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Spending for Reconstruction and Poverty Reduction
Aceh Public Expenditure Analysis
Banda Aceh, September 12, 2006APEA Team
APEA: OBJECTIVES & PROCESS
n OBJECTIVEs:n Gaining a better understanding of Aceh’s revenues,
expenditures, and financing management;n Developing policy recommendations to support local budget
implementation and processes;n Leaving behind a better system for the Acehnese to analyze
and monitor local budgets.
n PROCESS:n Participatory Public Expenditure Review with strong
participation from Aceh’s Universities: UNSYIAH, UNIMA, IAIN, and Politeknik Lhokseumawe
n Joint analytical work by joint team of World Bank and Acehuniversities, with USAID, supported by Provincial Government and BRR
Key messages
n Aceh has seen an extreme increase in its fiscal resources. These resources can be used to boost economic development and improve the quality of public services.
n Aceh’s fiscal position will only get stronger. Decreasing revenues from oil and gas will be more than compensated by new Dana Otsus(Law 11/2006).
n Province and Local governments have spent low shares of their budgets in core sectors (health, education and infrastructure); most of the spending was on routine and government apparatus.
n Public service provisions still needs major improvements. The quality of schooling is poor; the health sector has an insufficient number of staff.
n Local government capacity in budget planning and implementation needs substantial upgrading. Timely budget process, integration of development and strategic plans in budget process, filling regional and sectoral reconstruction gaps.
ACEH WILL HAVE SUFFICIENT RESOURCES TO SPEND
Even before reconstruction funds started to flow, Aceh had the 3rd largest budget
(Per capita regional revenue, 2004)
Source: WB/SIKD (MOF), 2004
0
1
2
3
4
Papua
Kaltim
NA
D
Riau
Kalteng
Maluku
Gorontalo
Bangka B
elitung
Jambi
Sulteng
Bali
Kalsel
NT
T
Sulut
Sum
bar
Bengkulu
Sulsel
DI Y
ogyakarta
Sum
sel
Sum
ut
NT
B
Lampung
Jatim
Jateng
Banten
JabarM
illio
n ru
piah
Province Kab/kota
Aceh
In 2006, Aceh has 6 times more resources than in 1999
2.62.1 2.8
1.54.9
8.0
1.0
16.4
0
5
10
15
20
25
30
1999 2002 2006
Rp
h B
illi
on
Deconcentrated Province Kab/Kota Reconstruction budget
Reconstructionbudget
0.51.2
Gas production and revenue will declining significantly…
0
50
100
150
200
25019
94
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
*
2006
*
2007
*
2008
*
2009
*
2010
*
2011
*
2012
*
2013
*
2014
*
Car
go/y
ear
…but will be compensated by 2% of DAU allocation after implementation of
Aceh’s new law (Law 11/2006)
0
2
4
6
8
10
12
14
16
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Trill
ion
rupi
ah
Total revenue without 2% DAU ($60/brl) Total revenue under law 18/2001 ($60/brl) Total revenue with 2% DAU ($50/brl)
Total revenue with 2% DAU ($60/brl) Total revenue with 2% DAU ($75/brl)
Gains from Law 11/2006
However, fiscal disparity among local governments remains
(revenue per capita, 2004)
-
1,000
2,000
3,000
4,000
5,000
Kota S
aban
g
Gayo Lu
es
Aceh
Utara
Kota L
hokse
umaw
e
Nagan
Raya
Aceh
Barat
Daya
Aceh
Barat
Aceh
Teng
gara
Aceh
Selata
n
Kota L
angs
a
Aceh
Besa
r
Kota B
anda
Aceh
Aceh
Teng
ah
Aceh
Tamian
g Pidie
Bireue
n
Rp
h T
ho
usa
nd
Revenue sharing per capita Revenue (other than revenue sharing per capita)
Oil and gas do not seem to have had a positive impact on poverty reduction
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Indonesia AcehTamiang
Aceh province Aceh Timur Aceh Utara
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
Per capita GDP (times the national average)Poverty headcount, %
Source: WB/MOF/BPS, 2004
Aceh is the 4th poorest province in the country
n Tsunami has potentially increased the poverty rate by 7 percent, making Aceh the 2nd poorest in the country
0
5
10
15
20
25
30
35
40
45
Pro
v. P
apua
Pro
v. M
aluk
u
Pro
v. G
oron
talo
Pro
v. N
AD
Pro
v. N
TT
Pro
v.
NT
B
Pro
v.
Ben
gkul
u
Pro
v.
Lam
pung
Pro
v.
