recent efforts to achieve better public investment management … · recent efforts to achieve...
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Recent Efforts to achieve Better Public Investment Management and Resource Mobilisation: Indonesia’ s Experiences
MOHAMAD IKHSAN,Tokyo, 4-5 June 2018
IndonesIA’s Growth PerformanceS after AFC 1998 a bit Disappointed
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Indonesia: Growth Episodes, 1960-2017 (% p.a)Pre dev (1960-66) Development Era:1997-67 Economic Crisis 2000-98 Reformasi Era: 2017-00
1960s:Politic led EconomyNationalization
Oil led Development:1973-83
Deregulasi Ekonomi:1973-83GDP : 6.34 % p.a
Krisis Ekonomi 1997/98
Government Budget allocation not fully support growth, poverty reduction and Inequality
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One of the reasons Could be OUR fiscal performances
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17.8 17.6
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16.1
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17.718.7 19.1
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20.019.2
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15.216.4
17.3 17.3 16.815.7
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0.31.6
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3.1 3.42.8 3.0
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1.92.5 2.0
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1.2 1.6 1.6 1.5 1.4 1.2 1.5 1.7 1.9 1.4 1.6 1.6
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Indonesia : spending trend 1996-2016 (% of GDP)
Total spending Energy subsidy Capital Spending
PoVERTY REDUCTION AND InequALITY AS WelL
Description LPG Price
Subsidy
Electricity
Subsidy
Diesel Price
SubsidyRastra PKH PIP
Benefit received by HH(per annual)* Rp17,7T Rp66,0T Rp2,1T Rp7,6T Rp2,6T Rp7,3T
Poverty Changes (% point) -0,53 -2,59 -0,01 -0,07 -0,39 -0,58
Change in Gini Ratio (point) -0,26 -0,63 0,01 -0,17 -0,11 -0,21
Poverty reduction effectiveness (%/ tr Rp) 0,030 0,039 0,005 0,009 0,150 0,079
Efektivitas Penurunan Gini (poin / tr Rp) 0,015 0,010 -0,006 0,022 0,041 0,028
Sumber: Perhitungan PKEM BKF* menggunakan data SUSENAS 2014
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y = 0.0005x + 25.888R² = 0.4072
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PPP Per Capita GDP (2011)
Government Expenditure/GDP and Percapita GDP (2011 PPP), 2011
Indonesia
Government Spending is below the International standard
Government Revenues are also below the Normal Pattern as well
y = 0.0005x + 21.803R² = 0.4799
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Government Revenue over GDP and Per Capita GDP USD PPP, 2011
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Efforts To achieve Higher and Better PUBLIC INVESTMENT
1. Creating Fiscal Space through◦ Revenues Mobilization Reform◦ Reallocation of Spending
2. Spending Efficiency Reform
3. Quasi-Budget Financing and PPP
TRACK 1 :Creating FISCAL SPACE: REVENUE MOBILIZATION REFORM
◦ A large potential gap on both tax and non tax revenues
◦ Given recent tax competition across countries, most of additional revenues should come from the tax administration reform rather than policy changes
◦ Tax administration reform would take some time to yield the outcomes
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Large TAX REVENUE POTENTIAL GAP
IMF (2013)1 estimated Indonesia’s tax effort between 0.42-0.47 in 2011
IMF (2013)2 also estimated Indonesia’s total revenue gaps of 5.0% of GDP
IMF (2011, 2014)3 and Sugana-Hidayat (2013)4 estimated VAT gaps between 47-60% of the current revenue
1 Fenochietto, R and Pessino, C, “Understanding Countries’ Tax Effort, Working Paper 13/244, IMF, November 20132 ___,”Taxing Times”, Fiscal Monitor, World Economic and Financial Surveys, IMF, October 20133 FAD, “Revenue Mobilization in Developing Countries”, IMF, March 2011; IMF Mission, “Tax Policy and Administration: Setting the Strategy for the Coming Years”, Fiscal Affairs Department, IMF,
December 20144 Sugana, R and Hidayat A, “Analysis of VAT Revenue Potential and Gaps in Indonesia 2013”, Journal of Indonesian Economy and Development, University of Indonesia, July 2014.
Source: IMF2
Stochastic Frontier Analysis
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Efforts to create fiscal Space for public investment through reallocation OF SPENDING
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332.4353.4
390.1370.4
426.7444.1
155.9 154.7
256.1269.1
400.9 410.4
46.159.7 65.9
92.3106.7 111
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341.8
119.1106.8
89.9 94.5
2013 2014 2015 2016 2017 2018
Education
Energy subsidy
Health
Infrastructure
Quasi Budget Financing and PPP◦Quasi Budget Financing through SOE capitalization and asset revaluation◦ Seems to work for toll road projects
◦ But create potential problem over crowding out of private sector
◦ And fiscal risks :
◦ Recapitalization will raise SOE’s borrowing capacity and if not well planned might potentially create additional fiscal risks.
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Efforts through PPP
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The results ..
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2010 2011 2012 2013 2014 2015 2016 2017
GDP growth has been slowly recovering
8.88.0
11.0
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4.45.0
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6.2
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led by a strong growth in gross investment
FROM TECHNOCRATIS TO the REALITIES : Political and IMPLEMENTATION CAPACITY
1. Political Cycles and Reform◦ There are some setbacks over reallocation efforts particularly on subsidy
reform◦ Suspension automatic tariff adjustment in electricity , uspension of fuel price formulae ; Capping over coal price domestic obligation
◦ Suspension of Direct Electricity Subsidy scheme for low income households
◦ Reintroduction of populist policies : food, renegotiation of toll contract etc.
2. Fragmented Decision Making◦ No dominant party for the next 10 year – many compromised policy agendas have to be taken.
◦ Many vested interest at all levels and branches
3. Weak implementation capacity almost at all levels◦ the ineffective implementation following the increase on capital spending in 2015
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Suggestions for Discussion1. How use effectively political cycle : in reality, any reform(s) can only be implemented during
the first three year max (of 5 year political cycle). Use effectively the remaining years for preparing the reforms. Window of opportunity is typically limited.
2. Good [Program and Project] preparation is always rewarded. Use the political off session to prepare any reform programs and projects
3. Effective Political Communication with the political leaders is equally important.◦ Should not push too hard to implement the reform during the political cycle otherwise we might end up
with set-back on the current reform status.
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Suggestion for discussion4. Budget is only one element of good public investment management. The implementation capacity is equally important as well as institutional supporting elements like land acquisition program
5. Setting the right incentive for the implementing agencies. Think about to use Result Based Grant or Spending as a contract mechanism between Central Government and local government and or Ministry of Finance and Line ministries