste could have attained a higher impact on poverty reduction than all programs combined at an approximately 3 percent lower GDP cost. The main mechanism driving this impact is the high coverage of the elderly social pension program, by nature of its universality, and Bolsa da Mãe when simulated together. The estimated improvement has not even factored in prospective improvements in allocative efficiency through implementation of a better targeting system, which would render much larger impacts on poverty at lower costs. Large exclusion errors in the Bolsa da Mãe program have also compromised the poverty reduction impact of the program. This challenge can only be addressed by further expansion or development of a more systematic targeting system that can more effectively exclude non-poor households. Bolsa da Mãe program coverage is estimated at around 20 percent of total household in Timor Leste. However, only 33 percent of the benefit went to households in the poorest quintile. As seen in other countries, allocative efficiency - as measured through beneficiary incidence to the poor at similar coverage levels - could be improved. The Philippines’ Pantawid Pamilya Program, for instance, is estimated to cover 22 percent of households and 51 percent were allocated to the poorest quintile in 2015. Similarly, Sri Lanka’s Samurdhi has a lower overall coverage of 18 percent and yet 37 percent of benefit went to the poorest quintile78 While there have been improvements in Bolsa da Mãe program administration, its operational processes require major overhaul. The development of SIGAS, a robust management information system for core social assistance programs in 2014 that included the Bolsa da Mãe program was an important step towards establishing standardized program administration practices. The system, however, is suffering from technical issues that make it difficult to execute basic program administration functions such as the storage and management of beneficiary households’ information and generation of payment lists. Links between SIGAS and payment providers still needs to be automated and while SIGAS has also included a mechanism for grievance, it has not been optimally utilized. New procedures that would allow for a more comprehensive and effective outreach (vis à vis actively reaching out to families and conducting in situ verification) could be better incorporated while targeting mechanisms (vulnerability index or proxy means testing, and community validation) could be combined such that well-off families could be better identified and not included in the program. Furthermore, institutional arrangements to ensure an effective coordination at different decision-making levels need to be formalized. Despite the commendable tenacity to reward service during the struggle for Timor-Leste’s independence, the Veterans’ Pension allowance is very generous for a program that reaches very few. With an allocation amounting to 4.5 percent of non-oil GDP in 2019, over the past decade the program has been able to handsomely compensate veterans and their families. The Veterans’ Pension is estimated to have some impact on poverty reduction (around 2.5 percentage points or 6 percent), though this shift is presumably largely due to the size of the transfer – estimated at 60 percent of the average total household budget for households in the lowest quintile (10 times more than the Bolsa da Mãe program). Eliminating it would push many of recipient households below the poverty line. 77 World Bank (2015), Assessing the Bolsa da Mãe Benefit Structure: A preliminary analysis, Washington D. C.: World Bank. 78 World Bank Staff calculations based on regional survey data. 56 Timor-Leste Social Protection Review The issue here, though, is a broader one related to welfare measurement by consumption only; veterans pension recipients are more likely to have productive assets compared to non-recipients and income generated from these assets are not reflected in consumption levels captured in the household survey. By removing the full value of the transfer, it would make it appear that most (93 percent of recipients) are poor without the transfer. Thus, disregarding pre-transfer welfare levels, 73 percent of recipients are, indeed, may be considered non-poor. With such large transfer values, at triple the poverty line or about 50 percent of consumption, there is a large chance that the veteran’s pension has inadvertently instigated disincentives to work. A cross tabulation of TL- SLS 2014 data shows that 38 percent of veterans’ program recipients of working age had worked79 in the last week prior to being surveyed, compared to 60 percent of non-recipients. Further analysis, however, would be required to establish the significance or even causality of disincentives to work among working age recipients. Reforming Veterans Pension: Pre-defined Payment Period There is great variation in veterans benefits across countries and providing cash transfer for a large number of veterans may pose a significant fiscal problem for a new or post-conflict state. These benefits by and large follow certain patterns that depend mainly on the type of reduction in force, the type of retirement, and the type of force of which an individual was a member. Benefits may include entitlements which are written into law, such as pensions, or other forms of monetary or in-kind assistance. Countries also usually attempt to provide benefits to the disabled, particularly those who cannot work, as a result of military service. The amount, type, and duration of benefits must be carefully calibrated against the resources available. Mandating overly generous benefits may provide fodder for future conflict when the state cannot meet its obligations. One option to address the high fiscal implication of veterans’ pensions payout is customizing payments over a pre-defined period. Recognizing the wide age ranges of the ex-fighters – from as old as age 80 to as young as age 17 – the pre- defined period has to accommodate both the short remaining life expectancy of the old ex-fighters so they can still enjoy the benefits of compensation, while maintaining some fiscal discipline on how long the government can stretch out the payment. A compromise approach may be to pay out the promise over a period that is the shorter of the remaining life expectancy based on the ex-fighter’s current age and 20 years. Thus, with the same number of years of participation in the conflict, the older ex-fighters will receive larger annual payments for a shorter period, while the younger ones will receive smaller annual payments for a longer period. Table A illustrates the payment schedules and annual compensation payments using hypothetical profiles of ex-fighters – ages 40, 60 and 80, who participated in different years of conflict. Table A: Illustration of Payment Schedules and Annual Compensation Payments Current age 40 60 80 Number of payments (in years) 20 16.25 5.8 Annual compensation payment (in Dollars) With 8 years of struggle 1,670 2,055 5,758 With 15 years of struggle 2,264 2,786 7,806 Table A reports hypothetical payments for individuals. When administrative data is available, one could further analyze the fiscal impact on this customized payments to GDP, as comparison to annual public service wages or interest payments on government debt. This reform could also be combined with a reform in the benefit level and policies on survival pensions. Changes to these parameters will have to be based on consensus among relevant stakeholders. References: • World Bank, World Bank Pension Reform Primer: Veterans Pensions and other compensation in post-conflict country, 2015 • World Bank, Cash Transfers to ex-fighters and survivors and a new contributory pension scheme in Eritrea, 2003. Controls included not suffering from a disability and work included work conducted at home. 79 Timor-Leste Social Protection Review 57 School feeding program is a common response to increase school participation and reduce child malnutrition, but the benefit amount needs to be adjusted. This report has illustrated that resources allocated for the school feeding benefit in Timor-Leste, is insignificant compared to what is needed to ensure an adequate diet. To attain whole nutrition, the amount would have to be increased by at least 40 percent to be able to meet the nutrient requirement for children’s needs. Equally important is to precondition school feeding program as a channel to build awareness about nutrition for the entire school community, including parents. It is also important to provide acceptable and culturally sensitive meals while building families’ awareness about the need for intra-household food redistribution, specifically to prioritize serving more nutritious food for the most undernourished children. As well, even if the MOE is aiming to reinforce decentralization of the school feeding program implementation, it is fundamental to closely supervise the program and monitor the supply chain that can easily be broken in a country that is exceptionally susceptible to regular natural and other shocks. 58 Timor-Leste Social Protection Review Timor-Leste Social Protection Review 59 The contributory social security scheme is a fundamental component of a comprehensive social protection system, especially for the working-age population 60 Timor-Leste Social Protection Review 4 Social Security This section starts with an overview of the social security system in Timor-Leste and description of benefits followed by an explanation on the financing model and assessment of the system’s performance, which includes discussion on the coverage, adequacy of benefit, and fiscal as well as financial sustainability of the system. Analysis, however, is constrained by data availability, which are primarily the TL-SLS 2014 for SAII programs, published secondary data sources and reports for other programs. The lack of access to administrative data on social security contributory system correspondingly limits this report’s exhaustive analysis. 4.1 Social Security System, Financing and Expenditure The Social Security System in Timor-Leste has two goals: consumption smoothing and poverty prevention. The system aims to provide people with sufficient resources to moderate impacts of income shocks and ensure minimum support to maintain adequate level of consumption. The system is based on the principle of universality, that the social security system should be available and affordable to every citizen as stipulated in the RDTL Constitution (Art. 56, no.1). Timor-Leste’s new social security system was established in 2016 and is organized into three systems: (i) Citizenship Social security System, (ii) Contributory Social security System and (iii) Complementary Social security System. This new system replaced the transitory regime, a non-contributory social security system financed entirely by the General State Budget (GSB). This reform is considered appropriate as it is in line with the multi-pillar approach to social security where protection for the poor and vulnerable is guaranteed, a mandatory scheme is established, and where voluntary contributions are encouraged. The Citizenship Social Security System provides non-contributory protection to ensure fulfillment of minimum level basic needs to citizens not covered by the contributory social security system. This pillar is universal in nature, covering all Timorese citizen based on the eligibility rules dating back to 2008 when the elderly and disabled social pensions were created. Its flagship includes the Allowance for the Support of the Elderly and Invalid (SAII) program - an old-age social pension that aims to guarantee a minimum income for citizens over 60 years who are neither receiving veterans’ benefits nor covered by other compulsory social security scheme. The program provides US$30 monthly cash transfer and is managed by the National Directorate of Non-Contributory Social Security Regime of the MSSI. The Allowance for the Support of the Invalid, on its own, is a disability social pension that aims to protect people with severe disabilities and are unable to work over the age of 18 years by providing US$30 monthly cash transfer. The Contributory Social Security System provides cash benefits that aim to replace reduced or lost income due to old-age, disability, and death, and provide maternity, paternity, and adoption benefit. Established through Law No.12 of November 14, 2016, it is a Pay-As-You-Go (PAYG) defined-benefit pensions and other allowances (detailed below), comprises a General Scheme and Voluntary Scheme. The General Scheme is contributory and mandatory for all formal employed workers (employees and employers) from private and public sector. The Voluntary Scheme is voluntary contribution for all other workers qualified to work but are not covered by the mandatory scheme, namely entrepreneurs, self-employees, managers, and domestic workers. The Complementary Social Security System is briefly mentioned in the law but has yet to be defined. This system intends to provide benefits complementary to those granted by the general social security scheme. For full overview of the Contributory SP Programs: Eligibility, Contribution Rate, and Benefit, please see Annex 2 of this report. Timor-Leste Social Protection Review 61 Figure 29 Timor-Leste’s Social Security System Citizenship Social Security System • Minimum income standards for all citizen (non-contributory) • Prevention and reduction of poverty Contributory • General social security scheme for employees and employers Social Security System • Voluntary social security scheme for all other workers Complementary System • Supplementary contributory protection Social Security System Financing Article 54 of Law No. 12 December 14, 2016 specifies that Timor-Leste’s social security is financed by employees and employers social security contributions, GSB transfers, revenues as well as income from assets and financial products/investments. Given the non-contributory nature of the citizenship social security system, its resources are provided by the GSB (funded by the Petroleum Fund). Meanwhile, the contributory social security regime incorporates redistributive mechanisms based on the national solidarity principle, combining financing mechanisms that redistribute resources between generations (PAYG and funded regimes). Consequently, the Contributory Social security System financial management has been divided into the following: 1. The PAYG regime, which registers the revenues and expenditures of contributory schemes for employed workers and from the voluntary scheme. The most important source of revenue for the PAYG regime is employer and employee mandatory contributions obtained by applying contribution rates to taxable earnings and is set at 10 percent of average monthly gross wage (6 percent for employers and 4 percent for workers). Private sector firms80 however, are under transitory norms until 2026, which has enabled employers to pay a lower contribution of 4 percent that will gradually increase throughout the years. While the employer pays the whole amount and subtracts the worker’s parcel from his/her pay, self-employed persons independently pay their own contributions. Voluntary social security contributions are set at 10 percent of the monthly conventional gross wage. Beneficiaries have to choose the value of conventional earnings (from 2 times up to 10 times the value of the SAII, currently ranging between US$6 and US$30 per month). 2. The funded regime will be managed through the Social Security Reserve Fund (SSRF). This separate fund is created to strengthen the system’s financial sustainability and intergenerational solidarity. This scheme is financed primarily by the annual surpluses of the PAYG regime, which result from the difference between contributions received and benefits paid. Establishment of the Fund and the development of the Fund’s management model were authorized by the Decree-Law No. 55 of October 28, 2020. Annual surpluses from the contributory general scheme (estimated at US$70 million between 2017 and 201981 or about 3.4 percent of non-oil GDP at current prices in 2019) have been accumulated at the social security bank account at the Central Bank and will be transferred to the Fund. Private sector with 10 or fewer workers, with at least 60 percent are Timorese. 80 Estimated amount provided by the INSS to Media at https://www.sapo.pt/noticias/internacional/sistema-de-seguranca-social-timorense- 81 com_5d4bdf0c99d4d97d34815f92 62 Timor-Leste Social Protection Review Expenditure Trends Non-contributory pension expenditures have continued to increase in the past ten years. Spending on the elderly and disability social pensions has steadily increased between 2009-2019 (Figure 30). The elderly and disability social pensions accounted for US$35 million in 2019, which has doubled the amount ten years ago. As per a percentage of non-oil GDP, however, spending for the elderly and disability cash transfers has remained unchanged (comparable to 2 percent of GDP in 2019 and 2009) though with some variations along the period. The contributory social security system is relatively new and only came into effect one year after its official launch in August 2017. Despite the continued payment of benefit, there was a delay in instigating contribution collection, which has resulted in the scheme underfunding. The contributory system, therefore, continues to rely on the GSB. In 2019, the proposed budget for contributory transfers had increased to US$ 4 million, representing about 0.2 percent of non-oil GDP in 201982. Notwithstanding the approval of an economic response package in the context of COVID-19 in April 2020, contributions to social security have been waived and it remains unclear when the contribution collection will revert to normalcy. Figure 30 Absolute Trends in Largest Social Security Pensions and Other Benefits, 2009-2019 45 Public Expenditure in $ millions 40 35 30 25 20 15 10 5 0 2009 2010 201 2012 2013 2014 2015 2016 2017 2018 2019 Transfers from DNRNCSS (Primarily Elderly and Disability Pensions) Transfers from DNRNCSS (Contributory pensions and other benefits) Source: World Bank Staff’s calculations using Timor-Leste State Budgets 2009-2019 Figure 31 Distribution of Social Security Benefits, 2009-2019 100% 80% 60% 40% 20% 0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Contributory Social Security Pensions and Other Benefits Elderly and Disability Pensions (Non-contributory) Source: World Bank Staff’s calculations using Timor-Leste State Budgets 2009-2019 Note: Contributory benefits under the social security general scheme were paid for the first time only in 2018. Until then, payments made were from the transitory regime from public sector (non-contributory). It is important to note that in 2019 the INSS was able to have an integrated budget that included contributory and non-contributory social 82 security systems. Timor-Leste Social Protection Review 63 4.2 Program Coverage, Adequacy and Sustainability Coverage The Citizenship Social Security programs are categorical in nature and have been steadily increasing over the years. Meanwhile, social pension for the elderly and disabled targets specific population groups. Eligibility assessment for the elderly social pension is based on clearly defined criteria and as such, administrative costs associated with the targeting and delivery are relatively low. Eligibility verification for disability pension, on the other hand, is more complex as those who wish to obtain the benefit are required to produce medical certificate citing permanent incapacity to work. Elderly social pension beneficiaries have gradually increased since it was established in 2008. Figure 32 below shows the evolution of the number of beneficiaries and indicates ways that the program had reached intended eligible groups between 2008 and 2019. Currently, it has continued to benefit 89,804 individuals, which corresponds to around 93 percent of target population (people aged 60 or above). This is an impressive achievement taking into account all of the challenges current delivery system faces including update of beneficiaries’ registry and payments to elderly living in remote places. Figure 32 Number of Beneficiaries and the Old-Age Social Pension Target Group Coverage (%) 100,000 100 80,000 80 60,000 60 40,000 40 20,000 20 0 0 2008 2009 2010 2011 2012 2013 2014 2015 2017 2019 Number of beneficiaries Coverage of target group (%) Source: ILO brief Note for 2009 to 2015; UN/ILO/MSS (2018) for 2017; baseline data for 2019 from GSB 2020 (non-approved). Note: Authors’ calculation based on the Timor-Leste Population and Housing Census 2015; Timor-Leste Population and Housing Census 2010 and; Timor-Leste Population Projections 2004-2050. Disability social pension beneficiaries have also gradually increased over the past decade. As shown in Figure 33, the number of disability social pension beneficiaries has more than doubled between 2010 and 2019. It is difficult to appraise whether the disability social pension is reaching the eligible population as the criteria involves an assessment of the potential beneficiary’s capacity to work. Only applicants with permanent inability to work are considered eligible. The Population Census of Timor-Leste has only provided functional limitations data namely whether the individual is currently unable or having difficulties in walking, seeing, hearing and suffer from intellectual/mental condition. According to this data, it was estimated that a disability prevalence rate was 3.2 percent nationwide, which tallied 37,877 individuals. This means that, as of 2019, only around 21 percent of potentially eligible Timorese are covered. Figure 33 Number of Beneficiaries of the Disability Social Pension 10,000 8,000 8,298 8,272 6,000 6,797 7,157 7,313 6,560 5,565 4,000 2,000 3,332 0 2010 2011 2012 2013 2014 2015 2017 2019 Source: ILO brief Note for 2009 to 2015; UN/ILO/MSS (2018) for 2017; baseline data for 2019 from GSB 2020 (non-approved). Note: Authors’ calculation based on the Timor-Leste Population and Housing Census 2015; Timor-Leste Population and Housing Census 2010 and; Timor-Leste Population Projections 2004-2050. 