Sul
teng
g
Pro
v.
Sul
teng
Pro
v. J
awa
Ten
gah
Pro
v.
Sum
sel
Pro
v.
Jaw
a T
imur
Pro
v. D
IY
Ave
rage
Pro
v.
Sum
ut
Pro
v. S
ulse
l
Pro
v. K
alba
r
Pro
v.
Jam
bi
Pro
v.
Mal
uku
Uta
ra
Pro
v.
Jaw
a B
arat
Pro
v.
Ria
u
Pro
v. K
altim
Pro
v.
Sum
bar
Pro
v.
Kal
teng
Pro
v. B
angk
a B
elitu
ng
Pro
v.
Sul
awes
i Uta
ra
Pro
v.
Ban
ten
Pro
v. K
alse
l
Pro
v. B
ali
Pro
v.
DK
I Jak
arta
National average
Aceh
THE KEY TO REDUCE POVERTY IS MANAGING ACEH’s FISCAL RESOURCES WELL
Regional spending has tripled since decentralization
Source: SIKD/MOF & BPS-SK (constant 2005 prices)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Rp
h B
illio
n
Province Kab/Kota
Local governments are responsible for the majority of spending in the region
after decentralization
0
20
40
60
80
100
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
% o
f to
tal c
entr
al+r
egio
nal
exp
Central/Deconcentrated Province Kab/Kota
Routine expenditure has an increasing share in district and provincial spending
Province Kabupaten/Kota
0
1,000
2,000
3,000
4,000
5,000
6,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Rph
Billi
on
Routine Development
0
1,000
2,000
3,000
4,000
5,000
6,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Rph
Bil
lion
Routine Development
Investment in key sectors is extremely low(Total regional expenditures, 2004)
Education&culture10%
Infrastructure10%
Others7%
Government Apparatus
16%
Personnel34%
Operational & Maintenances
1%
Official Travel1%
Unexpected expenses
1%
Goods & Services5%
Financial Assistance 15%
Routine Financial Assistance DevelopmentSource: WB/SIKD(MOF), 2004
Development spending: government apparatus is getting priority – infrastructure is declining
0
10
20
30
40
50
60
1999 2000 2001 2002 2003 2004 2005
%
Government Apparatus Health, Social Welfare Education and Culture Infrastructure Others
HEALTH SECTOR
Health spending has not increased after special autonomy
276
439 435358
410
6%
7%6%
5%
6%
0
100
200
300
400
500
2001 2002 2003 2004 2005
Rp
(Bln
Rp)
0%
1%
2%
3%
4%
5%
6%
7% % of total regional budget
Some districts have extremely low budgets for health spending
0
2
4
6
8
10
12
14
Ace
h B
esar
Sim
elue
Bire
uen
Ace
h B
arat
Ace
h Ten
gah
Ace
h Tim
ur
Pid
ie
Sab
ang
Ace
h T
amia
ng*
Ace
h S
elat
an*
Ace
h U
tara
Ace
h T
engg
ara*
Lhok
seum
awe*
Ace
h S
ingk
il
Nag
an R
aya
Ban
da A
ceh
Ace
h B
arat
Day
a*
Ace
h Ja
ya
Lang
sa*
%
Source: SIKD MOF/WB, 2004* & 2005
% of health spending in 2004 kab/kota
budget)
Routine expenditure is dominant in the health sector
0
100
200
300
400
2001 2002 2003 2004 2005
Bln
Rp
(cpi
200
5)
routine development
Province Kabupaten/Kota
0
100
200
300
400
2001 2002 2003 2004 2005
Bln
Rp
(cpi
200
5)
routine development
Resources are not optimally allocated, contributing to poor outcomes
n Aceh has higher population without access to on-site (within village) health facilities (38%) than national average (23%) (HDI-2002).
n Aceh has higher share of undernourished children (under age five) (35.2%) than national average (25.8%) (HDI-2002).
n But life expectancy is still better than national average: 67.7 years in Aceh vs 66.2 years average in Indonesia.
Key Issues in Health Sector
n The conflict and tsunami worsened an already bad situation
n A large number of health facilities is not functioningdue to lack of maintenance and insufficient and absence of staff
n There is an urgent need to improve health information systems, so that the monitoring of health needs and coverage can be improved
EDUCATION SECTOR
Regional expenditure on education increased after special autonomy, but has been decreasing since then.
