FISCAL POLICY AGENCY

MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA

Fiscal Policy for Infrastructure

Development and Financial Inclusion:
The Experience of Indonesia
Prof. Suahasil Nazara
Chairman of Fiscal Policy Agency

1st Annual Islamic Finance Conference

Jakarta, 17 May 2016

HIGHLIGHT OF ECONOMIC CONDITION

FISCAL POLICY AGENCY MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA

Indonesia experiences a stable economic growth and a decreasing

poverty rate, however it is not accompanied by income equality
GDP Growth

Poor Population
YoY (%)

33

16%

14,15%

32
6

6,38

6,17

14%

12,49%
11,96%

31

6,03
5,02

4,7

11,36%

4,79

29

8%

32,53
31,02

27

3
2

30,12

6%
29,25
28,17

25

0%
2010

2011

2012

2013

# of milion people (LHS)

0
2012

2013

2014

4%

28,51

2%
2009

2011

28,28

26

2010

12%

11,22%

10%

28

2009

11,25%

30

5,56

13,33%

2014

2015

% of people (RHS)

2015

Gini Ratio

Indonesias economy is on a stable growth rate.

The number and the percentage of poor people
have decreased over the past few years.
At the same time, the gap between the rich and
the poor has widened.

0,41

0,42

0,41

0,4
0,38

0,413

0,37

0,364

0,38

0,36
0,34

0,408

0,413

0,35

0,32
0,3
2007 2008 2009 2010 2011 2012 2013 2014 2015

FISCAL POLICY AGENCY MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA

Source: Central Statistics Agency (BPS)

Majority of Indonesias growth was driven from Java island

National GDP growth

4.8%

Data 2015

KALIMANTAN
8.2%

SULAWESI
5,9%

MALUKU &
PAPUA
2.4
%

SUMATERA
22.2
%
1.3%
8.2%

3.5%

6.6%

Source: BPS

JAWA
5.5%
10.3%

58.3%

regional GDP growth

BALI & NUSA

TENGGARA

3.1
%

% contribution to national GDP growth

FISCAL POLICY AGENCY MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA

Source: Central Statistics Agency (BPS)

3,92
4,53
4,68
5,35
5,36
6,03
6,42
6,70
7,30
7,41
7,92
8,12
8,54
8,75
9,38
9,44
10,28
11,25
12,27
12,42
13,91
13,93
14,05
14,28
14,46
15,00
17,25
17,44
17,48
18,05
19,13
19,82
27,13
30,05

0,00
DKI Jakarta
Bali
Kalimantan Selatan
Banten
Bangka Belitung
Kalimantan Tengah
Kalimantan Timur
Kepulauan Riau
Maluku Utara
Sumatera Barat
Jambi
Riau
Kalimantan Barat
Sulawesi Utara
Sumatera Utara
Jawa Barat
Sulawesi Selatan
Indonesia
Sulawesi Barat
Jawa Timur
Sumatera Selatan
Sulawesi Tengah
Sulawesi Tenggara
Lampung
Jawa Tengah
DI Yogyakarta
NTB
Gorontalo
Bengkulu
Aceh
Maluku
NTT
Papua Barat
Papua

High disparity of poverty between provinces

30,00

25,00

20,00

15,00

10,00

5,00

FISCAL POLICY AGENCY MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA

Source: National Socio-Economic Survey (Susenas), March 2014

INFRASTRUCTURE

FISCAL POLICY AGENCY MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA

Strategic policy budget of 2016

1

Spending expansion
deficit of 2,15% of GDP

Welfare sustainability

Health budget 5%

Significant infrastructure
spending

Education budget 20%

FISCAL POLICY AGENCY MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA

Better targeted
subsidies

Health
National Social
Security System

Expansion of
Family Hope
Program

Fiscal
decentralization
strengthening (village
fund)

10

1 million
home
program

Government has put infrastructure as one of its expenditure focuses on

state budget 2016
Dimension of Human
Development
Fulfillment of education
and health budget
Provision of basic needs,
particularly housing,
through Million House
Program for low income
communities (MBR)
through support
mechanism
Toward more targeted
subsidy

