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views or policies of
the Asian Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the
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terms.

REPUBLIC OF INDONESIA

Effectiveness and Challenges


in the Implementation of Fiscal Rules In Indonesia

Dr. Ir. Boediastoeti Ontowirjo, MBA


Director for State Finance and Monetary Analysis

Ministry of National Development Planning/National Development Planning Agency

Bangkok, 24-25 April 2019


REPUBLIC OF
Indonesia at a Glance
INDONESIA

Indonesia population and geographical concerns


Spread in the area of 5,271 Km Eastern to Western and
16,056 1,373 Km Northern to Southern parts of Indonesia
Islands
Population: Poverty Rate: 5 Big islands: Jawa, Sumatera, Kalimantan, Sulawesi & Papua
266 million (2017) 9.66% (2018) Meeting point of 2 ring of fires, more than 400 volcanoes,
more than 130 active volcanoes

Key Development Indicators

1,373 Km
GDP & Growth: Inflation: HDI:
5,271 Km Rp10,425,3 & 5,17% 3.13% 70.81
(2018) (2018) (2017)

Source: Central Bureau of Statistics and Geospatial Information Agency (2019)


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REPUBLIC OF
Fiscal Rule in Indonesia
INDONESIA

Types of Fiscal Rule - IMF*

Revenue Rule Budget Balance Rule Debt Rule Expenditure Rule

As a fiscal reform, Indonesia enacts two types of fiscal rule:


Budget Balance Rule & Debt Rule (State Finance Law No.17/2003, Explanation of Article 12 (3))

Ceiling on budget deficit Ceiling on government debt


Maximum deficit is Maximum Government
3 percent of GDP Outstanding Debt is capped
at 60 percent of GDP

* The methodology is adopted from Schaechter, Kinda, Budina, and Weber (2016)
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REPUBLIC OF
Budget Balance Rule in Indonesia
INDONESIA

Definition (Government Regulation No. 23/2003)


Budget deficit is defined as a gap between government Indonesia Budget Deficit, 2010-2019
revenue and government expenditure in a fiscal year. IDR Trilion Percent
0 0

Objectives -100
-0.5

To maintain fiscal sustainability in central and -0.68


-1
sub national government. -200 -1.08

-1.5

-300
-1.74 -2.15
Effectiveness of the Rule -1.75 -2
-2.49 -2.51 -2.01
-2.59
-400 -2.22
By having Budget Balance Rule, Indonesia constantly -2.5

improves planning and fiscal policy in the expenditure


-500 -3
side. 2010 2011 2012 2013 2014 2015 2016 2017 2018* 2019**

Budget Deficit (in Trilliion Rupiah) Deficit (as Percentage of GDP)

Source: RI Ministry of Finance (2019)


*. Preliminary Figure
**Based on GoI Budget

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REPUBLIC OF
Debt Rule in Indonesia
INDONESIA

Definition (Law No. 17/2003) Indonesia Outstanding Debt, 2010-2019


Government debt is defined as government obligation IDR Trillion Percent
to third parties for obtaining good and services that 5,500 35
need to be repaid at its respective maturity. 5,000 29.40 29.78 30.33
28.35 30
4,500 26.91
24.50 24.88 24.68
Objectives 4,000 23.10 22.95 25

To finance the budget deficit 3,500


20
3,000

2,500
15
Effectiveness of the Rule 2,000

• In the last 10 years, Indonesia outstanding debt to GDP 1,500 10

has shown slightly increasing trend. However, it never 1,000


5
pass the debt rule. 500

0 0
• Debt Rule followed by credible financing policy has led to 2010 2011 2012 2013 2014 2015 2016 2017 2018* 2019**
budget sustainability across government level.
Outstanding Debt Debt-to-GDP Ratio

Source: RI Ministry of Finance (2019) *Preliminary Figure **Realization as of January 2019

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REPUBLIK
Effectiveness of the Rules
INDONESIA

It is considered a proper look to figure effectiveness of the ratios by connecting Debt Ratio and Deficit Ratio

Debt to GDP Ratio, 2018


100 Given the fiscal rule, Indonesia is able to
76.7 80.3
80 maintain a relatively sustainable fiscal
60 44.4 49.9 performance compared to other countries.
% GDP

