Recent budgeting developments - Didik Kusnaini, Indonesia

REPUBLIC OF INDONESIA

MINISTRY OF FINANCE

INTEGRITY • PROFESSIONALISM • SINERGY • SERVICE EXCELLENCE • CONTINUOUS LEARNING

12th OECD-Asian Senior Budget Officials Annual Meeting

Bangkok, 15 – 16 December 2016

1

Indonesia: Managing Public

Spending for Sustainable Growth

Presented by Didik Kusnaini


Strong Commitment to Continue The Ongoing Reform Through Fiscal Policy:

(1) Friendly for Growth, (2) Effective in Reducing Poverty and Inequality, and (3) Increasing People Participation

Ministry of Finance, Republic of Indonesia

3 INTEGRITY • PROFESSIONALISM • SINERGY • SERVICE EXCELLENCE • CONTINUOUS LEARNING

• Inflation Management

• Prudent monetary policy support for stabilization and growth

• Accommodative Macro-prudential Policy

• Effort to reduce volatility

Budget • Focusing on more sustainable

revenue, esp. taxation • More realistic revenue target

calculation • Increasing more productive

spending, inc. infrastructure • Budget efficiency on non-priority

spending • More sustainable financing • Maintaining fiscal rule of 3%

deficit to GDP

Incentives • Investment friendly policies • Regulation to stimulate the trade

of high value added domestic products

Budget • Better targeted subsidy • Social welfare spending • Strengthening regional

involvement through intergovernmental transfer

Incentives • Effort to maintain consumption

growth • Deregulations to ease business

climate • Increasing non taxable income

threshold • Improving the easiness in

doing business

Main strategy to spur economic growth Integrated policy framework to achieve sustainable and equitable growth

Growth Friendly Fiscal Policy To

Achieve Sustainable And Equitable Growth

LONG Term Policies

Supportive yet independent

monetary policies

SHORT – MEDIUM

Term Policies

By utilizing: - Credible and realistic budget - Incentives for strategic sectors - Support for stable consumption


Description (IDR Trillion) 2016

R-Budget September FY Outlook

A. Revenue 1.786,2 1.081,2 1.582,9

I. Domestic Revenue 1.784,2 1.080,0 1.580,9

1. Tax Revenue 1.539,2 896,1 1.320,2

2. Non Tax Revenue 245,1 183,8 260,7

II. Grant 2,0 1,2 2,0

B. Government Expenditure 2.082,9 1.305,5 1.898,6

I. Central Government 1.306,7 767,7 1.195,3

1. Ministerial Spending 767,8 428,6 672,0

2. Non Ministerial Spending 538,9 339,1 523,3

II. Intergovernmental Transfer 776,3 537,8 703,3

1. Regional Transfer 729,3 501,0 659,1

2. Village Fund 47,0 36,8 44,2

C. Primary Balance (105,5) -77,7 (126,4)

D. Surplus/Deficit (296,7) -224,3 (315,7)

% to GDP (2,35) -1,79 (2,50)

E. Financing 296,7 391,9 315,7

I. Debt Securities 371,6 n/a 387,8

II. Investment Financing (94,0) n/a (91,5)

III. Other Financing 19,1 n/a 19,4

2016 BUDGET OUTLOOK OBJECTIVES • More realistic budget position • Strengthening Government’s credibility

in managing Budget • Improving market confidence • Reliable baseline to formulate 2017

budget

SHORTFALL PROJECTION State Revenue : Rp203,3 T Taxation Revenue : Rp219,0 T Adjustment from: a) Global and domestic slowdown; b) Low Commodity prices (oil, coal, and

CPO)

SPENDING ADJUSTMENT • Efficiency on less priority expenditure • Meanwhile, productive spending is

preserved • Adjustment on intergovernmental

transfer

WIDER DEFICIT TO MAINTAIN THE GROWTH PACE • But still maintained below 3%

2016 Budget consolidation to be more realistic and credible Adjusting budget to be align with current economic condition


Disbursement profile has been improving Ensuring the priority projects has started since the beginning of the year