64 Timor-Leste Social Protection Review It is also important to analyze the extent to which the benefits are reaching the lowest expenditure groups. Specifically, such analysis at the household level is abridged below. As apparent in Figure 34, there are coverage gaps in the bottom 40 percent. The elderly pension coverage of the bottom quintile of the population is about one third of the total population, which does not differ much from the top quintile. Elderly pension is given to everyone above the age of 60. Consequently, coverage rate reflects the universal nature of the program. According to a 2019 estimate, coverage rates have improved across consumption groups. Coverage rates of the bottom and top quintiles were estimated in about half of the population. In terms of disability pension, the coverage rate varies between 3 percent and 5 percent in 2014 and 2019 respectively, with only marginal differences across quintiles. Figure 34 Share of People Covered by Elderly and Disability Social Pensions by Consumption Group (Direct and Indirect Beneficiaries) 60% 50% 53% 49% 40% 44% 41% 30% 37% 32% 30% 20% 25% 27% 23% 10% 0% 1st Quintile 2nd Quintile 3rd Quintile 4th Quintile 5th Quintile Elderly Pension 2014 Elderly Pension 2019 (Est) 6% 6% 5% 5% 5% 5% 5% 4% 4% 3% 3% 3% 3% 3% 2% 1% 0% 1st Quintile 2nd Quintile 3rd Quintile 4th Quintile 5th Quintile Disability Pension 2014 Disability Pension 2019 (Est) Source: World Bank estimate based on TL-SLS 2014 Notes: *2019 estimation of coverage is calculated through the following: (2014 program incidence*administrative number of beneficiaries)/2019 estimated total individuals aged over 60; Figure 35 shows the share of the lowest-expenditure groups as a proportion of all beneficiaries, which is another way of illustrating the benefit incidence. Households that fell in the poorest group accounted for a third of all beneficiaries in elderly and disability pensions, compared to 13 percent and 16 percent respectively accounted for by the richest group. About half of all participants are drawn from the poorest 40 percent of the population and another half are from the top 60 percent, indicating that elderly and disability pensions are not exclusively pro-poor. Figure 35 Proportion of Recipients within Expenditure Quintiles 35% 30% 31% 31% 25% 20% 23% 22% 15% 17% 17% 16% 14% 13% 16% 10% 5% 0% Poorest 20% 2nd Quintile 3rd Quintile 4th Quintile Richest 20% Elderly Pension Disability Pension Source: World Bank’s estimate based on TL-SLS 2014 Note: Quintiles of household per capita using pre-transfer level of expenditure. Beneficiaries’’ incidence shows the proportion of beneficiaries in each expenditure group. Timor-Leste Social Protection Review 65 Conversely, the novel Contributory Social Insurance System coverage remains limited. Since the registration of the President of Timor-Leste as the first worker in the system on August 1, 2017, there are currently 72,143 insured workers, which tallies to approximately 34 percent of the Timor-Leste labor force but equivalent only to around 10 percent of the working age population. According to INSS data83, around 65 percent of the registered workers are public sector employees, 33 percent are private sector workers and only 0,5 percent are individual workers. Meanwhile, there are only 1,300 employers registered in the system or barely 25 percent of the country’s total employers. Despite limited coverage, beneficiaries have continued to increase. In 2019, there were 1,823 beneficiaries - a steady 47 percent increase compared to 2017. Disaggregated 2017 data shows that benefits paid include survivors’ pensions (725), followed by elderly pensions (510) and a few disability pensions (7). These pensions were paid to former civil servants who were shifting from the transitory social security into the general social security scheme. Currently, the scheme continues to pay pension benefits to former civil servants mostly for maternity and paternity benefits. The INSS estimates that pensions from general scheme will start being paid in three years upon implementation. Adequacy An adequate social security system is one that provides meaningful source of support to its participants. Adequacy analysis of the social security system looks at the generosity84 of the non-contributory and contributory benefits as well as other indicators that contrast the benefit adequacy against the economic situation and appropriateness for Timor-Leste. One of the main constraints to appropriately assess Timor-Leste’s social security system adequacy is the limited availability of administrative data that can be obtained from the INSS. The benefit level of social pension for the elderly and disabled had been stagnated over the past years. The elderly social pension represents 15 percent of households’ expenditure in the bottom 20 percent, which is 9 percentage points less than in 2011 when a similar analysis was conducted85. The disability social pensions financed 14 percent of the bottom 20 percent expenditure group, which is the same as in 2011. The elderly social pension generosity is more in-line with international experiences, which on average cover about 20 percent of the average household budget86. The elderly and disability social pensions, however, has used the minimum wage as the indexing mechanism, which has stood at US$115 per month since 2012. While the benefit’s real value continues to drop, purchasing power erosion has been contained due to low inflation in recent years. Figure 36 Generosity of Elderly and Disability Pensions 16% 14% 15% 14% 12% 10% 12% 10% 8% 6% 4% 2% 0% Elderly Disability Generosity over whole population Generosity to poorest Quintile Source: TL-SLS 2014. Note: Generosity is the mean value of the transfer received divided by total household expenditure. This share is calculated separately for the bottom 20% expenditure group and for the general population. 83 Portuguese News Agency, at http://noticias.sapo.tl/portugues/lusa/artigo/26803331.html 84 Generosity is the mean value of the transfer as a share of the total welfare aggregate of the beneficiaries in that group. 85 World Bank (2013), Timor-Leste Social Assistance Public Expenditure and Program Performance Report, Washington D. C.: World Bank. 86 Ibid. 66 Timor-Leste Social Protection Review In assessing adequacy, the benefit amount can also be compared with Timor-Leste’s economic indicators including average wage, national minimum wage, per capita non-oil GDP and poverty lines (Figure 37). The elderly and disability pensions account for 28 percent of per capita non-oil GDP, which is high and unsustainable. Figure 37 Relative Size of Annual Benefits of the Elderly and Disability Social Pensions 0% 10% 20% 30% 40% 50% 60% 70% 80% Ratio of Benefit to the international poverty line 76% (extreme poverty) Ratio of Benefit 65% to the National poverty line Ratio of Benefit to the 26% National minimum wage Ratio of Benefit to Average wage 6% Ratio of Benefit 28% to Non-oil GDP per capita 0% 10% 20% 30% 40% 50% 60% 70% 80% Source: Authors’ calculations based on LFS 2013, TL-SLS2014, IMF Country Report No. 19/124 May 2019 for Non-oil GDP estimates and, NSD- MOF Population projections 2004-2050. Meanwhile, the contributory social security scheme is designed to pay generous benefits indexed to wages, contributions, and tenure. Pensions for old-age, disability and survivors under the social security general scheme allows a 100 percent replacement rate for average earnings of the best-paid out workers with an entire 30 year full contribution of the past ten years. The parental benefits provide allowances that correspond to 100 percent of the beneficiary’s average reference income for the first six months within the last eight months before claim. Replacement rate87 in Timor-Leste is, therefore, much higher when compared to other countries. Most OECD countries average gross replacement rate at 1.5 times average earnings (called “high earnings”) is 45 percent88. There is substantial variation across countries with some mandatory schemes providing below 30 percent of the average wage while others offer higher than 75 percent replacement rates. For instance, gross replacement rate average in Portugal is 73,1 percent, and 55,3 percent in Indonesia. Distinctly, replacement rates vary between 45 percent and 75 percent of insurable earnings89 in ASEAN member countries. An unusually high replacement ratio for old-age benefits would create minimum incentives for workers to save for their own retirement and it would highly weigh on both employers and workers. An unusually high old-age benefit replacement rate for larger employers, for instance, may push employers to raise payroll costs and sparingly hire new workers. For small employers, the additional contribution efforts may be too high for their business to survive and for workers; it means a decrease in their take-home pay. 87 Replacement rate corresponds with the level of pension benefits in retirement from mandatory pension schemes relative to earnings when working (OECD, 2019). It measures how effectively a pension system provides a retirement income to replace earnings. Replacement rate is also expressed as the ratio of the pension to final earnings (just before retirement). 88 OECD (2019), Pensions at a Glance 2019: OECD and G20 Indicators, Paris: OECD. 89 UN/ILO/MSS (2018), Challenges and ways forward to extend social protection to all in Timor-Leste: Assessment-Based National Dialogue re- port, UN/ILO/MSS: Dili. Timor-Leste Social Protection Review 67 Financial Sustainability This section analysis is based on the World Bank’s previous study on the design, financing and administrative processes of Timor-Leste’s social security scheme beyond 204590 that is contrasted with an actuarial study conducted by the MSSI. The study showed less favorable results than the MSSI actuarial study though with similar costs pattern91. The government of Timor-Leste would greatly benefit from an updated analysis that thoroughly consider every aspects of the contributory social security scheme to anticipate future issues as well as t o support policy adjustments needed to anticipate significant macroeconomic, labor market, budget and social impacts in the decades to come. Timor-Leste has been expecting a continuing growth of its young population, but after 2050 the population will start to age rapidly. It is at this stage that the cumulative effects of reduced fertility and increased life expectancy will start to have a significant impact92. Proportion of those above 60 year old, for instance, will increase from 6.7 to 24.1 percent in 2040. As Figure 38 shows, the old-age dependency ratio will continue to decrease until about 2045 and then increases significantly. Child ratio, meanwhile, will gradually decline until about 2030, and followed by a rapid fall. The Support ratio (sum of both ratios) indicates that there would almost be one non-worker for every worker. This ratio will continue to decrease until approximately 2070 and then resumes growth. While enabling people to live longer and live better lives signifies development impressive wins, it also poses many challenges on the economic and social aspects. Figure 38 Population Dependency Ratios 120 100 80 60 40 20 0 2012 2013 2014 2015 2020 2025 2030 2040 2050 2060 2070 2080 2090 2100 Old Age Child Support Source: World Bank (2014) Note: Old age dependency ratio is the ratio of those 60+ to those of working (15-59); Child ratio is the ratio of children (0-14) to those of working age (15-59); Support ratio is the sum of the old age and child ratios. Beneficiaries will start to grow faster after 2025 as the number of old-age pensioners accumulates. Figure 39 shows that the number of contributors increases progressively during the period due to population and salaried workers growth93. In the early stages, beneficiaries will most likely include those with disability, and survivors as very few would be eligible for old-age pension. After 2025, however, the number of beneficiaries will grow exponentially due to the accumulation of old-age pensioners. This will occur only 9 years ahead of the Petroleum Fund expected exhaustion. Predictably, the dependency ratio will continue to surge beyond 2100. 90 World Bank (2014), Review of the actuarial forecasts of the proposed contributory social security regime in Timor-Leste, World Bank: Jakarta. 91 Annex 8 presents a summary of all assumptions used in the World Bank study and in the MSSI report. 92 World Bank (2014), Review of the actuarial forecasts of the proposed contributory social security regime in Timor-Leste, World Bank: Jakarta. 93 Ibid. 68 Timor-Leste Social Protection Review Figure 39 Contributors and Beneficiaries 500 80 450 70 400 60 350 50 300 250 40 200 30 150 20 100 10 50 0 0 2015 2020 2025 2030 2040 2050 2060 2070 2080 2090 2100 Active Civil Servants Beneficiaries Dependency Ratio Source: World Bank (2014) Note: Dependency ratio is the ratio of beneficiaries to contributors. The growing dependency ratio will likely have a significant impact on expenditures. In the initial stage of the social security system, costs94 are low because the system has not yet amassed large number of beneficiaries whilst those eligible to receive benefits collect only relatively small amount as benefits are based on years of contributions95. However, in the context of an aging population and increasing replacement ratio, it is estimated that expenditures as a percent of payroll will increase throughout the period and will reach almost up to 50 percent of payroll by 2100. The World Bank’s study also estimates a level of contribution necessary to balance contributions and expenditures. To stabilize the plan over the period of 2015 to 2040, for instance, a contribution rate of 6.7 percent would be needed, which would increase significantly to 22.9 percent forty years later or 31.2 percent by 2100 (Figure 40). Figure 40 Required Contribution as % of Payroll 2100 31.2% 2090 27.2% 2080 22.9% 2070 18.5% 2060 14.0% 2050 9.5% 2040 5.6% 2030 2.4% 2025 1.1% 2020 .3% 2015 .0% 0% 5% 10% 15% 20% 25% 30% 35% Source: World Bank (2014) This analysis included only the cost of old-age, disability and survivor benefits. 94 World Bank (2014), Review of the actuarial forecasts of the proposed contributory social security regime in Timor-Leste, Jakarta: World Bank. 95 Timor-Leste Social Protection Review 69 Consequently, the accumulated pension fund assets may be a very large proportion of GDP. Figure 41 shows the evolution of accumulated reserves by considering a 2.5 percent real rate of return and 15 percent of contribution rate. The social security plan would accumulate to more than 25 percent of GDP by 2030 and would be exhausted by 206396. In this context, a challenge will be to carefully preserve and invest the pension fund assets in a way that maintains the sustainability of the plan. Figure 41 Pension Fund Assets as % of GDP, 2,5% Real Rate of Return, 15% Contribution Rate 30% 25% 20% 15% 10% 5% 0% 2015 2020 2025 2030 2040 2050 2060 2070 2080 2090 2100 Source: World Bank (2014) 4.3 Effectiveness and Program Considerations The analysis shows that the elderly pension is the single non-contributory social security benefit that has the largest impact in reducing poverty. The elderly pension is a relatively well-targeted program with a significant impact on poverty reduction. Figure 42 below illustrates comparative impact of Elderly Pension showing that it has prevented 2.9 percent people from falling into poverty. The program payout is estimated to be around 15 percent of the lowest quintile households’ average budget, which is in line with international standards. Its universal nature leads to a highest coverage rate including among the poorest. Figure 42 Comparative Impact of Elderly Pension in Reducing Poverty 50 48 47.3 46 Poverty Headcount 44 43.4 43.0 42 40.5 41.4 40.7 40 38 Benchmark Benchmark 36 Social Benchmark without without Benchmark 34 Protection without Elderly Disability without All program 32 Benchmark Bolsa da Mãe Pension Pension veterans removed 30 Source: TL-SLS 2014 Meanwhile, despite its significant impact on beneficiaries’ income and livelihood, the disability social pension does not appear to bear noticeable impact on poverty reduction. It affects a very limited group of people, mainly those permanently unable to work. Proportion of the disability pension recipients within consumption groups indicates that the program is not pro-poor as exhibited with only less than half of beneficiaries are in the two poorest quintiles. Ibid. 96 70 Timor-Leste Social Protection Review Program Considerations Timor-Leste’s contributory social security benefits cover only 34 percent of the labor force, but it has the potential to increase substantially. It would, accordingly, be sensible to extend the contributory scheme to also cover informal employment as the number of informal employment represents roughly 70 percent of employed population based on the LFS 2013. Although including informal employment and available jobseekers (potential labor force) would raise contributions and revenues, it would also increase overall liability, as this would mean tripling the number of currently insured people. Given the existing issues with the social security programs’ parameters, the coverage expansion has to be approached carefully. A particular challenge to overcome is the relatively high target replacement ratio for old-age benefits of the contributory social security benefits. International standards do not recommend a 100 percent of average earnings as target replacement ratio. Only countries with high standard of living might be in a position to offer higher retirement benefits, particularly if the government aims to protect low-income workers97 from old-age poverty, most often through subsidized contribution. Examples include Denmark, which sets out a future gross replacement rate of 114% following a full career for low-income workers, meaning that their retirement benefits will be higher than their earnings while they were working98. There is ample room for improvement of the disability benefits design. Disability benefits are normally defined as a flat proportion of salary regardless of age and years of contribution or a percentage of the expected benefit if individuals had worked until they have reached their retirement age. Current design calculates accrued benefit at the time of disability, which may provide an inappropriate benefit for a worker who becomes disabled at a young age. Most common design feature is to have a replacement ratio for disability that is lower than the one for old-age benefits to prevent earlier retirements and continue to provide incentives for work. In terms of programs’ administration, it is important to ensure that the social security program’s information management system is integrated with unique identification (ID) and other social protection databases. With the unique identification system development underway, the stakeholders involved in administering the implementation of social security program should ensure linkage between the social security administration and unique ID system is established. As international experiences show, having a unique ID as backbone of beneficiary management system helps ensure the benefits of government- financed programs are reaching the right beneficiaries. Having an interoperable system across different social protection programs also facilitate better targeting and in determining other complementary social protection programs that an individual or a family could receive. Interoperability with employment-related databases and services including with business licensing and registries will also support social security compliance monitoring in the future. Low-income workers are defined as workers earning half of average worker earnings (0.5 times) (OECD, 2019). 