effectiveness and challenges in the implementation of ...boediastoeti ontowirjo] fiscal rule...
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REPUBLICOFINDONESIA
Dr.Ir.Boediastoeti Ontowirjo,MBADirectorforStateFinanceandMonetaryAnalysis
MinistryofNationalDevelopmentPlanning/NationalDevelopmentPlanningAgency
Bangkok,24-25April2019
EffectivenessandChallengesintheImplementationofFiscalRulesInIndonesia
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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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