Effectiveness and Challenges in the Implementation of ...Boediastoeti Ontowirjo] Fiscal Rule...

REPUBLICOFINDONESIA

Dr.Ir.Boediastoeti Ontowirjo,MBADirectorforStateFinanceandMonetaryAnalysis

MinistryofNationalDevelopmentPlanning/NationalDevelopmentPlanningAgency

Bangkok,24-25April2019

EffectivenessandChallengesintheImplementationofFiscalRulesInIndonesia

REPUBLIC OF INDONESIA

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Indonesiapopulationandgeographicalconcerns

IndonesiaataGlance

5,271Km

1,373Km

16,056Islands

Population:266million(2017)

PovertyRate:9.66%(2018)

5Bigislands:Jawa,Sumatera,Kalimantan,Sulawesi&Papua

Spreadintheareaof5,271KmEasterntoWesternand1,373KmNortherntoSouthernpartsofIndonesia

Meetingpointof2ringoffires,morethan400volcanoes,morethan130activevolcanoes

GDP&Growth:Rp10,425,3&5,17%

(2018)

Inflation:3.13%(2018)

HDI:70.81(2017)

Source:CentralBureauofStatisticsandGeospatialInformationAgency(2019)

KeyDevelopmentIndicators


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RevenueRule ExpenditureRuleBudgetBalanceRule DebtRule

TypesofFiscalRule- IMF*

*ThemethodologyisadoptedfromSchaechter,Kinda,Budina,andWeber(2016)

FiscalRuleinIndonesia

Asafiscalreform,Indonesiaenactstwotypesoffiscalrule:BudgetBalanceRule&DebtRule(StateFinanceLawNo.17/2003,ExplanationofArticle12(3))

Maximumdeficitis3percentofGDP

MaximumGovernmentOutstandingDebtiscappedat 60percentofGDP

Ceilingonbudgetdeficit Ceilingongovernmentdebt


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BudgetBalanceRuleinIndonesia

EffectivenessoftheRule

ByhavingBudgetBalanceRule,Indonesiaconstantlyimprovesplanningandfiscalpolicyintheexpenditureside.

ObjectivesTomaintainfiscalsustainabilityincentralandsubnationalgovernment.

IndonesiaBudgetDeficit,2010-2019

Source:RIMinistryofFinance(2019)*.PreliminaryFigure**BasedonGoI Budget

-0.68

-1.08

-1.74

-2.22

-2.15

-2.59 -2.49 -2.51 -1.75

-2.01

-3

-2.5

-2

-1.5

-1

-0.5

0

-500

-400

-300

-200

-100

0

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

PercentIDRTrilion

BudgetDeficit(inTrilliionRupiah) Deficit(asPercentageofGDP)

Definition(GovernmentRegulationNo.23/2003)Budgetdeficitisdefinedasagapbetweengovernmentrevenueandgovernmentexpenditureinafiscalyear.


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DebtRuleinIndonesia

EffectivenessoftheRule

ObjectivesTofinancethebudgetdeficit

Definition(LawNo.17/2003)Governmentdebtisdefinedasgovernmentobligationtothirdpartiesforobtaininggoodandservicesthatneedtoberepaidatitsrespectivematurity.

IndonesiaOutstandingDebt,2010-2019

Source:RIMinistryofFinance(2019)*PreliminaryFigure**RealizationasofJanuary2019

24.5023.10 22.95

24.88 24.6826.91

28.3529.40 29.78 30.33

0

5

10

15

20

25

30

35

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

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

PercentIDR Trillion

OutstandingDebt Debt-to-GDPRatio

• Inthelast10years,IndonesiaoutstandingdebttoGDPhasshownslightlyincreasingtrend.However,itneverpassthedebtrule.

• DebtRulefollowedbycrediblefinancingpolicyhasledtobudgetsustainabilityacrossgovernmentlevel.

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• Comparetocountrieswithsimilarfiscalrules(NewZealandandMalaysia),IndonesiacouldmaintainlowerdebttoGDPRatioin2018.

• Comparetocountrieswithalmostsimilarsocio-economiccharacteristics(MexicoandBrazil),Indonesiahasalsoshownlowerdebtanddeficitratio.

