indonesia development frederico gil sander, up date...

IN D O N ES IA D EVELO P MEN T UP D ATE D ECEN TRALIZATIO N

TH AT D ELIVERS

Frederico Gil Sander, Lead Economis t

December 14, 2017

Recent economic developments and outlook

Decentralization that delivers

How d id t he Indonesian econom y perform in Q3 2017?

GDP growth picked up

4SOURCE: BPS; WORLD BANK STAFF CALCULATIONS

-4

-2

0

2

4

6

8

Sep-14 Jun-15 Mar-16 Dec-16 Sep-17

Change in inventories Stat. discrepancy Net exportsInvestment Government consumption Private consumptionGDP

Contributions to growth yoy, percentage points

Inves tment a t a multi-yea r high

5

-2-101234567

Sep-14 Sep-15 Sep-16 Sep-17

Buildings & Structures Machine & Equipment Vehicles Other Equipments Cultivated Bio. Res. Intellectual PropertyInvestment


SOURCE: BPS; WORLD BANK STAFF CALCULATIONS

Exports s urged

6

-10

-5

0

5

10

15

20

Sep-14 Sep-15 Sep-16 Sep-17

Goods: Non-Oil & Gas Goods: Oil & GasServices Export of Goods and Services


SOURCE: BPS; WORLD BANK STAFF CALCULATIONS

How im port an t w as t he recovery in com m od it y p rices?

Prices for Indones ia ’s key commodity exports gene ra lly increa s ed

8

60

100

140

180

220

Jan-16 Jun-16 Nov-16 Apr-17 Sep-17

Base Metals

Coal

LNG

Palm Oil

Index January 2016 = 100

SOURCE: WORLD BANK; CEIC; WORLD BANK STAFF CALCULATIONS

Commodity ta ilwinds did play a role in recent economic pe rformance

9

Higher commodity-related exports

Machinery investments possibly linked to mining

Destocking linked to high exports with low production in agriculture and mining

But encouraging s igns outs ide commoditie s

10

Export decomposition shows important role of non-commodity manufactures (shoes, auto parts)

Strong FDI inflows in sectors including wholesale and retail trade and household goods

Capital expenditure by central government up

11

Ada apa denganKonsumsi 2?Rp

Cons umption weakened in H1, but s hows s igns of recove ry in Q3

12CEIC, WORLD BANK STAFF CALCULATIONS

4.8

5.5

3

4

5

6

Q1 2015 Q3 2015 Q1 2016 Q3 2016 Q1 2017 Q3 2017

Qoq saar Growth Yoy Growth

Lebaran QuartersPercent

Weaknes s in the firs t ha lf due to trans itory fac tors

13

Electricity tariff hikes for 19m 900VA households

Increased tax enforcement following tax amnesty program

Political uncertainty

Recovery re flec ts waning of trans itory fac tors and s trong fundamenta ls

14

Low unemployment (5.5% Aug ‘17 vs. 5.6% Aug ‘16)

Contained inflation, especially food

Stable Rupiah

Why the dive rgence with re ta il s a le s ?

15

Some indicators show an improving trend (motorcycle sales up)

Increasing shift from goods to services (37 percent of non-food cash consumption)

E-commerce unlikely to be a significant driver – for now (still less than 2% of sales but growing fast)

Out look and risks

Favorable outlook

17

SOURCE: BANK INDONESIA, CENTRAL BUREAU OF STATISTICS (BPS), MINISTRY OF FINANCE, WORLD BANK STAFF CALCULATIONS

2016 2017f 2018fReal GDP Annual percent change 5.0 5.1 5.3Consumer price index Annual percent change 3.5 3.8 3.5Current account balance Percent of GDP -1.8 -1.6 -1.8Budget balance Percent of GDP -2.5 -2.7 -2.2

… des pite a number of downs ide ris ks

External

G3 monetary policy normalization

Growth in China

Commodity prices

Geopolitical risks

Domestic

Political season

Loss of reform momentum

Energy prices

Weak tax collection

Key mes s ages

The Indonesian econom y w il l accelerat e m odest ly int o Q4 2017 and 2018 suppor t ed by dom est ic and ext ernal engines

19

Further acceleration in investment growth requires improvements in the business environment, infrastructure

