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

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 Indonesia experiences a stable economic growth and a decreasing
poverty rate, however it is not accompanied by income equality

GDP Growth Poor Population

7 YoY (%) 33 14,15% 16%

32 13,33% 12,49% 14%
6 6,38 31 11,96%
11,36% 12%
6,17 6,03 11,25% 11,22%

5 5,56 30 10%
5,02 29 8%
4,7 4,79 32,53
4
28 31,02 6%
30,12
3 27 29,25 4%
28,17 28,28 28,51
26 2%
2
25 0%
1 2009 2010 2011 2012 2013 2014 2015

# of milion people (LHS) % of people (RHS)

0
2009 2010 2011 2012 2013 2014 2015
Gini Ratio

Indonesias economy is on a stable growth rate. 0,42 0,41 0,413 0,408

0,4 0,41 0,413
The number and the percentage of poor people 0,38 0,37
0,364
have decreased over the past few years. 0,36
0,38

At the same time, the gap between the rich and 0,34 0,35
the poor has widened. 0,32
0,3
2007 2008 2009 2010 2011 2012 2013 2014 2015

FISCAL POLICY AGENCY MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA

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Source: Central Statistics Agency (BPS)
 Majority of Indonesias growth was driven from Java island

National GDP growth 4.8%

Data 2015
KALIMANTAN SULAWESI
8.2% 5,9%
MALUKU &
PAPUA
SUMATERA 2.4
22.2 %
%
1.3%
3.5% 8.2%
6.6%

Source: BPS

JAWA
5.5%

BALI & NUSA

10.3% TENGGARA
3.1
58.3% %

% regional GDP growth % contribution to national GDP growth

FISCAL POLICY AGENCY MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA

Source: Central Statistics Agency (BPS) 4
 0,00
5,00
10,00
15,00
20,00
25,00
30,00
DKI Jakarta 3,92
Bali 4,53
Kalimantan Selatan 4,68
Banten 5,35
Bangka Belitung 5,36
Kalimantan Tengah 6,03
Kalimantan Timur 6,42
Kepulauan Riau 6,70
Maluku Utara 7,30
Sumatera Barat 7,41
Jambi 7,92
Riau 8,12
Kalimantan Barat 8,54
Sulawesi Utara 8,75
Sumatera Utara 9,38
Jawa Barat 9,44

FISCAL POLICY AGENCY MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA

Sulawesi Selatan 10,28
Indonesia 11,25
Sulawesi Barat 12,27
High disparity of poverty between provinces

Jawa Timur 12,42

Sumatera Selatan 13,91
Sulawesi Tengah 13,93
Sulawesi Tenggara 14,05
Lampung 14,28
Jawa Tengah 14,46
DI Yogyakarta 15,00
NTB 17,25
Gorontalo 17,44
Bengkulu 17,48
Aceh 18,05
Maluku 19,13
NTT 19,82
Source: National Socio-Economic Survey (Susenas), March 2014
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Papua Barat 27,13

Papua 30,05
INFRASTRUCTURE

FISCAL POLICY AGENCY MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA

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 Strategic policy budget of 2016

Spending expansion Better targeted

1 6
deficit of 2,15% of GDP subsidies

Health
2 Welfare sustainability 7 National Social
Security System

Expansion of
3 Health budget 5% 8 Family Hope
Program

Fiscal
Significant infrastructure decentralization
4 9
spending strengthening (village
fund)

1 million
5 Education budget 20% 10 home
FISCAL POLICY AGENCY MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA
program
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 Government has put infrastructure as one of its expenditure focuses on
state budget 2016

Dimension of Human Dimension of Priority Sector Dimension of Equality and

Development Development Desentralization
Fulfillment of education Continuing development Fiscal Decentralization
and health budget of priority program (i.e.: policies align with
Provision of basic needs, connectivity reallocation of
particularly housing, infrastructure, Deconcentration Fund /
through Million House education, health, food Assistance (Dekon/TP)
Program for low income and energy sovereignty, from line ministries to
communities (MBR) maritime, tourism, Special Allocation Fund
through support reduction of disparities, (DAK)
mechanism and defense) to improve Improving the welfare of
Toward more targeted the quality of the poor and low income
subsidy development through more sustainable
social assistance programs
Expand micro and small
businesses credit program
(KUR)