Source:Moodys,RespectiveCountriesGovernmentData(2019)

EffectivenessoftheRules

29,844.4 49.9

76.7 80.3

0

20

40

60

80

100

Indonesia NewZealand Mexico Brazil Malaysia

Debt toGDP Ratio,2018

%GDP

-1.8

0.6

-2.04

-3.2 -3.4 -4

-3

-2

-1

0

1

Indonesia NewZealand Mexico Brazil Malaysia

%GDP

BudgetBalancetoGDP Ratio,2018

ItisconsideredaproperlooktofigureeffectivenessoftheratiosbyconnectingDebtRatioandDeficitRatio

Giventhefiscalrule,Indonesiaisabletomaintainarelativelysustainablefiscalperformancecomparedtoothercountries.


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Challenges:IndonesiaFiscalRuleandotherCountries

Fiscal Rule BBRandDR DR andER

TaxRevenue(as%ofGDP)

12.9 percent10.3percent

GDP(atconstantUS

$)181.5 mio1,284.3mio

Credit Rating(Moody’s)

Ba2Baa2

HDI 75.970.8

*DR:DebtRule,ER:ExpentitureRule,BBR:BudgetBalanceRuleSource:WorldBank,UNDP,IndonesiaCentralBureauofStatistics(2019)

27.3 percent13.5 percent

2,278.9 mio1,090.5mio

AaaA3

91.777.4 80.2

A3

364.6 mio

13.75percent

BBRandER

Indonesia Brazil Mexico NewZealand Malaysia

AlmostSimilarSocio-economicCharacteristics

SimilarFiscalRule

DR:55%ofGDP**BBR:BalanceBudgetonOperationalExpenditure

DR:Reduceto20%**BBR:Budgetsurpluses

**.Reducingthedebtratioto20percentofGDPinfiveyearsterm***Debtcanonlybeusedfordevelopmentexpenditure


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ChallengestoAchieveDevelopmentTarget(1/2)

Source:Bappenas(2019)

Toachievedevelopmenttargetswithavailableresourcesrequiresproperpoliciesinplanningandbudgeting.

1,240.41,786.4

10.8 10.4 9.9 10.3 11.1

024681012

0

500

1000

1500

2000

2500

2015 2016 2017 2018* 2019**

PercentIDRTrillion

TaxRevenue(InTrillionRupiah) TaxRatio

GovernmentRevenue,2015-2019

Source:RIMinistryofFinance(2019)*PreliminaryFigure**RealizationasofJanuary2019

147.3184.9

256.1

415.0

100

200

300

400

2014 2015 2016 2017 2018

TrillionIDR

CapitalExpenditure InfrastructureExpenditure

Inrecentyears,GoI directsthedevelopmentpoliciestowardsmoreproductiveexpenditures,suchascapitalandinfrastructure.

Source:RIMinistryofFinance(2019)

CapitalandInfastructure Expenditure,2014-2019

PovertyRate:8.5-9.5%

HDI:71.98

GiniRatio:0.38-0.39

DevelopmentTarget, 2019

EconomicGrowth:5.4– 5.8%

GoI developscreativefinancingpolicyfordevelopment.


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ChallengestoAchieveDevelopmentTarget(2/2)

*NumberinparenthesesrepresentsrespectiveexpenditureaspercentageofGDP

BudgetAllocation,2018

3.03.3 3.5 3.5 3.4

3.1 3.0 3.0 3.0 3.1

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)

FiscalruleisnothamperingGoI toachievedevelopmenttarget.

66.567.1

67.768.3

68.969.6

70.270.8

2010 2011 2012 2013 2014 2015 2016 2017

Education&HealthExpenditure,2010-2019

Source:MinistryofFinance(2019)*PreliminaryData**StateBudgetandRevenue(APBN)Target

HumanDevelopment

IndexSource:CentralBureauofStatistics,Indonesia


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Indonesiaenactedtwofiscalrules(BudgetBalanceRuleandDebtRule)andcommittedimplementtheserule.

Byhavingthoserules,Indonesiacouldeffectivelyachievedevelopmenttargets.

Indonesia’sexperienceinhandlingtherulescouldbeimplementedbyothercountrieswithsomeadjustment.

Conclusions

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Effectiveness and Challenges in the Implementation of ...Boediastoeti Ontowirjo] Fiscal Rule...

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