Dimension of Priority Sector

Development
Continuing development
of priority program (i.e.:

connectivity
infrastructure,
education, health, food
and energy sovereignty,
maritime, tourism,
reduction of disparities,
and defense) to improve
the quality of
development

FISCAL POLICY AGENCY MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA

Dimension of Equality and

Desentralization
Fiscal Decentralization
policies align with
reallocation of
Deconcentration Fund /
Assistance (Dekon/TP)
from line ministries to
Special Allocation Fund
(DAK)
Improving the welfare of
the poor and low income
through more sustainable
social assistance programs
Expand micro and small
businesses credit program
(KUR)

The energy subsidy budget is now reallocated to a more productive

spending
Trillion IDR
500
Education
28.3%

400

300

Infrastructure
103.5%s

200
Healthcare
75.4%

100

0
2011
Education

2012

2013
Healthcare

2014
Energy subsidy

FISCAL POLICY AGENCY MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA

Revised budget
2015

Budget 2016

Energy subsidy
60.7%

Infrastructure

Infrastructure development plan 2015-2019

Road
New road: 2,650 km
New toll road: 1,000 km
Maintenance: 46,770 km

Reservoir and Irrigation

New reservoir: 49 units
New water power plant: 33 units
Rehabilitation: 3 million ha

Airport
New airport: 15 units
Aircraft procurement: 20 units
Development: 6 locations

Broadband
Scope of broadband: 100%

Port
New port: 24 units
Cargo ship procurement: 26 units
Cargo ship procurement: 2 units
Boat procurement: 500 units
Railway
Development: 3,258 km

Ferry Port
New ferry port: 60 locations
Ferry procurement: 50 units

Urban Transportation
Bus Rapid Transit (BRT): 29 cities
Mass Rapid Transit: 23 big cities

Housing
Development of houses (Rusunawa): 5,257 units
Housing stimulus: 5.5 million households
Development of dirty areas: 37,407 ha
Housing credit facility: 2.5 million households
Water Treatment
Development in urban areas: 21.4 million household
connections
Development in rural areas: 11.1 million household connections
Waste Management
Waste system development : 657 cities/districts
Sludge treatment development: 409 cities/districts
Sanitary landfill development: 635 cities/districts
Flood management: 22,500 ha

FISCAL POLICY AGENCY MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA

Source: Medium Term Development Plan (RPJMN) 2015-2019

10

The fiscal space cannot fulfill the need of infrastructure investment

requirement
Infrastructure Investment Requirement 2015-2019
(in(inbillion
billionUSD
USD)
USD424.57

Investment
Investme
ntneeds
needs

Sector

USD130

State
State
budget
budget

Infrastructure Investment Requirement per Sector

USD294.57

USD294.57

Funding
Funding
gap
gap

SOEs and
privates

Road
Railway
Sea Transportation
Air Transportation
Land Transportation
(including Ferry)
Urban Transportation
Electricity
Energy (Oil & Gas)
ICT
Water Resources
Water Supply and Sewerage
Housing
Total

Total (USD billion)

61.92
21.77
69.23
12.69
4.62
8.85
75.38
38.92
21.31
30.77
38.38
40.54
424.57

The government planed to fulfill USD130 billion from the state budget, out of USD 424.57
billion of the infrastructure investment requirement.
The government invited SOE and private sectors through PPP scheme to fill in the funding gap.
Some of the project are also potential to be supported by external financing through G2G
schemes, export credit facility and direct lending to SOEs.
FISCAL POLICY AGENCY MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA

Source: Ministry of National Development Planning (Bappenas)

11

Government policies to manage the infrastructure funding gap

Budget side

Increasing fiscal space for more productive programs

Accelerating project implementation in 2016 and 2017
Minimizing fiscal vulnerability due to crude oil price and exchange rate
Developing fiscal budget for more priority programs