Ensuring that domestic energy prices are market-driven will protect the space for infrastructure spending

Key mes s ages

The Indonesian economy will accelerate modestly in to Q4 2017 and 2018 supported by dom estic and exte rna l engines

20

Fur t her accelerat ion in invest m ent grow t h requires im provem ent s in t he business environm ent , inf rast ruct ure

Ensuring tha t dom estic ene rgy prices a re m arke t-d riven will p rotect the space for in frastructure spending

Key mes s ages

The Indonesian economy will accelerate modestly in to Q4 2017 and 2018 supported by dom estic and exte rna l engines

21

Furthe r acce le ra tion in investm ent growth requ ires im provem ents in the business environm ent, in frastructure

Ensur ing t hat dom est ic energy pr ices are m arket -dr iven and boost ing t ax collect ions w il l prot ect t he space for higher inf rast ruct ure spending

Recent economic developments and outlook

Decentralization that delivers

Over ha lf of public s pending in Indones ia is now conducted by s ubna tiona l gove rnments

23

83.5

46.8

0102030405060708090

100

2000 2015

Central Government Province District

SOURCE: APBN AND SIKD DATA; WORLD BANK STAFF CALCULATIONS

Percent

Acces s to ba s ic s e rvices ha s improved in the yea rs s ince decentra liza tion…

24

Improved sanitation

34%Improved

water 38%

Improved sanitation

65%Improved

water 87%

SOURCE: SUSENAS AND SIKD DATA, WORLD BANK STAFF CALCULATIONS

Bant aeng, Sout h Sulawesi20012015

25

Enrolment rates

Junior High School: 68%

Senior High School: 45%

Enrolment rates

Junior High School: 43%

Senior High School: 19%


Belu, NTT2001 2015


Acces s to ba s ic s e rvices ha s improved in the yea rs s ince decentra liza tion…

…but qua lity va rie s wide ly

26

Timor Tengah Selatan:

Stunting rate 70% (2013)

Wakatobi, Southeast Sulawesi:

Stunting rate 11% (2013)


…but qua lity va rie s wide ly

27

Mahakam Ulu, East Kalimantan

Education score 33 (2014) Langkat, North Sumatra:

Education score 76 (2014)


By its e lf, more s pending does not improve outcomes

28SOURCE: SUSENAS AND SIKD DATA, WORLD BANK STAFF CALCULATIONS

Governance cha llenges a re a s s ocia ted with poor pe rformance

29

Many high spending dist r ict s have poor audit result s – and poor out com esAbout 43 pe rcen t of the top 5 pe rcen t of d istricts in te rm s of average spend ing pe r cap ita have average se rvice access ra tes in the bottom 10 pe rcen t of d istricts (2008-2014)

Only one of these districts received an unqualified opinion in both 2014 and 2015Higher inequalit y is cor relat ed w it h poor per form anceThis is consisten t with find ings in the academ ic lite ra tu re tha t inequa lity increases the risk of loca l e lite cap tu re , which in tu rn is associa ted with weak pe rform ance

The three i’s of improving loca l s e rvice de live ry

30

Incentives

Interaction

Information

Central Government

Local Government

Citizens & Businesses

Performance-based grant

Assess-ment

Capacity building

The three I’s of improving loca l s e rvice de live ry

31

Incent ives for per form anceLocal governm ent evaluat ion syst em s

Align performance measurements with key bottlenecksEmbed independent verification mechanismsStrengthen the pole and capacity of Provinces

Per form ance-based f iscal t ransfersIncrease impact of DID through improved performance measures and allocationsIncrease impact of the DAK by instituting greater results orientation


32

Inform at ion for bot h t he cent ral governm ent and cit izens t o assess per form anceImprove availability of outcome indicators at the kabupaten, kota and desa levels

Make detailed and comparable data on local government spending easily available

Public availability of data creates a virtuous circle leading to better data quality


33

Int eract ion – bet ween cit izens and businesses, and local governm ent s and service providersEnhance t ransparency to foster c i t izen engagementProvide local leaders, government agencies, citizens and firms with access to detailed information about performance and evaluation results

Develop local-level indices of service delivery and t he business environm entThis can help create a race-to-the-top in service provision and the business environment

SOURCE: KPPOD

TERIM A KASIH

THANK YOU

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