97 OECD (2019), Pensions at a Glance 2019: OECD and G20 Indicators, Paris: OECD. 98 Timor-Leste Social Protection Review 71 “Timor-Leste is in need of an integrated and digitized social protection administrative platform that is anchored on a unique identification system”. 72 Timor-Leste Social Protection Review 5 Systems Governing Social Protection Delivery Timor-Leste has made some progress in the development of its social protection system, but the delivery of benefits and services remains immensely fragmented. This chapter reviews the systems governing social protection delivery, including policy and legal framework, administration responsibilities and implementation arrangements. 5.1 Policy and Legal Framework Timor-Leste’s Constitution stipulates that the state is responsible for providing social protection to its populace. It recognizes Timorese citizens’ right to social assistance and social security as well as envisions the establishment of a social insurance system to the degree that the state’s natural resources allow99. The Constitution also includes support to women during pregnancy, promotion of safe and adequate work remuneration as well as adequate housing100. It lawfully reinforces specific groups of people’s rights including children, youth, elderly, disabled as well as veterans and their families101. In keeping with its Constitutional commitments, the Government has devised various efforts to formulate a social protection strategy. Poverty reduction has been established as a national strategic objectives under the Timor-Leste SDP 2011-2030, which is also in alignment with the 2030 Agenda and the SDGs. The 2030 Agenda was ratified by the National Parliament Resolution 19 on November 18, 2015, which recommends alignment of Timor-Leste’s planning and budget systems with the SDGs. The state’s intention to formulate a social protection strategy was incorporated into the national SDP 2011-2030 and strategic plans developed by Directorates within the MSSI. Between 2016 and 2018, the MSSI, in cooperation with other national and international institutions, participated in an ABND led by the ILO as well as Portugal Development Cooperation project. This assessment included a comprehensive analysis of the social protection sector, identified policy gaps and an operational framework aimed at providing foundation for the first National Social Protection Strategy in Timor-Leste. The current set of social protection programs reflect a mix of policy goals. While the new social security system has a clear objective, other existing programs remain incredibly fragmented and poorly administered. There are a variety of remarkably small programs targeting a wide range of groups, employing different approaches to achieve their goals. These programs’ objectives may vary from alleviating poverty, reducing vulnerability, mitigating shocks, facilitating access to basic services, and enhancing human development. Coordination amongst programs is barely visible and occasionally inconsistent principally due to the lack of an overall social protection strategy. Most programs do not share administrative tools, which means that each program is at liberty to manage their own methods for beneficiaries’ identification, targeting or administering payment. The MSSI, for instance, had developed a MIS for core social assistance programs, but it has only been partially operationalized. Other cash transfer programs, including the Veterans’ transfers, also handle their own MIS. Accordingly, the social protection identification and enrollment system remains disconnected, hindering policy makers’ intelligibility to discern whether programs converge or overlap and consequently renders the overall system to lack both efficiency and effectiveness. Timor-Leste’s social protection is indeed governed by piecemeal legislation. Over time, the existing legal framework has been flexible to accommodate major changes in program rules and implementation, which is advantageously a forte of the system. The framework, effectively, is a collection of program-specific legislation and regulations that takes account of the social protection system (contributory and non-contributory) provided 99 Article 56 ‘Security and Social Assistance’ 100 Article 39 (Family, Marriage and Maternity); Article 50 (Right to work); and Article 58 (Housing), respectively. 101 Article 11 (Valorization of Resistance); Article 18 (Child Protection); Article 19 (Youth); Article 20 (Elderly); Article 21 (Disabled). Timor-Leste Social Protection Review 73 by MSSI, MACLN and other ministries. There remain, however, certain programs, benefits and services without specific regulatory legislation, such as the support to victims of gender-based violence and domestic violence, or the natural disasters recovery and victims of social conflicts. These programs have been operating based on, among others, ministerial orders, organic law, and national plans. Annex 5 summarizes the main pieces of legislation and regulations governing social protection in Timor-Leste. In November 2021, the Government launched the National Social Protection Strategy that sets out clearer visions and objectives of the country’s social protection system. The strategy builds on the targets set out in Timor-Leste’s Strategic Development Plan 2011 – 2030 and the SDGs and is also part of the Strategic Plan of the Ministry of Social Solidarity and Inclusion. The strategy stipulates three main objectives namely: educing poverty, improving and expanding social security for workers, and promoting institutional development. Each of this objective contains priority areas or intervention and foresees the establishment of a National Council for Social Protection and Executive Secretariat for Social Protection to promote stronger coordination and more robust monitoring of the strategy’s implementation. 5.2 Administrative Responsibilities Social protection benefits and services delivery involve a wide range of actors and institutions. Key players in the management and implementation of Timor-Leste’s main social protection programs are MSSI, the INSS and the MACLN. The MSSI, according to the Organic Law, is responsible for defining and implementing social security systems; developing social assistance programs; promoting humanitarian aid to the most disadvantaged; proposing and developing disaster risk management policies and strategies; providing protection, monitoring and community reinsertion of vulnerable groups and establishing collaboration and coordination mechanisms with other government institutions in related areas. Established in 2016 under indirect administration of the MSSI, the INSS is the main institution managing and implementing the social security system102, which has only started to fully function in January 2019. By the same token, the MACLN was established in 2018 and focuses exclusively on the veterans’ programs. While each ministry preserves responsibility for their programs’ respective management and implementation, other institutions have unequivocally supported social protection benefits and services delivery. Additional support includes data verification, monitoring of conditionalities when applicable, and payments processes. The MOE and MOH, for example, work in partnership to verify data and monitor conditionalities for the Bolsa da Mãe program. Teachers and school directors are requested to fill in education compliance verification forms for every beneficiary aged 6-17 years old. Health facilities are asked to fill the health compliance verification forms for all beneficiaries aged between 0 and 5 years old or pregnant women. These forms are provided to the MSSI’s local focal point, which forwards relevant information to the program coordinator. The Ministry of Finance administers all payments, account of which is managed by the Central Bank of Timor- Leste (BCTL). Commercial banks, including the National Bank of Commerce of Timor-Leste, (BNCTL), a state-owned bank receive payments from BCTL based on MOF-approved MSSI guidelines. Communications regarding payment schedules and sites are sent to local authorities under the Ministry of State Administration by the MSSI. Figure 43 below presents a summary of the inter-ministerial roles in the main social protection programs. 102 INSS contains four entities: (i) Council of Administration, which includes representatives of social partners; (ii) Executive Director; (iii) Consultative Council and; (iv) Fiscal Council. The Executive Director is responsible for managing and implementing the social security system, under which all departments and units report to. The INSS has 65 staff in Dili. 74 Timor-Leste Social Protection Review Figure 43 Inter-ministerial Roles in Social Protection Ministry of Ministry of Ministry of Other Social Solidarity Finance State Administration Ministries and Inclusion • Establishes programs’ • Manages payments • Assigns staffs and • Education: Verify school criteria; through a BCTL working space for enrollment and school • Inform the public account; the programs at attendance for the about programs and • Pays commercial banks, municipality level; Bolsa da Mãe program. communicate key which has agreements • Distributes program • Health: Issue medical messages; with MOF and MSSI to information and official certificates for disability • Collect, validate and pay beneficiaries; notices regarding pension; Verify health verify applications; • Ensures that reserve payments schedules conditions regarding surplus from the social and sites; vaccines and health • Determine eligibility; check-ups for the Bolsa security system are • Coordinates with • Enroll beneficiaries; saved at the social local and community da Mãe program. • Sends payment lists security bank account leaders; • Defense: Provide and instructions to at the BCTL until the • Support registration security for payments MOF and banks; SSRF is operational. processes; during cash-out • Provide services and, sessions. • Help verify data and if outsourced, verify collect documents; services provided; • Issue and verify • Monitor any programs’ electoral cards; conditions; • Assist payments during • Respond to complaints cash-out sessions. and appeals; • Update beneficiary data/registry. Under Timor-Leste’s decentralized system of government, both the central and sub-national government are equally responsible for programs’ implementation. Even though policy, planning and budgeting are still to a great extent concentrated at the central level, municipality staff play a key role in programs’ implementation. The MSSI established the Centre of Social Solidarity (CSS), responsible for local-level cross function coordination, program execution support and monitoring of programs in every municipality. Similarly, the CSS house a total of 65 Social Animators, including 5 Focal Points for each social protection program (Bolsa da Mãe, Elderly and Disabled Social Pensions, Disaster Risk Recovery, Child Protection and Domestic Violence) to assist in finding and informing potential beneficiaries, assessing their needs and conditions to determine their eligibility and enrollment, registering beneficiaries, assisting payments when cash-out sessions are organized, as well as monitoring and support grievance processes to ensure that cases are taken to the management level. In addition, the MSSI local staff also coordinate closely with municipal and local authorities, particularly with community leaders at suco (village) level as local staff are characteristically bound by strong traditional accountabilities to the communities they represent. As such, community leaders have a significant role in program communication, identification, registration, payment and complaints. 5.3 Implementation: Outreach to Delivery of Benefits and Services As in most countries, Timor-Leste’s social protection benefits and service delivery is implemented through more than a few steps made possible by various key actors/institutions and sustained by a handful of enabling factors including but not limited to coordination, communication and management information systems. Given that many programs by and large go through these comparable steps, there remains considerable scope for potential integration or interoperability which would significantly raise social protection program’s efficiency, effectiveness and accountability while promoting citizen’s ease of access to benefits they are entitled to. Timor-Leste Social Protection Review 75 Outreach Locating and informing Timor-Leste’s potential beneficiary remains a challenge. For social assistance programs, campaign to raise awareness and understanding of social protection benefits and services has primarily depended on local MSSI officers’ personal initiative. There is no strategic outreach plans/guidelines in place for officers to conduct consistently and in so doing tend to occur in an ad hoc fashion. Information campaigns have only been ceremoniously conducted as part of the initial program registration step. Starting 2017, intending to generate takings from the contributory social security regime, the MSSI has increased the number of public information campaigns across the country, including on television and social media. Absence of a unique single identification system makes outreach to potential benefits difficult and in most cases, information about social assistance programs is relayed through the suco chiefs. Suco chiefs’ have de facto become the principal interface between beneficiaries, local government and eventually the MSSI as the implementing agency. In March 2020, a technical committee for the preparation of an integrated unique identifier system was established. Led by the Executive Director of the Information and Communication Technologies Agency (TIC Timor), the Committee is responsible in developing a Unique ID strategy with support from the World Bank and other development partners. The development and utilization of the single unique ID number is the first step to integrate data systems across programs and establish a basis for a considerably more effective, inclusive and accountable social protection system in Timor-Leste. Intake & Registration Information collection, verification, and registration for social assistance programs take place mostly at the community level while the intake and registration for contributory programs are administered at central and municipal level. For non-contributory programs, suco chiefs’ responsibilities include: 1) enlisting all potential beneficiaries based on eligibility criteria, 2) inputting the data into standard application forms, 3) Sending the lists and information to the MSSI staff at the Administrative Posts, who will then forward the information to the local MSSI officers at the municipal office. Each program has their own focal points at the municipal level responsible for coordination with local authorities to verify and validate information provided by beneficiaries to suco chiefs. Eligibility criteria and documentation needed to register for the non-contributory benefits can be seen in Annex 6. Intake and registration of contributory social security system occurs at the central and municipal levels. Employers are responsible for registering the institution and its workers in the social security general regime and do so by filling and delivering a standard paper form to the INSS headquarters in Dili or to the local services in the municipalities within specified period. The standard form also allows employers and workers to amend information, suspend and terminate payments. Meanwhile self-employed workers under the voluntary regime can also independently register and update their employment status. Similarly, self-employed workers can independently fill and submit a standard form at the INSS headquarters in Dili or via the local MSSI offices. In all of these procedures, employers and employees are required to submit documents as listed in Annex 6. While community leaders are well placed to collect information and register potential beneficiaries in the system, this practice may conceivably breed preferentialism. This arrangement enables community leaders to apply their extensive knowledge of villagers’ needs and conditions to effectively conduct community-based targeting and validate beneficiary lists. Conversely, while community leaders’ engagement can be seen as a route to increase accountability, same applies can also lead to potential ineffective targeting outcomes as elite capture may, at times, are not well-informed about current conditions or may exercise undue influence on beneficiaries’ selection. Evidence from other countries shows that aforementioned ineptitude is unlikely to occur if people/families in the villages are, for instance wealthier, educated, and politically connected103. Accessibility of adequate administrative tools along delivery chain is, indeed, critical to improve accountability, reduce inefficiencies and improve effectiveness104. 