Infrastructure project side

Boosting private sectors role and accelerating PPP projects

Assigning SOEs to some infrastructure projects
Enhancing the land availability
Providing financing scheme to support infrastructure projects acceleration

FISCAL POLICY AGENCY MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA

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FINANCIAL INCLUSION

FISCAL POLICY AGENCY MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA

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Indonesia has 36.1% level of financial inclusion which grows at an

increasing level
Global Condition

Indonesias Access to Savings

and Credits

Indonesias Condition

Access to Savings (% of adults)

Target 2019: 50%

2014: 62%

2014

26,6

2011

15,3 13,9

25,2

48,2
70,8

2011: 51%
0%
2014: 36.1% have an account

Informal

100%
No access

Access to Credits (% of adults)

2011: 20% have an account

62% of adults in the world have an account in a financial institution in

2014, increasing from 51% in 2011.
36.1% of adults in Indonesia have an account in a financial institution
in 2014, increasing from 20% in 2011.
26.6% of adults in Indonesia save in a financial institution

Formal

50%

2014 13,1
2011 8,5
0%
Formal

44,4

42,5

44,3

47,2
50%

Informal

100%
No access

13.1% of adults in Indonesia borrow from a financial institution.

The government has 9 priority agendas (Nawa Cita) for the period of 2015-2019 which will be realized by several
strategies, including raising the level of financial inclusion to 50% in the end of 2019.
FISCAL POLICY AGENCY MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA

Source: World Bank Global Findex Database 2014

14

Policy reform is needed to address poverty and income equality

ACCELERATE
GROWTH

STRUCTURAL
CHALLENGES

BUDGET
REFORM
REDUCE
INEQUALITY

FISCAL POLICY AGENCY MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA

HIGH,
EQUITABLE,
AND
SUSTAINABLE
ECONOMIC
GROWTH

15

Social welfare framework

Pro-poor subsidies
Eliminating gasoline subsidy
Fixed subsidy for diesel oil
Direct subsidy for electricity, seeds, fertilizer, etc.

Non-contributory welfare programs

Conditional cash transfer
Unconditional cash transfer
Rice for poor, etc.

Contributory welfare programs

Universal health insurance
Pension and employment

Fiscal policy
to reduce
poverty and
inequality

FISCAL POLICY AGENCY MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA

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The government has introduced noncash Government-to-Person (G2P)

payments
Welfare Family Savings Program (Program Simpanan Keluarga Sejahtera)
This unconditional cash transfer is provided for 25% of households with the lowest
socioeconomic status.
In 2014, the government distributed the fund to 1 million families (from 15.5
million families) in 19 rural/urban areas through digital financial service.

Cash Transfers for Poor Students

This cash transfer is provided for school-age children taken from Social Protection
Card holder, Family Hope Program participants, orphanages, boarding schools,
threatened dropping out of school due to economic hardship/victims of the
disaster, and do not go/are no longer going to school.
In 2014, the government distributed the fund to 160 thousand students through
digital financial service.

Family Hope Program (Program Keluarga Harapan)

This conditional cash transfer is provided for very poor families who fulfill
predetermined health and/or education components.
In 2014, the government distributed distributed the fund to 1,804 poor
households in 4 areas (Cirebon, Pasuruan, Kupang, and North Jakarta) through
digital financial service.
FISCAL POLICY AGENCY MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA

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Financial inclusion in Indonesia is promoted through six pillars

NATIONAL FINANCIAL INCLUSION STRATEGY

1st Pilar

Financial
Education

To increase
knowledge on
financial
products and
services

2nd Pilar

3rd Pilar

4th Pilar

5th Pilar

6th Pilar

Public Finance
Facility

Mapping on
Financial
Information

Supportive
Policy and
Regulation

Intermediation
and
Distribution
Channel

Consumer
Protection

To provide
supportive
policies and
regulations

To provide
alternatives in
financial
products and
services
distribution

To protect
consumers
interest in
using
financial
services

To increase
access to public
finance
services

To reduce
information
asymmetry

FISCAL POLICY AGENCY MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA

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Thank You

FISCAL POLICY AGENCY MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA

19