40 29,8
20
• Compare to countries with similar fiscal
0
Indonesia New Zealand Mexico Brazil Malaysia
rules (New Zealand and Malaysia),
1 0.6 Indonesia could maintain lower debt to
0 GDP Ratio in 2018.
-1 • Compare to countries with almost similar
% GDP

-2 socio-economic characteristics (Mexico


-1.8 -2.04
-3 and Brazil), Indonesia has also shown
-4 -3.2 -3.4 lower debt and deficit ratio.
Indonesia New Zealand Mexico Brazil Malaysia

Budget Balance to GDP Ratio, 2018

Source: Moodys, Respective Countries Government Data (2019)


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Challenges: Indonesia Fiscal Rule and other Countries
REPUBLIC OF
INDONESIA

Almost Similar Socio-economic


Similar Fiscal Rule
Characteristics

Indonesia Brazil Mexico New Zealand Malaysia


DR: 55% of GDP**
BBR and DR DR and ER BBR and ER DR: Reduce to 20%**
Fiscal Rule BBR: Balance Budget on
BBR: Budget surpluses Operational Expenditure

Tax Revenue 10.3 percent 12.9 percent 13.5 percent 27.3 percent 13.75 percent
(as % of GDP)

GDP
(at constant US 1,090.5 mio 2,278.9 mio 1,284.3 mio 181.5 mio 364.6 mio
$)

Credit Rating Baa2 Ba2 Aaa


A3 A3
(Moody’s)

HDI 70.8 75.9 77.4 91.7 80.2


Source: World Bank, UNDP, Indonesia Central Bureau of Statistics (2019) **. Reducing the debt ratio to 20 percent of GDP in five years term
*DR: Debt Rule, ER: Expentiture Rule, BBR: Budget Balance Rule *** Debt can only be used for development expenditure 7
REPUBLIC OF
Challenges to Achieve Development Target (1/2)
INDONESIA

To achieve development targets with available resources requires proper policies in planning and budgeting.

Development Target, 2019


In recent years, GoI directs the development policies towards more
productive expenditures, such as capital and infrastructure.

Capital and Infastructure Expenditure, 2014-2019

Economic Growth: HDI: Gini Ratio: Poverty Rate: Trillion IDR


415.0
5.4 – 5.8% 71.98 0.38-0.39 8.5-9.5% 400

Source: Bappenas (2019) 300 256.1

184.9
200
Government Revenue, 2015-2019 147.3

IDR Trillion Percent 100


10.8 10.4 11.1 2014 2015 2016 2017 2018
2500 9.9 10.3 12
10 Capital Expenditure Infrastructure Expenditure
2000 1,786.4
1,240.4 8
1500 Source: RI Ministry of Finance(2019)
6
1000
4
500 2
0 0
2015 2016 2017 2018* 2019**
Tax Revenue (In Trillion Rupiah) Tax Ratio
GoI develops creative financing policy for development.
Source: RI Ministry of Finance (2019) *Preliminary Figure **Realization as of January 2019
REPUBLIC OF
Challenges to Achieve Development Target (2/2)
INDONESIA

Fiscal rule is not hampering GoI to achieve development target.


Budget Allocation, 2018 Education & Health Expenditure, 2010-2019

3.5 3.5 3.4


3.3
3.0 3.1 3.1
3.0 3.0 3.0

0.8 0.8 0.9 0.9 0.8 0.8 0.8 0.7 0.7 0.8

2010 2011 2012 2013 2014 2015 2016 2017 2018* 2019**

Education (%GDP) Health (%GDP)

Source: Ministry of Finance (2019) * Preliminary Data ** State Budget and Revenue (APBN) Target
* Number in parentheses represents respective expenditure as percentage of GDP

70.8
70.2
69.6
68.9
68.3
67.7
67.1
66.5

Human
Development 2010 2011 2012 2013 2014 2015 2016 2017
Source: Central Bureau of Statistics, Indonesia
Index
REPUBLIC OF
Conclusions
INDONESIA

Indonesia enacted two fiscal rules (Budget Balance Rule and Debt Rule) and committed
implement these rule.

By having those rules, Indonesia could effectively achieve development targets.

Indonesia’s experience in handling the rules could be implemented by other countries with some
adjustment.

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REPUBLIC OF INDONESIA

THANK YOU