103 Mansuri, Ghazala, and Vijayendra Rao (2013), Localizing development: Does Participation Work?, Washington D.C.: World Bank. 104 World Bank (2013) Common ground: UNICEF and World Bank approaches to building social protection systems, Washington D.C.: World Bank. 76 Timor-Leste Social Protection Review Eligibility & Enrollment Social protection programs’ eligibility and enrollment are determined at the central level based on potential beneficiaries’ profile and respective documentation registered in each programs’ databases. For social assistance programs, the MSSI staff at the central level would lists potential beneficiaries and documents from the MSSI municipal office for another round of verification. Recorded data is then validated against the eligibility criteria to generate lists of eligible, non-eligible, and pending beneficiaries. Potential beneficiaries will only find out about the temporary results of their registration when they read the notice posted by the suco chiefs in the village notice board. They will then have thirty days to report to the suco chiefs in case of discrepancy. At the end of the notice period, suco chiefs send the community-verified list and any other additional cases to the MSSI upon which a final list of beneficiaries will be issued to then be sent to banks for payments. The lack of integration and automatization has made the current system inefficient and subject to many sources of potential error. To date, local MSSI staff continue to send hard copies of application forms and documents to the Dili office for manual verification and correction. This is a very time-consuming process as it relies heavily on limited human resources and is exceptionally prone to errors and misallocation of benefits. Other connectivity limitations, including poor-quality roads and lack of transportation, particularly during rainy season, may have also contributed to cause the current system ineffectiveness. When put to use, the offline functionality of SIGAS can be reasonably valuable for use in the field. In its design, SIGAS can be used by local staff for data entry in the field even without internet connection. When Internet access is available, the locally filled database could be synchronized to the main server, permitting data and required documents to be transferred to the online system for automatic validation against the eligibility criteria. To date, Bolsa da Mãe has been the only program to take advantage of SIGAS platform despite the intention for the system to be used by all social assistance programs105. Bolsa da Mãe program records data in SIGAS to determine eligibility, enroll beneficiaries and generate payment lists106. Other programs have continued to rely on separate programs’ databases managed by their respective department, which have produced messy amount of paper files. Meanwhile, for contributory social security benefits, eligibility and enrollment are determined by the INSS. In Dili, the INSS has a Front Desk (Departamento de Atendimento) to receive applications for contributory- related benefits. Applications are submitted with required documents corresponding to the type of benefit summarized in. The Enrollment Unit at the Department of Contributions analyzes applications submitted to confirm compliance with each benefit criteria and requirements. The INSS is currently using an internally developed social security information system - which is similar to the system used for the elderly and disabled non-contributory pensions. The social security information system then assigns a Social Security Identification Number to employers and workers. A shift toward a more efficient delivery system has emerged through the COVID-19 response. The Government has developed and implemented a digital beneficiary verification and payment monitoring forms instead of paper forms. The digital systems have allowed for swifter monitoring of the near universal the COVID-19 cash transfer. It is imperative that digital systems such as these are adopted across all areas of Timor-Leste’s social protection program delivery systems. Provision of Benefits & Services Social protection benefits payment is delivered through a combination of methods principally handled by commercial banks as the main service provider. The Banco Nacional de Comércio de Timor-Leste (BNCTL), which is the state-owned commercial bank, is used for all non-contributory social assistance programs, except 105 Elderly and Disabled programs are still using their in-house old system, which records beneficiary information and application details, determines eligibility and generates payment list. 106 According to a 2019 briefing note on Bolsa da Mãe program data and challenges, the Bolsa da Mãe Team has been working on transferring information from hard copies application forms into SIGAS. This includes data dating back to 2015. Although was incomplete with the verification feature, in 2019, the MSSI had finally decided to use SIGAS to generate payment lists. Stacks of pending applications have led to many complaints, which is currently under examination to be solved. Timor-Leste Social Protection Review 77 for veterans’ payments whereby beneficiaries can choose their own bank. Beneficiaries living in remote places receive payments delivered by hand in cash. Pensions and benefits of all contributory social security are directly transferred to beneficiaries’ banks accounts with branches at local level. Details on the non-contributory programs’ benefits can be seen in Annex 6. 5.4 Overview of Country Payment Systems The Government has embarked on modernizing the national payment system although the majority of transactions are still conducted in cash. In 2018, the number of cash transactions accounted for around 98 percent of total transactions made through the banking system while non-cash-based transactions amounted to only 2 percent of total transactions in the country107. Under the national SDP for 2011-2030, the Government has set an ambitious agenda for social and economic development assuming a modern national payment system and mechanisms would have been instituted. In 2013, the BCTL conducted an analysis on the national payment system that brought about momentum to formulate the Strategy for the Development of the Timor- Leste National Payments System. A National Payment System was created by Decree-Law No. 17 of June 24, 2015 that assigns BCTL with the mandate to set regulations and play a key role in the establishment, regulation, promotion and supervision of a sound, secure and efficient national payment system. In 2015, BCTL launched a new automated system for secure and efficient payments between individuals, public and the private sector. The Real Time Transfer Network called R-Timor operated by BCTL includes a Real-Time Gross Settlement (RTGS) system and an Automated Clearing House to ensure safe and effective interbank transactions and payments. The R-Timor system has effectively collaborated among the BCTL, commercial banks and the MOF108. Since the Government Resource Planning (GRP) system of the MOF joined the Central Bank´s R-Timor system in 2018, payments from Government to People (G2P) and Government to service providers (Government to Business, G2B) have been conducted in real time to beneficiaries’ commercial bank accounts and suppliers thereby saving valuable time for banks to process transactions109. Over the past few years, the Timorese financial system has been improving. The BCTL estimated in 2018 that about 65 percent of adult population had at least an account with any of the financial services (banks, MFIs or credit unions), with the banking subsector having the largest share of clients.110 Banks include the BNCTL, a state-owned commercial bank and four foreign commercial banks (Caixa Geral de Depósitos S.A./ BNU Timor, Australia and New Zealand Banking Group/ANZ, PT. Bank Mandiri, P.T. Bank Rakyat Indonesia). Non-bank financial institutions include two insurance companies (SinarMas and the Federal Insurance Timor), other deposit-receiving institutions, moneychangers and money transfer operators (MTOs), and also several credit unions. Existing MFI were licensed as Other Deposit-Taking Institutions (ODTIs) by the BCTL. Moris Rasik is currently the ODTI with the highest number of accounts (45percent) while Kaebauk Investimentu no Finansas is the largest ODTI by number of clients. ODTIs have been operating in all districts and have enabled those living in rural areas to have access to financial services and products, particularly women (ADB, 2016). In 2018, around 88 percent of women were ODTI clients and have taken up to 90 percent of the total ODTI accounts111. Despite significant progress, access to financial services remains challenging in some regions. It is estimated that less than one in six economically active adults do indeed use financial services112 and that about 58 percent of the populaces still do not have access to banking services in their areas of residence113. The BCTL has been developing a range of initiatives to promote financial inclusion. This includes joint work with the MOE and National Institute for Training of Teachers and Education Professionals (IFORDEPE) to implement financial education at schools114. It has also launched a National Strategy for Financial Inclusion (NSFI) for 2017-2022 to reduce financial illiteracy and guarantee access to basic and affordable financial services to all population. 107 Ibid. 108 Ibid. 109 Ibid. 110 Presentation on Progress on Building Timor-Leste’s Financial Sector presented at the 2019 Timor-Leste Development Partner Meeting in Dili 4 July 2019 https://www.mof.gov.tl/wp-content/uploads/2019/07/BCTL-Updates-on-Timor-Leste-Financial-Sector-Development- TLDPM2019-v1.pdf 111 https://www.bancocentral.tl/en/go/financial-inclusion-report 112 ADB (2015), Growing the Non-oil Economy: A Private Sector Assessment for Timor-Leste, ADB: Philippines. 113 BCTL (2018), Financial Inclusion Report 2018: Measure, Strategize and Innovate, BCTL: Dili. 114 Ibid. 78 Timor-Leste Social Protection Review The Government of Timor-Leste is making efforts to move from a cash-based delivery system to an electronic delivery system. By end of 2018, the BCTL with help from SIBS International – Portugal had established a National Card and Payment Switch system called P24, which allows for national interconnections between banking systems and telecommunication operators through the R-Timor system. BNU Timor and Mandiri Bank were the first two banks to integrate the grid - enabling their customers to use P24 card in Automatic Teller Machines (ATMs) and Electronic Funds Transfer at Point Of Sale (EFTPOS) from both banks, and facilitate processing of payments, transfers, check balance and other activities regardless of the bank of origin. The BCTL had expected to have all banks integrated into the network.115 The integration of telecommunication providers has allowed Telemor Fintech Lda in 2018 to offer an electronic payment service (e-wallet) to facilitate financial transactions. The E-wallet option is popular amongst populace between 17 and 35 years old, which is the group with less access to bank accounts116. There are moves toward using digital technology in delivering payments. In February 2019, the World Vision in Timor-Leste piloted a digital cash platform called Kartaun Bele, which uses a block-chain technology to ensure fast, secure and easy cash transfers to vulnerable people. Kartaun Bele allows recipients to receive, transfer and store cash in a smartcard that can be used to buy goods and services at local vendors. Between March to November 2019, Kartaun Bele was utilized as part of the disaster risk reduction and response to support 2,987 vulnerable people and affected households in need of emergency assistance from 8 sucos in the of Bobonaro municipality and involved 12 vendors at the community level. The practice is a potentially viable payment solution for areas with adequate network connectivity and could be considered in national social protection programs in the near future. In terms of transaction volumes, the Timorese Government is the largest user of the national payment system. According to the BCTL, the Timorese Government’s domestic payments comprise of those classified as large amount or retail. Retail payments are conducted through the automated clearinghouse twice a day, which include salaries, subsidies to veterans and payments to suppliers, which are processed by the other commercial bank. Transactions exceeding US$200,000 are made through the RTGS. 5.5 Opportunities for Reforming Delivery Systems Timor-Leste has made notable progress in establishing a social protection delivery system. This has enabled the country to offer citizens some financial protection throughout their life cycle, promoted citizens’ wellbeing and contributed to poverty reduction. The progressively maturing social protection system has settled for modernization that can take advantage of current arrangements whilst continuing to strengthen and adapt the existing system to maximize impact, reduce resource intensity and be able to quickly respond in times of crisis. Considerations for reforming Timor-Leste’s social protection delivery systems are presented below. First, implement, monitor, and adjust the recently-launched National Social Protection Strategy. Social protection in Timor-Leste has already been sanctioned by law and the Government has strengthened and expanded the framework to protect specific groups of people. The development of an overarching national social protection policy and strategy framework that takes into account all that is regulated by law, incorporating appropriate and well-defined goals and targets would certainly help the government to move towards a more effective social protection system. It remains to be seen, just how the Government will develop specific guidelines to address key issues for implementing ministries such as: (a) addressing the ongoing exclusion errors in the social protection system, (b) ways to specifically respond to vulnerabilities and shocks, (c) prioritizing needs and balancing reform options, (d) consolidating existing programs and (e) strategically plan and appropriately budget through streamlined administrative arrangements. Second, effectively coordinate actors and institutions involved in social protection in the course of planning and implementation. These may include formalization of working groups and coordination mechanisms, integration of tasks into staffs’ roles and responsibilities, as well as development of protocols and modalities 115 Ibid. 116 Ibid. Timor-Leste Social Protection Review 79 for intervention that may eventually serve as incentives for staff to collaborate. Another practical approach to enforce institutional arrangements and coordination is through adoption of a common administrative system that can expeditiously deliver benefits and services to targeted population. Moving from individualized social protection information management systems to integrated systems, likewise, will be key to adapting programs and their particular deliveries in various situations, including when an emergency such as COVID-19 occurs. These provisions would require strong ministerial leadership and motivation across programs’ managers and teams to think about their programs as a cohesive national program rather than owned by their respective ‘departments/units’. Develop a systematic and objective assessment of needs and conditions. In light of Timor-Leste’s large and unsustainable spending on some social protection programs, but inadequate to alter impacts on poverty and human capital, there is ample scope to improve allocative efficiency by correcting the development of objective targeting methods. While many programs have been categorically and effectively targeted, the Bolsa da Mãe is the only program developed for the poor that has underperformed in actually reaching the poor. Part of the reason is because beneficiaries are selected through community-based targeting, which is a far cry from progressive targeting outcomes. Many countries tend to adopt mixed methods in the allocation of social protection benefits, which may include community-based, categorical and also by means or proxy means testing. While means testing incurs important limitations and is certainly not devoid of its own targeting errors, it is often more accurate than community-based targeting used on its own. A mixed approach could be adopted in Timor-Leste, whereby proxy means testing could be developed based on strong predictors of consumption, income or other classifications of well-being. Even small improvements in the allocative efficiency, borne through an improved targeting system, could have considerable impacts on poverty reduction, human capital and inclusivity - in so doing reaching more of the poor and less of the rich. Most importantly, to shift from fragmented implementation operations to a common administrative system. Progress made thus far in trying to establish a common administrative system is an opportunity to irreversibly move from parallel systems and duplication of tasks to a cost-effective systems approach. Operationally, the following are some suggestions for improvements. Linkage with the National ID system. With the government aiming to issue personal identification cards to all citizens by end of 2025, there is no better moments than now to start linking the national ID system to social protection benefits and services through respective programs’ database management. The linkage could systematically disentangle a number of problems, such as the use of several identity systems and numbers that are prone to errors, duplications of registries and fragmented information on individuals. Moreover, a unique identifier allows for faster integration of different programs and sectorial databases with greater potential to improve benefits and service delivery. The COVID-19 response had actually in practice taken the advantage of unique identifier as the pre-list developed by MSA was cross-checked, using the electoral ID, with INSS data so as to exclude wealthier households from receiving the benefits. The try out was moderately successful due to limited time available and the manual verification mechanism117 used to facilitate this cross check. Interoperability of Beneficiary Operations Management Systems (BOMS). While a standardized MIS for core social assistance programs (SIGAS) has been developed and partially used, the system itself needs major overhaul. In addition, it is important to invest in staffs’ training and capacity building to assure that the system is fully utilized. Another future beneficiary management databases such as the one being planned for contributory social security system has the opportunity to build a standardized, robust identity and benefit management system which ensure appropriate linkages to the BOMS. Other necessary key feature is BOMS’ interoperability with other administrative systems such as the health and education systems (HMIS and EMIS), which can both be used to support specific purposes such as monitoring conditionalities and effectiveness of certain programs, or to improve decision-making. It is also the right time to link the systems to the unique ID and include or update personal identifiers. The forthcoming Population Census will have an improved households geo-referencing, which could then be used to cross-validate SIGAS. Eventually, these reforms would construct the ultimate goal of effective data and information management integration: to improve citizens’ experience to access social protection benefits and services. 117 I.E using excel rather than more advanced data tools. 