Operational Spending Social Assistance Spending

Capital Spending Personnel Spending Source: Ministry of Finance Source: Ministry of Finance

Source: Ministry of Finance Source: Ministry of Finance

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Government Strengthens Its Commitment on the Budget Reform

as Reflected in the 2017 Budget Ministry of Finance, Republic of Indonesia


More realistic and credible 2017 budget Provide more certainty for all stakeholders

Description (IDR Trillion) 2016 2017 Growth (%)

R-Budget Outlook Budget To R-Budget To Outlook

A. Revenue 1.786,2 1.582,9 1.750,3 -2,0% 10,6%

I. Domestic Revenue 1.784,2 1.580,9 1.748,9 -2,0% 10,6%

1. Tax Revenue 1.539,2 1.320,2 1.498,9 -2,6% 13,5%

2. Non Tax Revenue 245,1 260,7 250,0 2,0% -4,1%

II. Grant 2,0 2,0 1,4 -30,0% -30,0%

B. Government Expenditure 2.082,9 1.898,6 2.080,5 -0,1% 9,6%

I. Central Government 1.306,7 1.195,3 1.315,5 0,7% 10,1%

1. Ministerial Spending 767,8 672,0 763,6 -0,5% 13,6%

2. Non Ministerial Spending 538,9 523,3 552,0 2,4% 5,5%

II. Intergovernmental Transfer 776,3 703,3 764,9 -1,5% 8,8%

1. Regional Transfer 729,3 659,1 704,9 -3,3% 6,9%

2. Village Fund 47,0 44,2 60,0 27,7% 35,7%

C. Primary Balance (105,5) (126,4) (109,0) 3,3% -13,8%

D. Surplus/Deficit (296,7) (315,7) (330,2) 11,3% 4,6%

% to GDP (2,35) (2,50) (2,41) 2,6% -3,6%

E. Financing 296,7 315,7 330,2 11,3% 4,6%

I. Debt Financing 371,6 387,8 384,7 3,5% -0,8%

II. Investment Financing (94,0) (91,5) (47,5) -49,5% -48,1%

III. Other Financing 19,1 19,4 (7,0) -136,6% -136,1%


Education 27,4%

Infrastructure 123,4%

Energy Subsidy 66,2%

Health 83,2%

Budget Allocation (trillion rupiah) Source: MoF

Comparison between average 2011 – 2014 budget and average 2015 – 2017

budget

Commitment to continue strengthening productive spending Budget allocation for education, infrastructure, and health signficantly increase

• Ensuring budget allocation is heavily on productive spending to support growth momentum and to improve basic services

• Preserving the infrastructure acceleration • Social welfare spending to improve equality and maintain consumption growth • Better and fairer subsidy scheme

416.1

104.0

77.3

387.3

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2011 2012 2013 2014 2015 2016 2017


416.1

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2009 2010 2011 2012 2013 2014 2015 2016 2017APBN

Rp Tn

104.0 2.7 2.8 3.0

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APBNP

% of APBNP

Rp Tn %

Budget for Health Program

Budget for Education Program

% of Budget

Budget

Certification 101,100 teachers 10,200 lecturers

Immunization Basic and complete immunization for 92% of 0-11 months old infants

Bidikmisi 360.5 thousands college students

Health Insurance Subsidy (PBI) 94.4 million people

School Operational Assistance (BOS) 8.5 million students

Community Health Centre (Puskesmas) 700 regencies School

Rehabilitation 41,128 rooms

Stunting Prevention Stunting prevention to 29.6% of children below 2 years old

Family Plan Program (KB) 6.7 million people

Operational Assistance for Colleges 107 Colleges/Universities

Indonesia Smart Card (KIP) 19.5 million students

Priority programs to improve basic service as well as to address poverty and inequality Maintaining 20 percent and 5 percent of budget for education and health, respectively


76.3 86.0 114.2

145.5 168.5 154.1

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Anggaran Infrastruktur

% thd Belanja Negara (RHS)

In 2017 a minimum portion of non-earmarked Revenue Sharing and General Allocation Fund to be used for infrastructure development has increased from 15% to 25%.

