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publication June 22, 2020

Indonesia Public Expenditure Review: Spending for Better Results

The World Bank worked with the Ministry of Finance on a Public Expenditure Review for Indonesia. The Review identifies constraints and makes recommendations to improve the quality of spending to close gaps in human capital and infrastructure.

World Bank Group


www.worldbank.org/idper


The Indonesia Public Expenditure Review (PER) aims to support the Government of Indonesia in identifying key constraints to efficient and effective public spending and offer ways to improve the spending quality to achieve Indonesia’s development objectives. The report is divided into three parts.

  • Part 1: Aggregate level of Indonesia’s public finances and the institutional environment, providing the instruments to improve the quality of spending
  • Part 2: Spending on human capital
  • Part 3: Spending on infrastructure.

 

Download the full report (.pdf) | Report launch event

 

Overview

  • Indonesia’s development trajectory has been remarkable over the past 20 years, supported by macroeconomic stability and prudent fiscal management.
  • However, Indonesia still faces large human capital and infrastructure gaps that impede its competitiveness, and its ability to create jobs and reduce poverty in the medium term. The ongoing COVID-19 pandemic in 2020 is putting these gains at risk and making closing these gaps more difficult with lower fiscal space.
  • Indonesia needs to urgently increase fiscal space and the overall resource envelope, by enhancing domestic revenue mobilization (particularly tax collections), reallocating poorly and regressive subsidy spending, and mobilizing infrastructure financing from the private sector; and improving the efficiency and effectiveness of public expenditure across (systemic constraints) and within sectors to maximize its impact on development outcomes. For more details, download the Overview chapter. 

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Part 1: Institutional Environment

 

  • Indonesia has made commendable progress in many aspects of public financial management (PFM) over the past 20 years. Nonetheless, systemic constraints on expenditure management still persist in many sectors and need to be addressed to achieve better outcomes. For more details, download the chapter on Improving Expenditure Management for Better Quality of Spending

  • Despite improvements, fiscal transfers are still not fully utilized to further reduce inequality between provinces and districts, or drive improvements in service delivery. For more details, download the chapter on Reforming the Intergovernmental Fiscal Transfer system for Better Services

  • Data is key to measuring and driving effective government performance. It is necessary to measure the impact of public spending (inputs) on  service delivery and development outcomes. To enable meaningful analysis, data should be available at both the central and subnational levels, and sufficiently disaggregated. For more details, download the chapter on Data for Better Policy Making.

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Part 2: Human Capital

According to the World Bank Human Capital Index (HCI) for Indonesia, a child born in Indonesia today will only obtain 53 percent of its full potential it could achieve, if the child received the full set of health and education services.

  • Indonesia has charted remarkable progress on its path toward universal health coverage (UHC), however challenges remain. Public health expenditure remains below regional and lower middle-income averages. To achieve its ambitious goal of Universal Health Coverage, Indonesia needs to improve the quality of health spending by strengthening the governance and accountability mechanism, addressing financial and institutional fragmentation, and introducing a better design of performance-orientation service delivery. For more details, download the chapter on Health
  • Indonesia has undertaken several important reforms in the education sector over past two decades. Despite a significant increase in resources that lead to expansion in student enrolment and modest improvements in learning outcomes, Indonesia has a large learning gap between school attainment and learning. Indonesia needs to strengthen coordination between the central and sub national government, ensure that all Indonesian students have qualified teachers, and improve accountability. For more details, download the chapter on Education  
  • Indonesia’s social assistance system has made impressive progress since 2014, as demonstrated by significant coverage expansion of several core programs and rapid transition to electronic payment methods. Social assistance spending quality can be further improved through continued policy reform, adapted program designs, and strengthened delivery systems. For more details, download the chapter on Social Assistance 
  • In effort to reduce stunting prevalence, the Government of Indonesia launched a national strategy (StraNas) in August 2017. Indonesia’s spending on nutrition seems adequate to cover a full package of nutrition-related interventions to reduce stunting. Thus, efforts can be focused on improving governance, accountability, and the allocation and use of resources. For more details, download the chapter on Nutrition

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    Part 3: Infrastructure

    The Government of Indonesia has taken steps to reduce the country’s infrastructure gaps. However, challenges such as large geographic and income-related disparities in service delivery and outcomes remain, and closing these gaps will require significant resources from public and private sectors.

    • Although public spending on national roads has increased over the past decade, the Government needs to continue to focus its agenda of reforms on efficiency and effectiveness, development of longer-term strategies to address the backlog in road network capacity, increasing the pool of funding for national roads and expressways, and addressing institutional challenges to implementing reforms. For more details, download the chapter on National Roads
    • Indonesia has made progress toward its 2019 targets to deliver new houses and reduce the number of substandard houses. To continue this progress, Indonesia could evaluate and strengthen the subsidy programs, develop affordable housing through Public Private Partnerships (PPP), develop rental policies, and review and revise the housing regulatory framework. For more details, download the chapter on Housing
    • To improve the quality of spending in water resource management, Indonesia could increase spending on operation and maintenance, scale up and institutionalize participatory irrigation at subnational level, and improve convergence in planning, budgeting, targeting and result monitoring. For more details, download the chapter on Water Resources Management
    • To improve the quality of spending to better support water supply  and sanitation, the Government could improve institutional arrangement and strengthen fund management mechanisms to encourage the efficient expansion of the piped-water supply, increase demand for the piped-water supply, promote a comprehensive urban sanitation system and provide support for sustainable community-based rural water supply and sanitation development. For more details, download the chapter on Water Supply and Sanitation

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    This report was produced with financial support from the European Union and the Governments of Canada and Switzerland under the Public Financial Management Multi-Donor Trust Fund (PFM MDTF) and from the Government of Australia (Department of Foreign Affairs and Trade) under the Support for Enhanced Macroeconomic and Fiscal Policy Analysis (SEMEFPA) program.

     

    For more info about this publication: Yulita Sari Soepardjo (ysoepardjo@worldbank.org)