80 Timor-Leste Social Protection Review Eligibility and enrollment. An opportunity where a system approach could be beneficial for the administration of social protection programs is a regularly and accurately updated beneficiaries’ registration information. This undertaking is particularly relevant for programs that are categorically targeted. For instance, if the new social security system is enabled to crosscheck information with the civil registry database, the system could automatically flag citizens eligible for benefits such as pensions or parental benefits. This practice would facilitate the Government to provisionally provide citizens with indispensable protection and withdraw those when certain conditionality (death, age limits, etc.) have changed. A unification of the system coupled with notification of results of program eligibility assessment could cut costs and improve programs’ transparency. Payments. A new automated payment system that has enabled a more secure and efficient national payments will open up further potential for digitization of social protection payments. Since most of the programs now have similar payment mechanisms and providers (outsourced to commercial banks and manual mechanisms), it is opportune to look for alternative cash distribution mechanisms that can lower transaction costs and reduce multiple fees. While banks are a feasible option due to fast and secure cash transfers to beneficiaries, poor infrastructures and inaccessible network in remote places have made life difficult for beneficiary to collect their benefits. Since the extension of bank payments points has been associated with high costs, other affordable solutions include agent/local merchants with an EFTPOS device. A smart card, for example, could be used in an offline EFTPOS in areas with no mobile network coverage. This solution can also be combined with other social protection programs to reduce duplication and improve efficiency. Monitoring and Evaluation (M&E). An integrated M&E processes across multiple programs has enabled the social protection sector to attain evidence-based information and knowledge to inform policy makers and support the government in designing or reforming social protection programs. Ensuring that the system includes program implementation, process monitoring, information updates when benefits have reached intended beneficiaries and a feedback mechanism capable of generating quality data would improve accountability and support financial prioritizing. Timor-Leste Social Protection Review 81 82 Timor-Leste Social Protection Review 6 Conclusions and Opportunities for Reform A social protection system is critical in helping people, especially the poor and vulnerable, to cope with crises and shocks, build resilience, and improve productivity. Depending on the type of risks faced by various groups in the population, social assistance and social security instruments may be harnessed to protect and promote better welfare. As in any society, those with the lowest incomes are by and large the most vulnerable to economic shocks, including natural disaster, as they tend resort to negative coping strategies triggering unfavorable impacts on their ability overall resilience, health, nutrition and education investments. If unaddressed, these impediments may compound to lower Timorese workers’ potential and subsequently adversely affect the labor market outcomes. While certain shocks may be inevitable, economic and social impacts can be mitigated through the development of an adaptive social protection system. This chapter presents the conclusions and opportunities for the social protection system reforms in Timor- Leste, which outlines 5 major areas of reform: (1) Ensure efficient spending that is better utilized to drive greater impacts on peoples’ wellbeing and prosperity (2) Improve social protection delivery systems to efficiently deliver benefits and services to people; (3) Reinforce social protection’s role in promoting human capital outcomes with a special focus on supporting children and mothers in the early years of life; (4) Continue to develop a comprehensive contributory social security system to protect people of working age, including informal workers. (5) Implement the national social protection strategy with robust monitoring and evaluation capabilities. Table 8 Recommendations Table Recommendation Priority Marginal cost Term 1 Raise efficiency of spending High Low; potential social costs Short 2 Strengthen delivery systems High Low Mid 3 Reinforce human capital impact High Medium Mid 4 Continue developing social security Medium Medium Mid-Long 5 Implement the national social protection strategy with robust monitoring and Medium Low Mid evaluation capabilities 1. Ensure efficient spending and that it is better utilized to drive greater impacts on peoples’ wellbeing and prosperity The continually high level of public spending on social protection inevitably poses a confounding contrast to the high poverty rates, low human development outcomes, and persistently large shares of the poorest population that has remained excluded from social protection. Overall, it is important to first spend better before considering to spend more. With the impending depletion of the main source of social protection financing (and most public spending) by the end of the decade, adjustments towards pro-poor spending allocations while solidifying programs implementation and delivery systems is pressing. As this report has shown, greater impact can be gained from lower levels of spending if social protection spending reallocation emphasizes on adjusting effective programs to cover more of the poor and provide meaningful benefits. Timor-Leste Social Protection Review 83 While most of the programs have gradually expanded the number of direct beneficiaries over the past decade, coverage rates vary widely between programs with considerable gaps in reaching the poorest households. This discrepancy highlights some of the main social protection programs’ less than satisfactory performance particularly for Bolsa da Mãe not only in terms of its poor allocative efficiency but also in terms of overall coverage and benefit adequacy. Among the poorest 20 percent of the population, coverage rates are highest for elderly social pension, which is a universal program (estimated at 53 percent in 2019), followed by the Bolsa da Mãe program, estimated at just 29 percent in 2019. Coverage rates among the poor for all other programs are even lower. To be meaningful, social protection program coverage rates among the poor would have to be significantly increased. Allocative efficiency, a case in point, could be improved by conducting immediate welfare assessments instead of solely expanding coverage. With a basic welfare assessment system in place, a larger proportion of spending could be devoted toward the poorest households, with ideally a stronger focus on children and mothers, while at the same time reducing coverage of the better off households. These changes are possible. Similarly-sized programs such as the Philippines’ Pantawid Pamilya (2015) and Sri Lanka’s Samurdhi (2013), for example, had allocated 18 and 3 percentage points more of the program benefits to the poorest 20 percent of the population than Bolsa da Mãe is estimated to have done in 2019. 118 It is also critical to address the large discrepancy in benefits levels of different programs. As the only program that is said to target poor households with children, the Bolsa da Mãe program accounts for merely 6 percent of the average total household budget in the poorest quintile in 2019, which is 10 times smaller than the veterans’ program thereby disclosing a substantially large horizontal inequity amongst social protection recipients. By improving program design and delivery systems, Bolsa da Mãe program’s potential for poverty reduction and improved human capital outcomes is indeed high but only if the benefit level and program coverage amongst the poor is significantly raised. Meanwhile, both elderly and disability social pensions benefits levels would need to be updated as their indexation to the minimum wage means their real value has gradually declined since 2012. Adjustments need to be conducted in phases. Having realized that improved spending efficiency would undoubtedly prompt reduced spending on the Veterans program toward Bolsa da Mãe, potentially through gradual reduction in the benefit level. Such an adjustment would need to take gradual approach supplemented by strong communication campaigns to mitigate potential negative social impacts. To be more effective, the program’s low benefit level would need to be adjusted to at least two to threefold. Doubling Bolsa da Mãe’s benefit and adjusting its design to be more effective and impactful on improving Timor-Leste’s human capital is a policy that is being pursued for piloting in 2022. 2. Improve delivery systems to efficiently deliver benefits and services to people Efforts towards implementing integrated processes and digitized systems should be applauded but major changes in its delivery systems’ components should be urgently pursued. This includes developing a unique identification system which should be unanimously used by social protection programs. Correspondingly, program-level information systems still lack inter-operability while payment systems do not offer beneficiaries with much choice. Timor-Leste’s opportunities to strengthen the delivery and implementation include: Outreach - As outreach is crucial to promote a better understanding of social protection benefits and services, it is equally important to ensure that key players, whether direct or intermediate actors, are conversely well- informed and well-trained. A community-based communication strategy is a fundamental tool to support interaction among actors. Indirect outreach activities through mass media and social networks could also raise public’s awareness of the rights, duties and social protection benefits. Registration and population welfare assessment - Ensuring that people can access social protection programs as needed necessitates dynamic registration and welfare assessments. Although the initial cost for setting up an on-demand approach for registration and basic welfare assessments may be relatively high, once set up 118 World Bank staff’s calculations based on regional survey data. 84 Timor-Leste Social Protection Review it would instantaneously connect the population to government. Welfare assessments may hold the key to larger efficiency gains on overall social protection spending so that more of the poor are covered instead of the rich. Even small improvements in the allocative efficiency toward higher coverage of the poor at a constant budget would lead to higher poverty and human capital impacts, all of which depends largely on improved Bolsa da Mãe design and implementation. The welfare assessment could be used for all type of programs and target groups, including an adjusted Bolsa da Mãe that targets vulnerable households with children. Likewise, the welfare assessment could also be used for any type of shock, risks or changes in conditions of individuals/households. BOMS and development of a Social Registry - It is important to increase efforts to continue improving the BOMS for non-contributory programs and encourage all programs’ implementers to fully utilize it. This includes operationalizing the access and use of a common BOMS at the municipal level. The existing BOMS (SIGAS) would greatly benefit from being updated to become mobile-compatible to enable simplified user’s access to the system and enter data through smartphones, tablets or computers. An ideal BOMS would also benefit from a Geographic Information System (GIS) module for visualizing and analyzing data on interactive, real-time and user-friendly maps. It is also recommended that the INSS replace its current Microsoft Windows-based social security information system with a better designed BOMS for contributory benefits and ensure that the system can integrate with the BOMS used to administer the non-contributory programs. The MSSI and INSS, therefore, would need to agree on a common data warehouse for an Integrated Data Platform to allow the harmonization of processes and methods by respective social protection programs. BOMS’ interoperability with the health and education management information systems, hypothetically, would likely contribute to improve overall programs’ effectiveness and general decision-making. The integration of such BOMS would also be an opportunity to improve institutional and internal teams’ coordination, which has also been considered as a formidable challenge. Lastly, the government could move to authorize interoperability of a fully-fledged social registry information system that will function as a prime interface of all core social protection programs, as well as allow interaction with other governments platforms. Eligibility & Enrollment decisions - Programs’ eligibility is automatically determined based on applicants’ information stored in programs’ databases. Non-contributory programs enrollment generally follows verification of eligibility criteria while for the contributory scheme, individuals become insured members as soon as they start paying contributions. Eligibility for benefits is calculated when a certain covered contingency (health or work-related, for instance) occurs. It would be important for poverty-targeted Bolsa da Mãe to link enrollment decisions to updated data on vulnerability and poverty standing, as well as current households’ information. As for the contributory social security scheme, it is recommended to safeguard a fully digitized system that accurately records contributions as this is key to ensure that the scheme accordingly provides benefits. The nascent contributory scheme would benefit from an online portal overarchingly capable of managing online registrations, application and SMS-based notifications for all social protection benefits and services. Benefit payments - The quality of payment mechanisms have a direct impact on programs’ efficiency and success. It would be important to build up on electronic payments opportunity while simultaneously venturing to test other mechanisms. Mobile phone payments or smart card payments may be a viable alternative option to explore in addition to bank account-based payments. Mobile phone payments, for example, could be withdrawn at locally authorized stores using the national ID card for verification. Smart card payments based on biometrics, on the other hand, could be used in an offline point of service (POS) provider in areas where there is no mobile network coverage. Effective partnerships between the government, the banking sector and other private payment service providers (PSP) are crucial to deliver payments under such service agreements. At the same time, the government would also need to continue to strengthen its financial inclusion campaigns. Beneficiaries’ grievances compliance - A grievance redress system (GRS) is yet to be developed for Timor- Leste’s social protection system. GRS is an important prerequisite for accountability and good governance. The government has been recommended to establish reporting procedures and to ensure that information regarding the programs is publicly available. Both are equally important as concise information and outreach Timor-Leste Social Protection Review 85 mechanisms would raise the profile and awareness of social protection programs, empower people to actively seek information about their eligibility, while simultaneously prevents shares of grievances from arising in the first place. The GRS could then be linked to the integrated MIS enabling all programs to monitor grievances filed and actions taken while ensuring that resolution would be impartial, transparent, simple, fast and effective. Coordination - Coordination among social protection programs is one of the toughest challenges facing Timor- Leste. Given the number of actors involved in social protection, it is indisputable that effective coordination and communication among policy and decision makers (horizontal coordination) as well as among all actors operating at different levels (vertical coordination) is attended to. It is imperative to have one voice at the highest policy level, to ensure that decision makers and program managers all have the same information and guidance on relevant policy questions. Bringing existing social protection operating systems under a common platform (integration) through coordinated processes would be an option to reinforce the MSSI internal coordination and would place the institution in a better position to liaise throughout the delivery chain up to the sub-national level, as well as to coordinate with other institutions with which the MSSI has agreements and shares responsibilities. Monitoring and Evaluation - The current social protection system lacks a monitoring and evaluation (M&E) system and program implementer reporting that is directly connected to the Governments’ Annual Action Plan. The MSSI has committed to developing a new Strategic Plan over the next four years (2020-2024). Within this plan it would be important to include a design for an M&E system and tools capable of reviewing the social protection system’s performance whilst acknowledging the monitoring and evaluation of programs. Moving from what is currently ad-hoc and spontaneous information collection to a proactive evidence-based approach would be key to inform social protection policy and support the government decisions regarding budget allocations as well as changes in design and implementation of social protection programs. SIGAS and other future BOMS offer a key platform to record administrative data, provide in-built tools for analysis and the provision of tailored data analytics to decision makers. As the need arises, administrative data can be complemented by household survey data, particularly for evaluation purposes. 3. Reinforce social protection’s role in promoting human capital outcomes with a special focus on supporting children and the early years of life. It is indeed alarming that Timor-Leste, with such ample petroleum resources, still tops the list of uppermost 10 countries most affected by hunger and malnutrition119. With an HCI120 lower than the average for Lower Middle-Income Countries (LMI), there is a palpable risk of children being trapped in an intergenerational cycle of poverty. Productive investments are urgently needed to reverse this distressing trend. Social protection can play a central role to encourage the vulnerable and the poorest to invest in their children, which can generate long-term high returns for themselves and for the whole economy. Bolsa da Mãe is a good example of a program that has embodied a promotional approach. Then again, any promotional efforts would be ineffective if not accompanied by working access to essential public health and education services. A strong level of inter-sectoral coordination would instigate co-responsibilities on education and health to ensure effective implementation. Advantageously, the Government has initiated plans to pilot an adjusted scheme of B olsa d a Mãe in t hree municipalities of Ainaro, Bobonaro, and Oecussi. The scheme is to be universal amongst households with children and pregnant mothers and would include a higher benefit. The BdM Jerasaun Foun will provide transfers of US$15/month to pregnant women and US$20 for children. This is an important proposal that would increase spending efficiency and effectiveness - through enhanced program design and implementation, increased coverage and benefit adequacy. That said, the sustainability of a universal program once scaled nationally is a key concern given the lack of sustainable domestic revenue generating mechanisms and the impending depletion of the oil fund in 2034. An alternative option to consider would be to triple benefits while maintaining a focus on human capital by developing an affluence testing or welfare assessment system that would allow allocation of benefits to the poor and vulnerable rather than going universal. 