Infrastructure budget

% of total state expenditure (RHS)

Infrastructure Budget Allocation 2017 Infrastructure Construction Target

Budget allocation for infrastructure continues to increase Infrastructure spending in the 2017 State Budget increases by Rp40.8 T than proposed

13 Airports

3 Bus Terminals

55 Seaports 550Km Railways

9,399m Bridges

815Km Roads


137.8

94.4 77.3 74.3

83.4 82.7

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Energy Subsidy Non Energy Subsidy

Portion of Ener. Subs Portion of Non Ener. Subs

In IDR Tn

Better targeting of subsidies policy in 2017 The non energy subsidy allocation is now higher than energy subsidy

Energy Subsidy

Fuel and 3kg LPG subsidies Rp32.3 T: Using close distribution (by name and by

address) Gradual implementation Recipients are 26 million poor households and

2.3 million micro business

Electricity subsidy Rp45,0 T: Recipients are 19.1 million customers of R-1/450

VA and 4.05 million customers of R-1/900 VA For non poor customers of 900VA, the tariff will

be gradually adjusted by three times every two months.

Non Energy Subsidy Food subsidy will be given to 14.3 million

households Gradual conversion of Rastra (rice for the poor)

to become non-cash/voucher food assistance program. Pilot project in 44 cities.

Fertilizer and seeds subsidies program are directed to support the improvement of agriculture productivity

Provision of 9.55 millions volume of fertilizer subsidy

Seeds subsidy provision for rice and soybean. Support MSME through KUR (interest subsidy)

Share of Ener. Subs Share of Non Ener. Subs


Minimum 25% of General Transfer Fund has to be used for public service facility development acceleration

- Equal to IDR 125,9 Trillion

General Transfer Fund - Rp503.6 T

Physical Special Transfer Fund allocation is based on regions’ proposal and national priorities, especially for underdeveloped regions, border areas, and transmigration.

Special Transfer Fund - Rp173.4 T

Incentive Fund allocation is increased to reward regions with good fiscal management and basic public service performances.

(317 regions being rewarded, The lowest incentive is Rp7,5 billion, The highest incentive is Rp65,3 billion)

Incentive Fund - Rp7.5 T

Gradually increasing Village Fund allocation. • Average allocation for each village Rp800.5 million. • Lowest village fund allocationRp726.7 million. • Highest village fund allocation Rp2.8 billion.

Village Fund - Rp60.0 T

Improving efficiency and effectiveness of Special Autonomy & DIY Fund.

Papua Rp5.6 T; West Papua Rp2.4 T; Aceh Rp8.0 T.; DTI Papua & West Papua Rp3.5 T.

Special Autonomy & D.I. Yogyakarta - Rp20.3 T

Increasing the effectiveness and efficiency of Transfer to Regions & Village Fund The allocation of transfer to the regions is higher than line ministries budget

2017 Transfer to Regions &

Village Funds


Preserving fiscal sustainability always becomes the top priority Through the compliance with fiscal rules and productive financing

2014 2015 2016 2017

Audited Audited R-Budget Budget

Government securities 255,7 380,9 371,6 384,7

Investment Financing (8,9) (59,7) (94,0) (47,5)

Lending 2,5 1,5 0,5 (6,4)

Liability Guarantee 1,0 - (0,7) (0,9)

Other Financing 0,5 0,3 19,3 0,3

Expansive Fiscal Deficit, but still be Prudent and Cautious with The Market Condition:

Managing fiscal deficit below 3% Indonesia has implemented budget deficit regime for years but never once exceeded the constitutional threshold Financial inclusion and market deepening Debt issuance to finance productive activity Selective external loan (to finance infrastructure and energy sector) Loan as an alternative instrument for financing Active Debt Management and Assets and Liabilities Management Government sharia debt securities (SUKUK) as project-based financing for infrastructure projects, such as double track railway

from Martapura – Baturaja (South Kalimantan), double track Purwokerto – Kroya and Madiun – Jombang (Eastern Java), and other road and bridge financing across the nation

Indonesia’s Fiscal Deficit (% of GDP) Source: MoF

-2.35 -2.5 -2.41

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2010 2011 2012 2013 2014 2015 2016 2017

Brazil India Malaysia Indonesia

Indonesian Constitutional

Threshold

Indonesia Financing Plan Source: MoF


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Peers Comparison on Outstanding Government Debt Securities Profile (Domestic and Foreign Currency) Proxy for Years to Maturity 28 October 2016; Source: Bloomberg, Staff Calculation; Rating by Moody’s

better better

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Debt to GDP Ratio (%) Source: IMF

External Debt Comparison with Peers Source: Moody’s Statistical Book May 2016

• In 2017, Indonesia is focusing to decrease bond pricing, lower or similar with market yield

• Growing external debt is the consequence in order to avoid the crowding out risk in domestic market

• However, considering the longer maturity date, Indonesia debt profile is healthy and sustainable.

• Debt to GDP ratio Indonesia is much lower than peers, provide large room for expansion

% Years

Indonesia government debt securities profile remains healthy Higher bond pricing, but longer maturity and much lower debt to GDP ratio

Lower than Indonesia Higher than Indonesia


PT. Waskita Karya (Persero) Tbk Capital Injection 2015 IDR. 3,5 Trillion

FY 2015 Audited

Q2 2016 Unaudited

Total Liabilities (IDR Trillion) 20,6 30,2

Total Equity (IDR Trillion) 9,7 10,3

Total Asset (IDR Trillion) 30,3 40,5

(Tot. Liabilities 2016 – Tot. Liabilities 2015) Injected Capital

2,75 x

IDR. 2 Trillion - National strategic

infrastructure project - Priority project - PPP

IDR. 1 Trillion - Focus on infrastructure

project’s guarantee, esp. PPP Projects

IDR. 2 Trillion - Support 1 million houses

program

IDR. 2 Trillion - Support export-oriented

enterprises - Continue the National Interest

Account (NIA) program

State Asset Management (BLU LMAN) IDR. 20 Trillion

Mainly, to support 30 national strategic infrastructure project (as land bank) and other states property management Existing Assets Portfolio: Ex-Pertamina (e.g. LNG Badak Bontang assets), Ex-BPPN

More targeted and strategic capital injection To leverage SOEs capital which have strong relation to infrastructure development and export performance

The effectiveness of 2015 Government Capital Injection to Leverage SOE’s Financing: PT. Waskita Karya (Persero) Tbk Source: MoF


Thank You Ministry of Finance, Republic of Indonesia


Fiscal Discipline is needed to maintain budget’s credibility, sustainability, and vulnerability

productive efficient solid manageable risk

1. Improve Tax Ratio; 2. Manage state assets to

be more productive; 3. Increase capital

spending; 4. Improve the quality of

intergovernmental transfer;

5. Debt/loan for productive activities

1. Less prioritizing for operational spending and less impact to the economy;

2. Continuously improve the subsidy scheme;

3. Integrate subsidy and social spending

Providing Fiscal Buffer Strengthenng flexibility

(Law Framework)

Maintaining fiscal sustainability (controlling deficit, debt ratio and primary balance)

2018 budget as the effective stimulus for the economy To simultaneously optimize the budget for the more sustainable and equitable growth

Government & Nonprofit

Recent budgeting developments - Didik Kusnaini, Indonesia