FISCAL POLICY AGENCY MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA

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 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 Energy subsidy
2011 2012 2013 2014 Revised budget Budget 2016 60.7%
2015
Education Healthcare Energy subsidy Infrastructure

FISCAL POLICY AGENCY MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA

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Infrastructure development plan 2015-2019
Road Reservoir and Irrigation
New road: 2,650 km New reservoir: 49 units
New toll road: 1,000 km New water power plant: 33 units
Maintenance: 46,770 km Rehabilitation: 3 million ha
Airport
New airport: 15 units
Aircraft procurement: 20 units Broadband
Development: 6 locations Scope of broadband: 100%
Port
New port: 24 units
Cargo ship procurement: 26 units Housing
Cargo ship procurement: 2 units Development of houses (Rusunawa): 5,257 units
Boat procurement: 500 units Housing stimulus: 5.5 million households
Development of dirty areas: 37,407 ha
Railway Housing credit facility: 2.5 million households
Development: 3,258 km
Water Treatment
Development in urban areas: 21.4 million household
Ferry Port connections
New ferry port: 60 locations Development in rural areas: 11.1 million household connections
Ferry procurement: 50 units
Waste Management
Waste system development : 657 cities/districts
Urban Transportation Sludge treatment development: 409 cities/districts
Bus Rapid Transit (BRT): 29 cities Sanitary landfill development: 635 cities/districts
Mass Rapid Transit: 23 big cities 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 Infrastructure Investment Requirement per Sector

(in(inbillion
billionUSD
USD)
Sector Total (USD billion)
USD424.57 USD130 Road 61.92
Railway 21.77
Sea Transportation 69.23
Air Transportation 12.69
Land Transportation
4.62
(including Ferry)
Urban Transportation 8.85
USD294.57 Electricity 75.38
USD294.57
Energy (Oil & Gas) 38.92
ICT 21.31
Water Resources 30.77
Water Supply and Sewerage 38.38
Housing 40.54
Investment
Investme State
State Funding
Funding SOEs and Total 424.57
ntneeds
needs budget
budget gap
gap privates

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)
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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
Indonesias Access to Savings
Global Condition Indonesias Condition
and Credits

Target 2019: 50% Access to Savings (% of adults)

2014: 62%
2014 26,6 25,2 48,2
2011 15,3 13,9 70,8
2011: 51%
0% 50% 100%
2014: 36.1% have an account Formal Informal No access

2011: 20% have an account Access to Credits (% of adults)

2014 13,1 44,4 42,5

62% of adults in the world have an account in a financial institution in
2011 8,5 44,3 47,2
2014, increasing from 51% in 2011.
36.1% of adults in Indonesia have an account in a financial institution 0% 50% 100%
in 2014, increasing from 20% in 2011. Formal Informal No access
26.6% of adults in Indonesia save in a financial institution
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
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 Policy reform is needed to address poverty and income equality

ACCELERATE HIGH,
GROWTH EQUITABLE,
STRUCTURAL BUDGET AND
CHALLENGES REFORM SUSTAINABLE
REDUCE ECONOMIC
INEQUALITY GROWTH

FISCAL POLICY AGENCY MINISTRY OF FINANCE OF THE REPUBLIC OF INDONESIA

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 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

Contributory welfare programs
Conditional cash transfer
Universal health insurance
Unconditional cash transfer
Pension and employment
Rice for poor, etc.

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 17
Financial inclusion in Indonesia is promoted through six pillars

NATIONAL FINANCIAL INCLUSION STRATEGY

1st Pilar 2nd Pilar 3rd Pilar 4th Pilar 5th Pilar 6th Pilar

Intermediation
Mapping on Supportive
Financial Public Finance and Consumer
Financial Policy and
Education Facility Distribution Protection
Information Regulation
Channel

To provide To protect
To increase
To increase To provide alternatives in consumers
knowledge on To reduce
access to public supportive financial interest in
financial information
finance policies and products and using
products and asymmetry
services regulations services financial
services
distribution services

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

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