119 Global Hunger Index at https://www.statista.com/statistics/269924/countries-most-affected-by-hunger-in-the-world-according-to-world- hunger-index/ 120 https://www.worldbank.org/en/data/interactive/2018/10/18/human-capital-index-and-components-2018 86 Timor-Leste Social Protection Review 4. Continue to develop a comprehensive contributory social security system to protect those of working age, including informal workers A comprehensive contributory social security system would need to be improved and expanded to informal workers. The contributory social security scheme is a fundamental component of a comprehensive social protection system, especially for the working-age population. The current level of coverage is barely adequate - roughly 34 percent of the labor force. Including informally employed workers (72 percent of the employed population) and available jobseekers would provide an opportunity for the contributory system to grow in contributions and revenues. Doing so would multiply the number of people insured and their contributions by threefold. It is generally known that informal workers tend to be less interested in regular contributions due to unstable work arrangements and lack of regular earnings. Proactive approaches, compelling behavioral change campaigns and other innovative ways to increase voluntary uptake could have meaningful impacts. Informal workers’ participation in the social security regime relies on a strong dissemination campaign as well as reasonable financial incentives to appeal and promote contributions.121 Cape Verde, for instance, succeeded in increasing social security coverage among independent workers from 0 to 9 percent in one year, which included agricultural workers, street vendors, traders, and liberal professionals122. Its success was mainly achieved through proactively approaching target groups, incorporating communication campaigns with education and awareness-raising activities conducted at the local level. Other countries’ experiences can serve as examples of innovative and successful mechanisms to increase informal workers’ contributory coverage, such as differentiated contributory categories or collective registrations arrangements123. Purely voluntary uptake in countries at all levels of development is strictly contingent on people’s cognitive and behavioral limitations124. Innovations to increase peoples’ voluntary insurance has reckoned on behavioral economics to ‘nudge’ and influence them to save and insure125. These include, for instance, alternatives such as including an opt-in default option on business registration and income tax returns that lowers the transactions costs of participating for employers and the self-employer. A default opt-in option contingent on business registration and income tax returns, would attract workers to the system, raise contributions and have evidently increased voluntary savings in both high-income and low-income countries. A different option to boost coverage and pension adequacy is by introducing matching defined- contribution (MDC) whereby government matches, with certain limitation, workers’ pension contribution. These contributions provide added tangible incentives for individuals to participate vis a vis traditional approach of mandating participation, particularly so for low-income groups who are not part of formal labor force.126 Operationally, once the planned MIS system for the contributory scheme is established, linking the beneficiary database with the national ID system, civil registration data, business registration and taxation, would certainly open up opportunities for the programs’ database management and for the development of social protection in the near future. A feasibility assessment (including PROST- Pension Reform Options Simulation Toolkit) to evaluate the different reform options might be a valuable resource to consider. 121 Winkler, Hernan; Ruppert Bulmer, Elizabeth and; Mote, Hilma (2017), Expanding Social Insurance Coverage to Informal Workers, Washington D.C.: World Bank. 122 Durán Valverde, F.; Flores Aguiar, J.; et Al (2013), Innovations in extending social insurance coverage to independent workers: Experiences from Brazil, Cape Verde, Colombia, Costa Rica, Ecuador, Philippines, France and Uruguay, ESS Document 42, Geneva: ILO. 123 For further examples see at Durán Valverde, F.; Flores Aguiar, J.; et Al (2013), Innovations in extending social insurance coverage to independent workers: Experiences from Brazil, Cape Verde, Colombia, Costa Rica, Ecuador, Philippines, France and Uruguay, ESS Document 42, Geneva: ILO. 124 World Bank (2019), Protecting All – Risk Sharing for a Diverse and Diversifying world of work, Washington D.C.: World Bank. 125 Ibid. 126 “Hinz, Richard; Holzmann, Robert; Tuesta, David; Takayama, Noriyuki. 2013. Matching Contributions for Pensions : A Review of International Experience. Washington, DC: World Bank. © World Bank. https://openknowledge.worldbank.org/handle/10986/11968 Timor-Leste Social Protection Review 87 5. Implement the national social protection strategy with robust monitoring and evaluation capabilities. At the heart of social protection programs is protecting people from multiple risks and are instrumental in fostering the much-needed investments in human capital for the country’s most vulnerable people. Effective social protection design and implementation in the direction of those broader goals require the development of a coherent national social protection strategy. Such a policy framework would need to present a national vision for social protection, set goals and targets for the sector, and reorganize the social protection components in an integrated and strategic manner such that the goals are attainable. In late 2021, the Government launched the National Social Protection Strategy. The strategy stipulates clear visions and targets that aim to improve the effectiveness and efficiency of the various social protection programs in reducing poverty and in providing protection throughout the life-cycle. The strategy can be used to initiate a government-wide discussion and galvanize efforts to establish a coherent forward-looking social protection system. Equally important is the development of a robust monitoring and evaluation (M&E) framework and tools to assess and improve the implementation of each action plans. A robust monitoring of the strategy’s implementation will not only help ensure all efforts are geared towards achieving the same objectives but will also allow rapid adjustment of Government interventions when needed, to maintain the relevance of the various goals and policy actions. 88 Timor-Leste Social Protection Review Timor-Leste Social Protection Review 89 References ADB (2019), The Social Protection Indicator for Asia: Assessing Progress, Philippines: ADB. ADB (2018), Pacific Energy Update 2018, Manila: ADB. ADB (2016), Country Partnership Strategy: Timor-Leste 2016-2020, Manila: ADB. ADB (2015), Growing the Non-oil Economy: A Private Sector Assessment for Timor-Leste, Philippines: ADB. Ahmad, Ehtisham and Bretonz, Melvin (2015), A VAT for Timor-Leste: Some Policy and Design Considerations, Timor- Leste: ADB/MOF/Commission for Fiscal Reform. BCTL (2013), Strategy for the Development of the Timor-Leste National Payments System, Dili: BCTL. 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Timor-Leste Social Protection Review 91 Annex 1 Main Features of Non-contributory Social Protection Programs Bolsa da Mãe (Mothers´Allowance) Target population Benefit Amount Number of Beneficiaries Conditionality Poor and vulnerable US$5 per child per month for 60,525 Households (2019) Education: Enroll all children households with children up to three children aged 6-17 in school; Guarantee at least 80% minimum school attendance (Max US$15 per month) for all school-aged children. Health: Children aged 0-1 years old receive all mandatory vaccines; Children aged 0-5 years old visit the nearest health center check- ups every 6 months Community Development Sessions: Beneficiaries participate in community development sessions Payment delivery Implementing Ministry/ Financing Legal basis mechanism Agency Payments lists generated General State Budget Law Decree No. 18/2012 National Directorate of Social automatically by SIGAS (Conditional Cash Transfer Assistance, Ministry of Social Bolsa da Mãe) Solidarity and Inclusion Ministerial Diploma No. Payments via commercial 27/2012 (Regulation of the banks or in cash Conditional Cash Transfer Bolsa da Mãe) Elderly Pension Target population Benefit Amount Number of Beneficiaries Conditionality Elderly (60+) US$30 per month, paid in 89,804 Individuals (2019) None a lump sum on a six-month basis Payment delivery Implementing Ministry/ Financing Legal basis mechanism Agency Payments lists generated by General State Budget Decree-Law No. 19/2008 National Directorate for Non- program specific windows- (Elderly and Disabled Contributory Social Security, based database Support) Ministry of Social Solidarity and Inclusion Joint Ministerial Diploma/ MSS/MoF 2010 on Increase Payments made by bank of the Amount of the Elderly transfer or cash through and Disabled Allowances banks in the municipalities 92 Timor-Leste Social Protection Review Disability Pension Target population Benefit Amount Number of Beneficiaries Conditionality People (18+) with permanent US$30 per month, paid in 8,272 Individuals (2019) None incapacity to work a lump sum on a six-month basis Payment delivery Implementing Ministry/ Financing Legal basis mechanism Agency Payments lists generated by General State Budget Decree-Law No. 19/2008 National Directorate for Non- program specific windows- (Elderly and Disabled Contributory Social Security, based database Support) Ministry of Social Solidarity and Inclusion Payments made by bank Joint Ministerial Diploma/ transfer or cash through MSS/MoF 2010 on Increase banks in the municipalities of the Amount of the Elderly and Disabled Allowances Natural Disaster and Social Conflict Recovery Program Target population Benefit Amount Number of Beneficiaries Conditionality Victims of natural disasters For household recovery: Household recovery: 1,865 None and social conflicts Individuals (2015) (i) Cash benefit of One-off cash transfers from US$150 Emergency Support: to US$368 to address labor costs and materials; 3,000 (2015) Individuals (ii) Provision of construction materials based on the assessed damage. Emergency immediate support: In-kind benefits of (i) one food package per family; (ii) one set of basic kitchen items Payment delivery Implementing Ministry/ Financing Legal basis mechanism Agency Payments and provision General State Budget Organic Law of the Ministry National Directorate of of services made directly of Social Solidarity and Disaster Risk Management, by department staff to the Inclusion/No specific Ministry of Social Solidarity disasters’ victims. legislation and Inclusion Funeral Services Target population Benefit Amount Number of Beneficiaries Conditionality Citizens in general and In-kind benefits: funeral Transport service: 1,397 None vulnerable families transportation and coffins for (2015) the deceased of vulnerable families Coffin provision: 811 (2015) Payment delivery Implementing Ministry/ Financing Legal basis mechanism Agency Provision of services made General State Budget Decree-Law No. 21/2009 National Directorate of Social directly by department staff (Funeral Transport Services) Assistance, Ministry of Social based on agreed conditions Solidarity and Inclusion with family of the deceased Timor-Leste Social Protection Review 93 Emergency Support to Individuals and Families in Vulnerability Target population Benefit Amount Number of Beneficiaries Conditionality Individuals or Families in One-time cash transfer from 28 Households (2015) None extreme vulnerability US$200 to US$500 based on the vulnerability assessment criteria conducted by a social worker Payment delivery Implementing Ministry/ Financing Legal basis mechanism Agency Payment made directly to General State Budget Organic Law of the Ministry National Directorate of Social beneficiaries by a social of Social Solidarity and Development, Ministry of worker Inclusion/No specific Social Solidarity and Inclusion legislation Emergency Support to Victims of Gender-Based Violence and Domestic Violence Target population Benefit Amount Number of Beneficiaries Conditionality Women and children One-time cash benefits: 150 Women and children None victims of gender-based and (2015) domestic violence (i) Up to US$100 for transportation of the victim during legal proceedings; (ii) US$50 for immediate needs of women with children; (iii) US$100 at the end of the legal process to facilitate reintegration into the community; (iv) Up to US$300 for women abandoned by the husband; (v) Up to US$1,500 for long- term legal cases follow-up; In-kind benefits: (i) Psychological counselling; (ii) Shelter for women at risk with no other shelter options. Payment delivery Implementing Ministry/ Financing Legal basis mechanism Agency Payment made directly to General State Budget Organic Law of the Ministry National Directorate of Social beneficiaries by a social of Social Solidarity and Development, Ministry of worker Inclusion/Law against Social Solidarity and Inclusion Domestic Violence/No specific legislation 94 Timor-Leste Social Protection Review Support to Prisoners and Their Social Reintegration Target population Benefit Amount Number of Beneficiaries Conditionality Incarcerated individuals and One-time cash benefits: 598 Individuals attended None Vulnerable former prisoners (i) US$120 for a prisoner´s training courses (2015) family to make an annual 70 Individuals benefited from visit; reintegration (2015) (ii) US$350 upon release 53 Family visits (2015) from prison; (iii) To cover transportation costs of the return to there home town. Provision of services: (i) Professional training courses for prisoners; (ii) Psychological counseling. Payment delivery Implementing Ministry/ Financing Legal basis mechanism Agency Payment made directly to General State Budget Decree No. 14/2014 National Directorate of Social beneficiaries by a social (execution of Sentences Development, Ministry of worker and Security Reintegration)/ Social Solidarity and Inclusion Organic Law of the Ministry of Social Solidarity and Provision of vocational Inclusion/Memorandum of training courses carried out Understanding between the in prisons MSSI and MOJ Children in Conflict with the Law Target population Benefit Amount Number of Beneficiaries Conditionality Children and young people in One-time cash transfer from 40 beneficiaries (2015) None conflict with the law US$100 to US$200 based on the vulnerability assessment criteria conducted by a social worker Payment delivery Implementing Ministry/ Financing Legal basis mechanism Agency Payment made to family of General State Budget Organic Law of the Ministry National Directorate of Social the child or young person by of Social Solidarity and Assistance, Ministry of Social a social worker Inclusion/No specific Solidarity and Inclusion legislation School Feeding Program Target population Benefit Amount Number of Beneficiaries Conditionality Children at school between 3 One hot meal per day at 271 pre-primary schools None and 15 years old school (2018) (US$0,25/child for each 9,820 children aged 3-5 school day for children (2018) between 3 and 5 years old and US$0,25/child for each 1,189 basic education schools school day plus 75 grams of (2018) rice for children between 6 319,583 children aged 6-15 and 15 years old) years old (2018) Payment delivery Implementing Ministry/ Financing Legal basis mechanism Agency Payment and Provision of General State Budget Organic Law of the Ministry National Directorate of goods delivered to schools of Education/No specific school Social Action, Ministry legislation of Education Timor-Leste Social Protection Review 95 Food Security Fund Target population Benefit Amount Number of Beneficiaries Conditionality All individuals Acquisition of local food 5,225 tons of local food None products (rice, beans, corn, products (2016) soya, etc.) and rice import to supply of food in local 2,500 tons of rice imported markets and to distribute (2016) rice needed under the 3,000 tons supplied to the School Feeding Program and local markets through local under other emergency and stores and cooperatives humanitarian relief support (2016) Payment delivery Implementing Ministry/ Financing Legal basis mechanism Agency Provision of goods delivered General State Budget Organic Law of the Ministry Centre of National Logistics, to local markets, local stores of Ministry of Commerce, Ministry of Commerce, and Ministries (MOE, MSSI) Tourism and Industry/ Decree Tourism and Industry Law No. 26/2014 of 10 September Cash for Work (Enhancing Rural Access-ERA) Target population Benefit Amount Number of Beneficiaries Conditionality Individuals in rural Cash transfer of US$3 per day 5,000 beneficiaries (2015) None communities aged 17-59 able in exchange of short-term to work labor-intensive work (an 60 community projects and average of 13 days of work, 22 complex projects which corresponds to an average of US$39 per worker) Payment delivery Implementing Ministry/ Financing Legal basis mechanism Agency Payment is made in cash EU Decree-Law No. 33/2009 National Directorate for directly to workers by the amending Decree-Law No. employment Policies, program staff 29/2008/SEFOPE Organic Secretary of State for Law/National Strategic Professional Training and Employment Plan 2011-2030 Employment Policies Cash for Work (TIM Works Program) (2008-2012) Target population Benefit Amount Number of Beneficiaries Conditionality Poor Individuals in rural Cash transfer of US$3 per day - None communities in exchange of short-term labor-intensive work (an average of 44 paid days of work for each individual) Payment delivery Implementing Ministry/ Financing Legal basis mechanism Agency Payment is made in cash General State Budget SEFOPE Organic Law National Directorate for directly to workers by employment Policies, program staff Secretary of State for Professional Training and Employment Policies 96 Timor-Leste Social Protection Review Cash for Work (Roads for Development-R4D) Target population Benefit Amount Number of Beneficiaries Conditionality Individuals in rural Cash transfer of US$5 per 4,550 beneficiaries (2016) None communities able to work day for unskilled workers and US$10 per day for skilled 200,499 work days (2016) workers in exchange of short- term labor-intensive work (an average of paid 12-14 days of work per month in the dry season and between 20-24 days per month in the wet season) Work-accident insurance for each worker Payment delivery Implementing Ministry/ Financing Legal basis mechanism Agency Payment is made in cash DFAT No specific legislation/Rural Directorate of Roads, Bridges directly to workers by Roads Master Plan/National and Flood Control, Ministry program staff every two Strategic Development Plan of Public Works, Transport weeks 2011-2030 and Communications Timor-Leste Social Protection Review 97 Annex 2 Main Features of Contributory Social Security Programs Eligibility Contribution Benefit Elderly Pension Employed or self-employed person Minimum years of contribution are Benefit is calculated based on the registered in the general social security applied differently based on period of average monthly earnings of the best- scheme contributions. paid out of the past ten years adjusted over the entire contributory tenure up 60 years old and meets the 60 months (5 years) between 2017 and to a maximum of 30 years. contributions minimum requirements 2022; If contributory tenure is less than 10 The same conditions apply for the 96 months (8 years) between 2023 and years, the pension is calculated as the persons who contribute on a voluntary 2031 and; total earnings recorded divided by the basis. equivalent actual number of months. 