561
2,250 2,3192,053
1,70411%
34% 33%
26% 25%
0
500
1,000
1,500
2,000
2,500
2001 2002 2003 2004 2005
Bln
Rp
0%
10%
20%
30%
40%
Education expenditures Share education expenditures
Some districts have very low education budgets
0
10
20
30
40
50
Ban
da A
ceh
Pid
ie
Bire
uen
Ace
h S
elat
an *
Ace
h T
engg
ara
*
Lang
sa *
Ace
h B
esar
Ace
h Tam
iang
*
Ace
h B
arat
Day
a *
Ace
h Ten
gah
Ace
h B
arat
Lhok
seum
awe
*
Ace
h U
tara
Nag
an R
aya
Ace
h U
tara
Ace
h Tim
ur
Ace
h Ja
ya
Sab
ang
Sim
elue
Ace
h S
ingk
il
%
% of education spending in 2004 kab/kota
budget
Routine education expenditure is taking an increasing share, leaving little room for development.
Province Kabupaten/Kota
0
300
600
900
1,200
1,500
1,800
2,100
2001 2002 2003 2004 2005
Bln
Rp
Total routine (Bln Rp) Total development (Bln Rp)
0
300
600
900
1,200
1,500
1,800
2,100
2001 2002 2003 2004 2005
Bln
Rp
Total routine (Bln Rp) Total development (Bln Rp)
Key Issues in Education
n Net and gross primary school enrollment rates of 4 districts fall below national average (Aceh Barat Daya, Nagan Raya, AcehBarat, and Aceh Jaya);
n Higher trained teachers are selected for government apparatus position, thus left less trained teacher to teach
n The conflict and tsunami had a severe impact on education; poor condition of school building (esp. primary school) further decreases the quality of education (only 44 percent of classroom is in good condition)
n Distribution of an otherwise relatively sufficient number of teachers has been inefficient; urban areas have more teachers than rural areas, there is no incentive structure to encourage teachers to move to rural/ isolated areas.
INFRASTRUCTURE SECTOR
Regional government spending on infrastructure increased substantially following decentralization and special autonomy, but has declined since 2003
0
200400
600800
1,0001,200
1,400
1999 2000 2001 2002 2003 2004 2005
Rph
Bill
ion
Transport, Water and Irrigation Housing and SettlementTelecommunication&Tourism
Regional budget allocation on operational and maintenance for infrastructure is extremely low (average 2001-2004)
91%
1%
1%0%
0%
7%
Personnel GoodsOperational&Maintenance TravelOthers Development
Infrastructure indicators
n About 23 percent of road network is qualified as being in poor condition.
n Aceh irrigated land as a percentage of arable land is lower (57%) than Indonesian average (71%).
n Percentage of households connected to piped water in Aceh is lower (9%) than the national average (17%).
n Percentage of households with access to electricity is higher (74%) than national average (57%).
Key Issues
n Provincial and local government lack prioritization of infrastructure spending
n Capacity varies between local government units; lack of skills and technical expertise
n Monitoring and evaluation systems should be strengthened
LOCAL GOVERNMENT LEADERSHIP WILL BE ESSENTIAL IN IMPROVING PUBLIC SERVICE DELIVERY
0%
20%
40%
60%
80%
100%Local Regulatory Framework
Planning and Budgetting
Cash Management
Procurement
Accounting and ReportingInternal Audit
Public Debt and Investment
Asset Management
External Audit and Oversight
The capacity of local governments to manage increasing fiscal flows remains weak (Average score of 9 kabupaten/kota)
80-100% Excellent/Fully Acceptable
60-79% Very good/ Substantially acceptable
40-59% Good/Fairly acceptable
20-39% Moderate/Partially acceptable
0-19% Poor/Not Acceptable
The capacity of local governments to manage increasing fiscal flows remains weak (average score of 9 PFM Framework Modules)
0%
20%
40%
60%
80%
100%
AcehUtara
BandaAceh
AcehTimur
AcehBesar
Pidie Bireuen AcehBarat
NaganRaya
AcehJaya
Key Issues
n Allocation of budget on capacity building is very low; a large share of the budget goes to buildings and equipment.
n Proliferation of districts is costly; newly created district there are high setting-up costs for new districts, diverting investment from public services.
n The capacity of local government in public financial management is low, on average LGs scored partially acceptable.
RECOMMENDATIONS
n Better allocation of resources; spending on the government apparatus needs to be kept on a leash and increase spending on development
n The issue of weak local government capacity to manage public funds needs to be urgently adressed
n Improve data analysis and information system for better policy making, planning and budget allocation
n Develop a better coordination between province, local government, BRR, and BRA in managing reconstruction, reintegration, and long-term development.
THANK YOU