120 months (10 years) from 2032 onwards. The minimum pension is granted at least 1.5 times the amount of the Early access to an old-age minimum elderly and disabled social assistance pension is allowed at the age of 55 as allowances (US$45) even if the pension long as the person is still working under calculation of the beneficiary results in a a valid work contract and fulfills the smaller amount. qualifying period of minimum of 5 years of social security contributions. Additional payment equivalent to the amount of monthly pension is paid in The required number of contributions December as an additional holiday/ decreases by one year between the Christmas payment. ages of 56 and 59, meaning a person aged 59 should have had contributed at least one year. Disability Pensions Registered employed or self-employed The disabled pension may be accessed person in a situation of partial or at any time if minimum contributions permanent disability to work, not are fulfilled: 12 months in 2017, annual entitled to an old-age pension and increases of 6 months between 2018 and 2024, and 60 months/5 years as of Meets the contributions’ minimum 2025. requirements. The calculation of disability pensions Same conditions apply for the persons follows the same rule as the old-age who contribute on a voluntary basis. pension as it was described above. Additional payment equivalent to the amount of their monthly pension is paid in December as an additional holiday/ Christmas payment. 98 Timor-Leste Social Protection Review Eligibility Contribution Benefit Survivors’ Benefits Paid to a surviving spouse, or common While the Death Grant and Calculated as a percentage of the old- law partner living for at least two Reimbursement of funeral expenses do age or disabled pension that the insured years, and descendants or those not need minimum contribution period, person was receiving or would be considered as children by the family. the Survivor pension requires that supposed to receive at the date of his/ the deceased person must have paid her death. minimum contributions stipulated as 12 months in 2017, additional 6 months Replacement rate of 65 percent is every year between 2018 and 2024, and applicable for the surviving spouse/ 60 months (5 years) in 2025. partner with no descendants or minors under care. A maximum of 100 percent of the deceased insured person´s pension can be paid to all other beneficiary situations. The duration of Survival pension varies. A surviving spouse/ partner whose age is under 45 years old receives a pension for one year; for those between 45 and 59 years old, the pension is paid for two years and; above 60 years old survivor receives the pension is for life. Descendants will be entitled to a pension until the age of 18 years. The entitlement can be extended to the age of 24 years if they are studying. In any case, school attendance and completion must be verified Death grant Calculated as three times of the old-age or disabled pension that the insured person was receiving or would be supposed to receive at the date of his/ her death. The death grant is given half to the surviving spouse/partner and half to the descendants or other children considered as part of the family. The entire grant amount may be paid to the surviving spouse/partner or descendants or other children under care when the previous condition is not verified. In case of reimbursement of funeral expenses, the amount to be reimbursed corresponds to a maximum of three times of the old-age or disabled pension that the insured person was receiving or would be supposed to receive at the date of his/her death. Reimbursement of funeral expenses and Death grant are not cumulative. Supplements. In the month of December, all pensioners are entitled to an extra payment, which is equal to the amount of their monthly pension. Timor-Leste Social Protection Review 99 Eligibility Contribution Benefit Paternity and Maternity Benefits A person who is unable to work Benefits may be provided to employees The maternity and paternity benefits temporarily due to clinical risk during and self-employed persons registered are calculated as daily allowances pregnancy, termination of pregnancy, in the general social security system, and correspond to 100 percent of the birth of children and adoption may be including voluntary scheme, who has beneficiary’s average daily reference entitled to specific benefits. contributed during 6 months in the past income. Reference income is calculated 12 months. as the total earnings registered for the A medical certification is required for first 6 months within the last 8 months the person to be able to claim the before claim. benefit. Benefits are paid monthly during the time of leave. The benefits are not cumulative with other income, except disabled and survival pensions. Benefit for Termination of Pregnancy is offered for a period of 4 weeks. Maternity Benefit is granted to the working mother as civil servant between 65 working days (40 days post childbirth), and 12 weeks (10 days post childbirth) for other workers. Paternity Benefit is provided to the working father during 3 or 5 working days, respectively for civil servants and other workers. Adoption Benefit is granted to adopting couple if the child adopted is under 15 years old during the same period as the maternity and paternity benefits. 100 Timor-Leste Social Protection Review Annex 3 COVID-19 Laws and Regulations in Timor-Leste Legal basis Purpose Decree of the President of Republic Declares the State of Emergency No.29 /2020, March 27 Law No.1/2020, March 27 Authorizes the State of Emergency (March 28 – 26 April 2020) Resolution of Government Recommends civil servants to work remotely from home during the State of No.11/2020,March 27 Emergency Law No.2/2020 April 6 Authorizes an extraordinary transfer of the Petroleum Fund to the State Budget of US $250,000,000.00 and Establishes the COVID-19 Fund Dispatch No.10/GM-MEJD/III/2020 Approves the remote schooling as a temporary and extraordinary measure during the pandemic COVID-19 Decree-Law No.12/2020 April 14 Regulates the COVID-19 Fund Decree of the President of Republic Declares the extension of the State of Emergency (28 April 2020 -27 May 2020) No.32 /2020, April 6 Law No.3/2020, April 27 Authorizes the extension of the State of Emergency (28 April 2020 – 27 May 2020) Decree-Law No. 15 /2020 of 30 of April Establishes and regulates the cash transfer to support households in the context of the pandemic Covid-19 Decree-Law No. 16/2020 of 30 of April Establishes and regulates temporary financial support for employers and employees Decree-Law No. 17/2020 of 30 of April Establishes and regulates a wage supplement for civil servants working in the prevention and control of COVID-19 or in direct contact with the virus SARS-Cov2 Decree of Government No. 8/2020 of Approve the implementation measures under the state of emergency endorsed by 30 April the Decree of the President of Republic No. 32/2020, April 27 Diploma Ministerial No. 17/2020 of 5 Regulates the procedures of the extraordinary registration in the Contributory May social Security Regime Diploma Ministerial No.18/2020 of 14 Regulates the cash transfer to support households in the context of the pandemic of May Covid-19 Decree-Law No. 19/2020 of 27 of May Approves the first change to the Decree-Law No.12/2020 April 14, regulating the COVID-19 Fund Ministerial Diploma No. 23/2020 of 27 Establishes the ‘assessment room’ of the Integrated Centre for Management of of May Crisis (CIGC) during the state of emergency Decree of the President of Republic Declares the extension of the State of Emergency (May 28 - June 26, 2020) No.35 /2020 of 27 of May Law No.4/2020 of 27 of May Authorizes the extension of the State of Emergency (May28 - June 26, 2020) Dispatch No. 26/GABMI/VI/2020 of 5 Determines the partial close of territorial borders of June Dispatch Ministerial No.35/2020 of 5 Approves the Contingency Plan to Respond to COVID-19 of June Decree-Law No. 21/2020 of 5 of June Creates temporary subsidy for Timorese who are residing overseas or leaving temporarily. Decree-Law No. 22/2020 of 5 of June Establishes extended timelines for obligations with loans Diploma Ministerial No. 27/2020 of 17 Regulates the prevention and control of COVID-19 in public places of June Timor-Leste Social Protection Review 101 Legal basis Purpose Resolution of Government Nº.18/2020 Establishes the Commission for the Development of the Economic Recovery Plan of 10 of June Law No.5 /2020 of 30 of June Authorizes a second extraordinary transfer of the Petroleum Fund to the State Budget of US $286.300.000,00 and changes the Law No.2/2020 of 6 of April on the Authorization of the extraordinary transfer from the Petroleum Fund Decree-Law No. 28/2020 of 22 of July Approves the first change to the Decree-Law Nº 16/2020, of 30 of April, about measures to support employment during the COVID-19 pandemic Decree of President of Republic Declares the extension of the State of Emergency (August 6 - September 4, 2020) No.55/2020 of 5 of August Law No.6 /2020 of 12 of August 2020 Authorizes the extension of the State of Emergency (6 August 2020 - 4 September 2020) Decree-Law No.34/2020 of 2 of Approves the first change to the Decree-Law No.17/2020 of 30 of April that September established a wage supplement for civil servants who work in the prevention and control of COVID-19 or in direct contact with the virus SARS-Cov2 Decree of President of Republic Declares the extension of the State of Emergency (September 5 - October 4, 2020) No.59/2020 of 3 of September Law No.8 /2020 of 3 of September 2020 Authorizes the extension of the State of Emergency (September 5 - October 4, 2020) Decree-Law No. 36/2020 of 16 of Establishes subsidy for journalists working in direct contact with the virus SARS- September Cov2 during the state of emergency Decree of President of Republic Declares the extension of the State of Emergency (5 October 2020 – 3 November No.62/2020 of 3 of October 2020) Law No.9 /2020 of 3 of October 2020 Authorizes the extension of the State of Emergency (October 5 – November 3, 2020) Decree-Law No. 48/2020 of 7 of Establishes measures to support families, through a ‘Basic Basket’, and Local October Economic Operators under the Economic Recovery Plan, and Establishes a Special Supply Regime Joint Diploma Ministerial No. 34/MF- Introduces the price of the COVID-19 diagnostic test MS/IX/2020 of 7 October Decree-Law No.51/2020 of 14 of Approves support to employers, self-employed and domestic workers that have October been affected by the pandemic COVID-19 to recover their economic activity under the Economic Recovery Plan Source: http://www.mj.gov.tl/jornal/ 102 Timor-Leste Social Protection Review Annex 4 COVID-19 Grant Registration Processes The COVID-19 Grants to Timorese households was designed to provide income support to households in anticipation of COVID-19 adverse impacts on welfare. The program targeted Timorese households registered in the ‘Livro de Registo Uma Kain127’ and households earning less than US$500 monthly income. The program provides US$100/month grants to poor households for two months (April and May 2020). Potential beneficiary households list was prepared at the suco level, consolidated by local and municipal authorities, and sent to the MAE for data sharing with the MSSI. Initial lists prepared by aldeias chiefs were taken from each suco’s ‘Uma kains Registration Book’ that identify heads of household by name, electoral ID, and aldeia of residence. Very rare cases were identified through the ‘bilhete de identidade’, unique ID. The verified list by every suco chief is then sent to the Posto Administrativo or in the case of Oecusse, to the President of Authority who compiled and produced an integrated list, which was sent to the municipal authorities128. The municipality consolidate and organize for the list to be sent to Director-General of the Administrative Decentralization of the MAE who in due course will share the list with the Director-General of Social Solidarity and Inclusion of the MSSI. Beneficiaries’ eligibility and enrollment were determined by the MSSI. After receiving the list of potential beneficiary households, the MSSI verify listed electoral IDs with the INSS to avoid overlap with recipients of the wage subsidy and households earning above a combined US$500 income per month. Additional screening was simultaneously conducted to identify inconsistent ID numbers129 and exclude duplicates. Households without any type of identification, be it by natural disaster or accident, are not verified as potential beneficiary but all automatically included as eligible. The final list tally a total of 318,257 eligible households, which is higher than a 2019 estimate of 215,000 total households in Timor-Leste as based on Agricultural Census130. List of beneficiary households and non-beneficiary households approved by the Director-General of Social Solidarity of MSSI were subsequently sent to the Centers of Social Solidarity of MSSI at municipal level, and afterwards shared with suco authorities for posting at the suco notice board. At approximately the same time, the list was also sent to of the COVID-19 Grants Fund Management Team as basis to transfer funds to each suco bank account based on the list of respective suco beneficiaries. The COVID-19 Grants was distributed in cash to 298,816 households (94 percent of the eligible households) by local payment team in 452 sucos. Sucos chiefs, accompanied by the MSSI staff and local police collected the payments for their areas at the Banco Nacional de Comércio de Timor-Leste (National Bank of Commerce of Timor-Leste National Bank of Commerce or BNCTL) branches. Both BNCTL and payments teams recorded the amount received on paper form and later uploaded into kobotoolbox131 as part of the reporting system. Payment day scheduled in each suco adheres to social distancing protocols observed by the PNTL. Whilst waiting their turn for payment outside, beneficiaries were given informational flyers containing basic information about COVID-19 prepared by the MOH. The COVID-19 Grants disbursement contains two-steps verification. In the first step, household heads’ ID were verified and checked against list of beneficiaries. Upon IDs verification, household heads moved to a second desk tasked with verifying household heads’ name, ID, telephone number and other pre-filled geographic information listed in the kobotoolbox as prerequisite to receive grants132. Upon authentication of beneficiaries’ ID, cash is then handed to the beneficiary, at that point requested to validate receipt on the official payment list (by signature or fingerprint), and took a photo of the ID document for identity confirmation. Unlisted household beneficiary may submit grievance by filling proper forms provided for complaint purposes. Payment teams would subsequently input complaints received into the kobotoolbox. 127 This is a Household Registration Book that is available in each suco (village). 128 Municipal administrator or in case of Oecusse is the President of Municipal Authority. 129 Not enough numbers or incorrect format. 130 Part of this difference is justified by different definitions of household. It might be the case that many households contain more than one family. 131 Digital forms were developed by using kobotoolbox software to capture payment delivery, grievance and formulate reconciliation reports. The kobotoolbox forms were installed on 452 tablets, one for each suco payment team and functioned offline. 132 Tasks made possible because the payment teams utilized tablets lent by the MOF’s Director-General of Statistics to the MSSI. Timor-Leste Social Protection Review 103 Outstanding undisbursed cash would be returned to the bank by end of payment day. All municipalities had completed disbursement by June 19, 2020, except for Dili and Oecusse. Dili concluded disbursement a week later due to the high number of beneficiaries in a concentrated sucos. In Oecusse, the payment was distributed between July 4-13th.133 Payments final reconciliation revealed that the COVID-19 Grants was managed responsively, transparently, and successfully; despite the lack of an available and adaptive delivery system to achieve a near universal transfer. The local payment team has resourcefully made the most of tablets technology to produce daily report, which included the number of eligible households to receive cash transfer, amount paid and number of complaints received. Following completion of disbursement in each suco, the payment team prepared a final disbursement report, which summarizes balance of payments and the number of claims received. Another reconciliation process was conducted by comparing total beneficiaries having signed the manual forms at the first desk versus those having received payment as recorded in kobotoolbox as well as a comparison on BNCTL withdrawal and deposit forms versus BNCTL payment data. Approximately 94 percent of the US$63,7 million allocated budget for direct cash payments was delivered to households. 133 MSSI 104 Timor-Leste Social Protection Review Annex 5 Laws and Regulations Governing Social Protection in Timor-Leste Legal basis Purpose Institutional Resolution No.7/2010 of 18 of February Creates the Working Group for the Study and Design of Social Security System Decree-Law No. 47/ 2016 of 14 December Creates the National Institute of Social Security and its statutes - Creates the Intersectoral Working Group (MSSI, MOF, MOE, MOH) for strategic and technical coordination of Bolsa da Mãe Program Decree-Law No. 25/2017 Approves the legal regime for Social Solidarity Institutions Decree-Law No. 19/2018 of 27 December Approves the Organic law of the MACLN Decree-Law No. 9/2019 of 15 May Approves the Organic law of the MSSI - MSSI Long-Term Plan 2011-2030 Non-contributory Law 3/2006 of 12 April, updated by the Law 9/2009 Approves the Statute of National Liberation Combatants of 29 July, and by the Law 2/2011 of 23 March Decree-Law 15/2008, 4 June, updated by DL Approves the veterans’ pensions for former Combatants and Martyrs 25/2008 of 23 July; DL 35/2009 of 2 December; DL 25/2010 of 15 December; DL 42/2011 of 21 September; DL 6/2012 of 15 February. Government Resolution 10/2008 of 4 June Approves the increase of the pension amount for some prominent personalities of the Resistance (higher amount in recognition of distinct honors) Decree-Law No. 19/2008 of 19 June Approves and regulates Subsidy to Elderly and Disabled Decree-Law 8/2009 of 15 January Approves the scholarships for the children of the National Liberation Former Combatants and Martyrs Decree-Law No. 21/2009 of 6 May Approves the Funeral Transport Services Law No. 7/2010 of 7 July Approves the Law against domestic violence Joint Ministerial Diploma MSS/MOF/2010 Approves an Increase of the Amount of the Elderly and Disabled Subsidy Decree-Law 5/2012 of 15 February Approves the lump sum cash transfers for former Combatants and families of Martyrs of National Liberation. Law No. 6/2012 of 29 February Approves the Transitory Social Security Scheme for Old Age, Disability and Death of Public Employees Decree-Law No.18/2012 of 4 April Approves and regulates the cash transfer program Bolsa da Mãe Decree-Law No. 23/2012 of 24 May Regulates the Transitory Social Security for Old-Age, Disability and Death of Public Employees Ministerial Diploma No. 27/2012 of 19 September Regulates the cash transfer program Bolsa da Mãe Ministerial Diploma No. 20/2013 of 8 November Define the social services provided by the MSSI under the support to victims of domestic violence in their process of social reintegration Decree-Law No. 15/2020 of 30 of April Approves the temporary cash transfer to households under the current COVID-19 emergency context Timor-Leste Social Protection Review 105 Legal basis Purpose Contributory Law No. 4/2012 of 21 February Approves the Labor Law Law No. 12/2016 of 14 November Establishes the Social Security Contributory Scheme, including the Social Security Reserve Fund Decree-Law No. 17/2017 of 24 of May Approves the legal regime for Disability and Old-Age Pensions under the Social Security Contributory Scheme Decree-Law No. 18/2017 of 24 of May Approves the legal regime for Maternity, Paternity and Adoption Protection under the Social Security Contributory Scheme Decree-Law No. 19/2017 of 24 of May Approves the legal regime for Death Benefits under the Social Security Contributory Scheme Decree-Law No. 20/2017 of 24 of May Approves the regime of enrolment and contributory obligation under the Social Security Contributory Scheme Decree-Law No. 27/2017 of 26 of July Approves the incentives for private sector under the Social Security Contributory Scheme Government Resolution No. 49 /2017 of 6 of Adoption of the Administrative and Operational Procedures for the September registration under the Social Security Contributory Scheme Government Resolution No. 52 /2017 of 13 of Payment of Social Contributions in the months of October, November, December December and Supplementary Salary for Public Workers Dispatch No. 09/2017 Procedures, Form, Local and Payments Methods of Contributions under the Social Security Contributory Scheme Dispatch No. 10/2017 Procedures and Forms regarding “Wage Statement”, under the Mandatory Enrolment to the Social Security Contributory Scheme Dispatch No. 11 /2017 Procedures and Enrolment, Change of Elements, Forms Termination and Suspension of Activity under the Social Security Contributory Scheme Decree-Law No. 11 /2018 of 9 of April Approves the support to employers under the under the Social Security Contributory Scheme Decree-Law No. 16/2020 of 30 of April Approves supporting measures to employment under the COVID-19 emergency context Decree-Law No. 55/2020 of 28 of October Approves the establishment of the Social Security Reserve Fund (SSRF) and its management model Other elements of SP School Feeding Law No. 14/2008 of 29 October Approves the Basic Education Law Decree-Law No. 13 /2019 of 14 of June Approves the Ministry of Education, Youth and Sports Organic Law Food Security Fund Decree-Law No. 26/2014 of 10 September Establishes and Approves the Statutes of the National Logistics Center Cash for Work Government Resolution No. 44 /2017 of 12 of July National Employment Strategy (2017-2030) Decree-Law No. 21 / 2019 of 31 of July Approves the Secretary of State for Vocational Training and Employment (SEFOPE) Organic Law 106 Timor-Leste Social Protection Review Annex 6 Details of Social Protection Delivery Table 9 Eligibility Criteria and Documentation for Main Non-contributory Benefits Documents Type of Eligibility criteria Proof of benefit Proof of Identity Proof of Age Other Residence Elderly • Timorese citizenship Electoral card Letter from Electoral card and, NA pension • Reside in country for at suco chiefs in certain cases, least one year prior to birth certificate application date is required as secondary proof • 60 years old or above Disability • Timorese citizenship Medical certificates pension • Reside in country for at stating permanent least one year prior to incapacity to work application date issued by MOH • 18 years old or above • Diagnosed with physical or mental disability with permanent inability to work Bolsa da • Timorese citizenship • Mother’s Children’s Birth Mãe CCT • Reside in Timor-Leste Electoral card of certificates for at least one year • Children’s Birth prior to application date certificates** • 17 years old or above • Have at least one child under 18 years old • Vulnerability status* Source: Authors’ compilation based on laws and regulations * The qualitative vulnerability assessment is based on (i) self-reported income; (ii) number of children; (iii) type of caregivers, and (iv) number of children with disabilities. All four components are weighted equally and have a maximum score of 25 percent, i.e. an applicant can reach a maximum of 100 percent. ** Obtaining a birth certificate is difficult. Many families don’t apply until the child enters secondary school, when it is required for entry purposes. This may explain the big jump in Bolsa da Mãe enrolment for secondary school age children. Timor-Leste Social Protection Review 107 Table 10 Registration of New Employers and its Workers, Change of Information, Suspension and Termination of Activity Local of Deadline Documents submission Employers Within 10 days after the admission of INSS • Photocopy of Fiscal Number ID card the first worker (registration) or after headquarters in • Proof of activity commencement or any other any other occurrence. Dili or Online changes • No documents are required for public Within 5 days after the admission of Local MSSI employers the first worker (registration) or after services in the any other occurrence. municipalities Workers By the 10th of the following month INSS • Photocopy of ID and Electoral Card for national after the worker’s admission (and headquarters in citizens and Photocopy of valid Passport for before the first payment according Dili or Online foreigners to Statement of Remuneration that • Photocopy of RDTL certification includes worker) or after any other occurrence. • And when applicable: • Photocopy of marriage certificate or proof of By the 5th of the following month MSSI local residence after the worker’s admission (and services in the • Photocopy of birth certificate, adoption or before the first payment according to municipalities equivalent certificate the Statement of Remuneration that • Proof of contributions to other social security includes worker) or after any other systems occurrence. • Photocopy of civil servant card Source: Authors’ compilation based on the Ministerial Dispatch No 11 of July 14, 2017. Table 11 Eligibility Criteria and Required Documentation to Claim Contributory Benefits Documents Type of Eligibility criteria Proof of Proof of benefit Other Identity contribution Elderly Pension • 60 years old or above Copy of ID Proof of • Statement if entitled to another • Enrollment in the general scheme contributions pension to social • Statement if working (type of security activity, salary) systems Disability • 18 years old or above • Statement if entitled to another Pension • Diagnosed with partial or full pension disability, certified • Statement if working (type of • Enrollment in the general scheme activity, salary) • Medical certificates stating disability Survival • 18 years old or above Copy of ID • Certificate of civil status Pension • Diagnosed with partial or full • Birth certificate disability, certified • Copy of school enrollment and • Enrollment in the general scheme attendance Death Grant • Surviving spouse/partner or Copy of ID • Certificate of civil status descendants • Birth certificate • Enrollment in the general scheme Funeral • Funeral expenses incurred Copy of ID • Proof of the deceased’s funeral Expenses • Enrollment in the general scheme expenses Refund Maternity • Childbirth or Adoption Copy of ID • Medical certificates and Paternity • Enrollment in the general scheme • Birth certificates or Legal statement or Adoption of adoption Benefits • Statement from employer (type of leave, period) Source: Author´s compilation based on laws and regulations 108 Timor-Leste Social Protection Review Table 12 Main SA Non-contributory Benefits Payments Overview Elderly pensions Disability pensions Bolsa da Mãe Veterans programs Transfers (US$) (2019 Approved US$35,149,000 US$6,119,520 US$95,500,000 Budget) Benefit structure US$30 US$30 • Households with one • Special retirement and amount (per child US$5 pension US$345- month) • Households with two US$750 children US$10 • Special subsistence • Households with pension US$276- three or more US$345 children US$15 • Survival pension US$230-US$750 • One-off payments US$ 1,380 – US$3,450 • Scholarships US$300- US$2,000 Payment frequency Every six months Every six months Once per year Monthly Number of cash Two rounds of monthly Two rounds of One round of monthly Twelve rounds of monthly cycles payments monthly payments payments payments Number of 98,052 (2019)* 34,525 out of 47,525 28,123 (2018) beneficiaries paid re-registered (2019). 17,000 households were eligible but were not re-registered. Payment providers BNCTL BNCTL BNCTL All commercial banks Payment modes BNCTL (at BNCTL BNCTL (at BNCTL BNCTL (at BNCTL All commercial banks (at branches), Cash-out branches), cash-out branches), cash-out banks branches) sessions sessions sessions Fee to payment US$0.50 per beneficiary US$0.50 per US$0.50 per US$0.50 per beneficiary providers beneficiary beneficiary Source: Authors’ compilation based on several sources, including the 2018 ABND, MSSI SIGAS data on BdM, State Budget Book Approved 2019. Note: *The total includes Elderly and Disabled Social Pensions with Disabled pension representing between 9 and 10 percent of the total budget. For instance, according to the 2018 ABND there were 87,001 beneficiaries of elderly pension and 8,298 beneficiaries of disabled pension in 2017. Timor-Leste Social Protection Review 109 Table 13 Contributory Benefits Payment Overview Paternity, Elderly Disability Survivor´s Pension Death Grant Maternity and Pension Pension Adoption Benefits Transfers US$4,032,000 (2019 Approved Budget) Benefit calculation P=R * N/360 P=R * N/360 3*R Daily allowance = and structure R/180 days P: Monthly pension amount R: Remuneration of reference R: Total salaries R: Remuneration of reference And apply a % on the above declared in the first formula of (Maximum limit 6 months of the last N: Number of months with of 3 * R) remuneration recorded • 65% for surviving spouse 8 months without descendants or 360: Number of months from guardians of the couple a full contributory career (30 years) • 100% for surviving spouse and descendants or P=RxN/360 guardians of the couple • 100% for descendants or guardians, if no surviving spouse • 100% for the surviving spouse and descendants or guardians (not descendants or guardians of the surviving spouse) Payment Lump Sum (one- Monthly during the frequency Monthly Monthly Monthly time payment) time of leave Number of cash Thirteen Thirteen Thirteen rounds of monthly One-time Monthly rounds cycles rounds of rounds of payments during the time of monthly monthly leave payments payments Number of Transitory Regime*: 1,823 beneficiaries paid (2019) General Regime: 0 Payment providers All commercial All All commercial banks All commercial All commercial banks commercial banks banks banks Payment modes Bank transfer Bank transfer Bank transfer Bank transfer Bank transfer Fee to payment US$1.25 per US$1.25 per US$1.25 per beneficiary US$1.25 per US$1.25 per providers beneficiary beneficiary beneficiary beneficiary Source: Authors’ compilation based on several sources, including the 2018 ABND and State Budget Books 2019 and 2020. Note:*According to the 2018 ABND, in 2017 the Transitory Social Security Scheme covered 510 elderly beneficiaries, 7 disabled beneficiaries and 725 survivors beneficiaries. 110 Timor-Leste Social Protection Review Annex 7 Payment/Transfer Processes The MSSI, MACLN and INSS have different agreements with the MOF and banks regarding beneficiaries’ payment. In July 2013, the MSSI had agreed with the MOF and BNCTL to pay the elderly, people living with disabilities and Bolsa da Mãe beneficiaries. Currently, BNCTL has been delivering cash transfers to all beneficiaries through its own branches in each of the 13 municipalities. In October 2019, the MSSI renewed the agreement with BNCTL. Likewise, the MACLN and the INSS have had agreements with other commercial banks regarding beneficiaries’ payment. Figure 44-46 below illustrates the social assistance payment mechanism. Figure 44 Payment Mechanism at Central Level BNCTL opens account for every beneficiary MSSI orders payment instruction to MOF MOF liaises with BCTL (Central Bank of Timor-Leste) 15 days before payment day BNCTL receives fund. BNCTL credits each beneficiaries’ bank account based on MSSI payment list and instruction Final report of paid and non-paid beneficiaries sent to MSSI for payment reconciliation At the municipality level, BNCTL branches liaise with MSSI offices, who then schedule and coordinate a payment disbursement calendar with other local authorities. The BNCTL branches at municipality level receive the information from central level to facilitate payments to beneficiaries. A payment schedule is created by the branch manager and shared with the MSSI municipality office for MSSI focal points to inform and liaise with the local authorities, particularly with Chiefs of Suco. Figure 45 Payment Mechanism at Municipality Level BNCTL Branches liaises with Local MSSI Offices to schedule payment disbursement calendar with local authorities Municipalities BNCTL Branches receive Central Level’s information to pay beneficiaries BNCTL branch managers create payment schedule Schedule shared with local MSSI Office MSSI focal point liaise with local authorities particularly suco chiefs Timor-Leste Social Protection Review 111 Regarding payments modes, commercial banks have similar ways of facilitating payments. BNCTL issued a bank account passbook to all beneficiaries so they can withdraw cash at the BNCTL branches by showing their passbook and/or any valid identification document. BNCTL also organizes cash-out sessions in villages for beneficiaries living in rural and remote places. BNCTL has also 13 mobile vehicle banking units, which travel to some of Timor-Leste’s inaccessible areas. Most beneficiaries receive their money during villages’ cash- out sessions. At the day of the payment, BNCTL agents meet the beneficiaries, inform them of their bank accounts’ balance through the online banking system and withdraw the amount of money as requested by each beneficiary. The current payment modality also allows implementers to deliver payments at beneficiaries’ home, which is very important for elderly or disabled people with limited mobility and unable to physically go to payment locations. Figure 46 Modes of Payment 13 Mobile Vehicle Bank Account Passbook Cash out sessions Banking Units Conducted in rural and Travel to inaccessible Issued to all beneficiaries remote villages locations Possible to deliver to Show passbok and/or beneficiaries’ home Most beneficiaries have valid ID at BNCTL branches (especially for the elderly been paid in villages to withdraw cash and disabled with limited mobility) Different payment schedule Payments are processed every six months for elderly and disabled transfers, once per year for Bolsa da Mãe CCT and every month for veterans’ transfers. The payment process for elderly, disabled and Bolsa da Mãe cash transfers is quite simple. It includes the payment list generation and payout. After payments are calculated for each household, the IT team (or SIGAS Team) extracts the payment list through the program information system and distributes it to the payment team. Payment lists are subsequently generated for each municipality, organized by Posto Administrativo. Afterwards, the MSSI sends the payroll list with instructions of payment to the payment provider. At the same time, the MSSI informs MOF, which then coordinates with BCTL to transfer the funds to the payment provider in Dili. The second and last stage is the payout to the beneficiaries. BNCTL credits directly each beneficiary bank account who is notified about payment schedule and location by MSSI municipality officers and local authorities. Beneficiaries can then withdraw cash at the closest BNCTL branch or at the cash-out sessions. Delivery of payments for social assistance programs is relative time consuming as it takes about three months to cover one municipality. In locations with no Internet access, the payment process has faced additional constraints. The BNCTL staff had to individually collect beneficiary passbooks and signed withdrawal slips that specify the amount of money to be withdrawn from the bank. The bank staff then takes the withdrawal slips to the bank branch and collects the cash on their behalf and return to the village to deliver the cash and passbooks to beneficiaries. Banking infrastructure is still limited in Timor-Leste, which may deter payment delivery in some places. Only 18 percent of the population lives within 5 km of a bank branch134. Access has improved with 37 percent of the population living within 5 km of deposit-accepting institutions such as MFIs135. This constraint poses challenges, particularly travel time and cost, for individuals living in remote places. According to the TL-SLS 2014, people with access to banks on average spend about 87 minutes to reach their banks on foot. Alternatively, faster mode of transport such as bicycle and motorbike still take approximately 45 minutes and 62 minutes respectively. 134 BCTL (2018), Financial Inclusion Report 2018: Measure, Strategize and Innovate, BCTL: Dili. 135 Ibid. 112 Timor-Leste Social Protection Review Annex 8 Social Security Actuarial Assumptions and Methods MSS Actuarial Report World Bank Actuarial Report Projection period 2010 – 2045 2010-2100 Social security start date 2015 2015 Population Projections TL data on population, fertility and life 2010 Census starting population, UN projections tables from 2010 Census of mortality and fertility from 2010-2080 Labor Force Projections 8% of working age population (15-59), Labor force participation rates, unemployment increasing by 0.6% per year for shift to rates and number of employees by age and sex formal sector from 2010 Census. No assumed shift to formal sector Average wage US$230 in 2010 230 USD in 2012 based on information regarding pay of civil servants in December 2011 Wage distribution by wage None From December 2011 information regarding pay bands of civil servants Average wage variation by None From December 2011 information regarding pay age and sex of civil servants Wage cap None None Inflation 0% Projections through 2050 from MOF and global averages thereafter GDP and GDP growth rates Not projected Based on MOF projections of oil and non-oil GDP growth rates. Adjusted after 2030 to keep wage fund of contributors a constant percentage of GDP Productivity growth 0% 3.5% through 2016 and 2.5% thereafter based on discussions with MOF and Civil Service Commission Investment earnings on 0% and 1% Real interest rate of 2.5% program reserves Retirement rates 100% at age 60 100% at age 60 Disability rates Based on Tables of Entrance into Disability Based on analysis of disability incidence and Situation, designated as ‘’EVK 1960’’ prevalence rates in comparable countries from World Bank database and studies. Rates assumed to decrease by 10% from 2015- 2045 and an additional 10% from 2046-2080 Pension indexing None, though implicitly, 100% 100% of inflation Benefit accrual rate 1/30 per year of contributions 1/30 per year of contributions Minimum benefit None None Maximum benefit 100% replacement ratio 100% replacement ratio Collection rate 100% 90% Administrative expenses 0% 2% of estimated benefit payments each year Source: World Bank (2014) Timor-Leste Social Protection Review 113 114 Timor-Leste Social Protection Review